The Chamber of Deputies is currently discussing the governmental draft bill implementing the directive on administrative cooperation in the field of taxation (“DAC 6”). This directive regulates the obligation of businesses to report selected cross-border transactions and other arrangements affecting corporate income tax to taxation authorities in advance. The objective of this EU regulation is to gain better insight into the use of tax regulations and prevent aggressive tax planning.
According to the Czech draft bill, the reporting obligation will concern only cross-border arrangements, i.e. transactions, corporate measures and other transactions concerning more than one European Union member states or a EU member state and third countries if at least one of the participants of this arrangement:
The obligation to report planned transactions to taxation authorities will affect all businesses. Nevertheless, only transactions meeting at least one of the hallmarks will have to be reported. They are legally defined indicators of potential risk of evasion of tax liabilities. An example of a hallmark is the purposive take-over of losses or a situation where the recipient is a resident in a jurisdiction with zero or near-zero taxation.
Certain hallmarks apply only if the main benefit or one of the main benefits involves obtaining a tax advantage.
The reporting obligation will apply directly to businesses or to their advisors setting up the arrangement. If the advisor is, for example, a lawyer or a tax advisor, they are bound by the obligation of confidentiality. In such a case, they cannot under any circumstances report anything to the taxation authorities on your behalf. However, they should inform you that the reporting obligation applies to you. Failure to comply with the reporting obligation may carry a fine of up to CZK 500,000 imposed by the taxation authority to the obliged person.
The reported information will be subsequently shared with financial administration bodies in other EU member states.
Another round of discussion about this governmental proposal can be expected in the Chamber of Deputies. The final form of the act can therefore keep changing. However, it is necessary to keep track of these changes, because the notification obligation may apply to transactions realised as early as after 25 June 2018.
We will keep you up to date on further developments in this area.
The article is part of dReport – September 2019, Tax news; Grants and investment Incentives.
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