Digital tax in the Czech Republic

At the end of April 2019, the Ministry of Finance of the Czech Republic announced its intention to introduce a draft bill on taxation of income from digital services by the end of May 2019. The Ministry seeks to start collecting tax on digital services in the Czech Republic in mid-2020.

Following other European states, such as France, Spain or Italy, the Czech Republic decided to tax digital services on a national level after certain states had refused the European Commission’s proposals of a coherent EU approach to digital services taxation at the ECOFIN meeting held on 12 March 2019 (note: adoption of a coherent approach requires an unanimous approval of all Member States). Let us remind you that the European Commission proposed two separate directives on digital services taxation a year ago (specifically on 21 March 2018), namely a proposal for a Council directive on the common system of a digital services tax on revenues resulting from the provision of certain digital services and a proposal for a Council directive introducing the institutes of a digital permanent establishment.

Czech solution

Although the Czech concept of digital tax should be partly based on the first of the above-mentioned directives of the European Commission, by adopting a national solution the Czech Republic entirely changes its position declared in the past. In October 2018, the Czech Republic preferred a full scope solution at the OECD level and only accepted the European Commission’s proposal to introduce digital turnover tax as an interim solution.

In the Czech Republic, digital tax should be imposed on income from selected Internet services (namely income from Internet advertising or income from the sale of data collected on digital interface users) that are provided by companies with their global turnover exceeding EUR 750 million in the Czech Republic.

Discussions are underway to determine the minimum amount of turnover of a company providing the selected types of digital services in the Czech Republic in order to impose the tax on as many entities operating on the Czech market as possible.

Based on its preliminary calculations, the Ministry assumes that digital services tax of 7% should increase the state budget by an additional CZK 5 billion.

The article is part of dReport – May 2019, Tax news; Grants and investment Incentives.

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