Draft law would tighten application of anti-treaty shopping rules substantially and modernize existing WHT procedural rules. The approach provided in the draft law would result in a significant tightening of the conditions to benefit from a reduced WHT rate under a tax treaty or an EU directive. Foreign investors should consider their structures and any payments made by a German company that may trigger WHT.
The recent judgement of the Supreme Administrative Court (ref. no. 1 Afs 73/2019-71) confirmed the way in which the burden of proof is distributed between the taxable entity and the tax administrator during the withholding tax proceedings. In this present case, the interpretation of the concept of “beneficial owner of royalties” will also be interesting in relation to the possibility of applying the modified rate according to a Double Taxation Treaty (“DTT”). However, the courts (the Regional Court and the Supreme Administrative Court) have only dealt with the procedural aspect of the case so far, i.e. the distribution of the burden of proof in particular. The case will thus be heard again by the Regional Court (“RC”), which made an incorrect conclusion about the transfer of the burden of proof, hence the Supreme Administrative Court (“SAC”) returned the case for further proceedings.
With the approaching end of the year, we bring the latest information on the current state or prospects of new double taxation treaties. Starting from 1 January, the provisions of the treaty with the Republic of Ghana as well as the provisions of the new Double Taxation Avoidance Act with Taiwan will begin to be performed.
On 1 September 2020, the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting ("Multilateral Convention" or "Multilateral Instrument" or "MLI") entered into force in the Czech Republic. MLI is an international treaty, which modifies a significant part of bilateral double taxation treaties concluded among specific countries. The Czech Republic opted for a regime of minimum standards, i.e. the least strict variant, and reserved the right not to apply most of the articles that should amend the relevant provisions of the tax treaties in question.
On 15 September 2020, Act No. 335/2020 Coll., on International Cooperation in the Resolution of Tax Disputes in the European Union, came into force. It is a new act, which implements Council Directive (EU) 2017/1852 of 10 October 2017 on tax dispute resolution mechanisms in the European Union (i.e. “DRM Directive”). Taxpayers can now use the directive in case of cross-border resolution of controversial issues pertaining to the interpretation and application of double taxation treaties (among member states of the EU).
On 20 December 2019, an amended version of the treaty on the avoidance of double taxation and the prevention of income tax evasion between the Czech Republic and the Republic of Korea (the “Treaty”) entered into force. Pursuant to Article 27 of the Treaty, the provisions regarding withholding tax are to be used for the income paid out or credited as of 1 January 2020. In terms of other income, the provisions of the Treaty are to be used for the taxation periods starting on or after 1 January 2020.
The bill on double taxation avoidance with Taiwan passed the legislative process and was published in the Collection of Laws on 26 February 2020. Although it does not have the status of a double tax treaty it is an important standard that will prevent double taxation of business activities taking place between the Czech Republic and Taiwan.
