We have prepared the September 2013 issue of our Tax News for you. We believe its content will be interesting and valuable for you. Should you have any questions, please do not hesitate to contact us whenever you like.
CHANGES IN TAX ACTS – RECODIFICATION OF PRIVATE LAW
In the last issue of the Tax News, we informed you about the enactment of the recodification-related tax law amendments and the new law on tax from acquisition of property by the Czech Parliament and their passing on to the Senate. On 12 September 2013, the Senate decided about these laws which accompany the new Civil Code and should come into force as of 1 January 2014.
As expected, the left-leaning Senate voiced their disagreement with the planned legislation and duly rejected both tax law amendments. This most likely puts an end to any hopes that the various tax reliefs proposed by the said amendments could be enacted, including tax exemption of dividends payable to individuals, lower taxation of investment vehicles or changes relating to taxation of non-governmental organizations (NGOs) having status of publicly beneficial entities. Change of taxpayer of (what is now) real estate transfer tax from seller to buyer as of 1 January 2014 also turned out to be controversial and uncertain.
Non-acceptance of the tax laws does not jeopardize the recodification as such. However, its enactment without the relating changes in the tax law causes many issues.
If the accompanying tax laws are not accepted, this could defer applicability of the new Civil Code.
Based on the proclamation of the current government and the statement made by Mr Štěch, Senate Chairman, deferral of applicability of the Civil Code is highly unlikely.
It is expected that, during the session of 25 September 2013, the current government is going to endorse a special legal measure that will regulate the recodification of private law for tax purposes. However, it is likely that the specific tax law changes, that the Senate found objectionable, will be eliminated.
The rejection of the original wording of the amendments by the Senate brings further issues. We can thus expect one of the following scenarios in the near future.
One possibility is that 2014 will start without the tax law changes accompanying the new Civil Code being enacted. The reason is that the said legal measure must be approved not only by the Senate and the President but also by the Parliament that will be formed only on the basis of the October elections. Currently, we have no certainty that the future Parliament will support and accept the legal measure. This scenario would cause a critical situation due to the fact that there would be a significant mismatch between the currently applicable tax law and the new Civil Code.
The other scenario is that the special measure will, in the end, be accepted. However, there are still various risks attached. The first is that the resulting laws will be of poor quality due to the fact that its preparation was rushed. As an example, assimilation of inheritance and gift tax under income tax and the annulment of the concept of tax from acquisition of property demands a significant change of the Inheritance, Gift and Real Estate Transfer Tax Acts which can surely not be achieved during the course of just a couple of days.
Another deficiency is the very short time span between the possible endorsement of the special legal measure implementing the tax changes and the date of its legal effect. It is quite unlikely that any such legislation would be published in the Collection of Laws before December 2013. The public administration, citizens and entrepreneurs alike will thus have very little time to adequately prepare for the changes relating to the private law recodification.
The last scenario is deferral of applicability of the new Civil Code and prevalence of the currently applicable legislation. However, if such scenario came to pass, all the efforts of the public as well as private sectors towards implementation of the new Civil Code would come to waste.
The resolution of the current highly uncertain situation will come within the next couple of months. We will inform you about further developments.
GUARANTEE FOR UNPAID VAT
The General Financial Directorate has published on its webpage more detailed information regarding the concept of the guarantee for unpaid VAT. This concept, implemented in Article 109, Section 2, Subsection c) of Act No. 235/2004 Coll., on VAT, enables the tax administrator to levy outstanding VAT from a taxpayer for whom a taxable supply was effected (regardless of the fact that the taxpayer paid the applicable VAT to the supplier). This is under the assumption that the payment for goods or services was remitted by the taxpayer to an account that was not published by the supplier in the prescribed manner (i.e. on the official webside of the Czech Tax Administrator).
Once the concept was implemented in the VAT Act, a new legislative process was started to amend Article 109, Section 2, Subsection c) of the VAT Act. Based on the tax law amendment, the guarantee would only apply to payments for taxable supplies exceeding the limit stipulated by the law regulating allowable payments in cash, which is currently CZK 350,000.
Destiny of the law regulating the limits for the applicability of the guarantee is currently highly uncertain (see the previous article). As a result, the General Financial Directorate published information based on which the concept of guarantee shall not be enforced by tax administrator in case of guarantors to whom the guarantee obligation arose under VAT Act until 31 December 2013.
In case of any questions to the above topic, please, do not hesitate to contact us whenever.