The 2019 tax pack significantly extends the reporting duty in relation to the income paid by Czech taxpayers abroad. This measure has remained somewhat in the shadow of the implementation of European legislation (the ATAD Directive), but it deserves attention, as it concerns a wide range of subjects. According to the proposed draft Section 38da of the Income Tax Act, the notification duty (hitherto applied only in relation to income subject to withholding tax) will now also apply to exempt income or income that is not taxable in the Czech Republic under the international treaty. Typically, these include interest or dividend income.
Companies will be newly required to notify the tax authority, by means of a special form, of the payment of these incomes. This notification will not be required only should the paid income exempt or not subject to taxation in the Czech Republic does not exceed CZK 100,000 per calendar month. Due to this low limit, we can expected that this measure will impact a large number of companies, which will mean a significantly higher administrative burden. For example, companies paying monthly interest to foreign related parties, who are exempt from withholding tax, will now have to submit monthly reports of these payments to the tax authority. As a rule, companies already report information on the amount of interest paid to related parties in the Related Parties Transactions Report, which is part of the corporate income tax return. As such, this will therefore essentially constitute a duplicate reporting of this data.
The proposed amendment allows the tax authority to grant an exemption from the notification duty. It is not yet clear what approach the Financial Administration will elect and to what extent it will grant this exception. We recommend that you pay increased attention to the implementation of this new reporting duty at your company and weigh up the possibility of applying for an exception.