Current Developments in the Legislative Process of the Income Tax Act

The legislative process in the field of Act No. 586/1992 Coll., on Income Taxes, as amended (hereinafter referred to as "ITA"), is very rapid, its development is difficult to predict and, moreover, the individual changes are fragmented into many "packages", which significantly complicates the monitoring of the planned changes. That is why we have selected the most important ones from the current proposals and summarise their legislative developments below.

Crisis Package

Perhaps the most discussed proposal of recent times is the so-called “crisis package” (Document of the Chamber of Deputies No. 874). In addition to reducing road tax rates or VAT rates, it brings us a conceptual change in the form of the possibility of utilization of a tax loss retroactively. The period for the application of the tax loss is therefore extended from the current 5 taxation periods following its creation by 2 taxation periods preceding the tax loss. However, for the two preceding periods, it will only be possible to claim a tax loss of up to a total of CZK 30 million. The president signed the crisis package on 19 June 2020. We remind that, under the transitional provisions, the new rules are to apply to tax losses fixed for the period ending on or after 30 June 2020.

Implementation Package

Another proposal that is moving well in the legislative process is the so-called ”implementation package” (Document of the Chamber of Deputies No. 572). This proposal brings only minor changes in the field of ITA, namely terminological adjustments in the field of international taxation and clarification on the implementation of the EU Anti-Tax Avoidance Directive (ATAD). However, the implementation package is good to monitor as it contains new VAT rules with the collective name quick fixes, as well as the implementation of another European DAC VI directive on the notification of cross-border arrangements. This proposal has already passed the Chamber of Deputies and is headed to the Senate.

Abolition of the tax on the acquisition of immovable property

However, what has not yet seen a fundamental shift in the Chamber of Deputies is the proposal to repeal the Senate’s legislative measure No. 340/2013 Coll., on the real estate transfer tax, as amended. The abolition of the real estate transfer tax is linked to the adjustments of the ITA, affecting the area of individual taxation, namely the extension of the time test for the exemption of income from the sale of immovable property not intended for own residence from 5 to 10 years and the abolition of the possibility of applying mortgage interest deductions from newly concluded housing loan contracts as a item deductible from the tax base. This proposal is not discussed in a state of legislative emergency and thus remains in the Chamber of Deputies after second reading.

 We mentioned only the most fundamental proposals on income taxes. However, it should be noted that a number of other proposals from different areas, more or less related to the coronavirus crisis, are undergoing the legislative process, and both of our Chambers of Parliament have a relatively busy programme. Only the near future will show us in what form the proposed changes will become effective.

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