The basic rule is that a company is liable for the top-up tax if it is a member or parent company of a multinational or domestic group with consolidated revenues of at least €750 million in at least two of the four preceding reporting periods. The primary goal of the top-up taxes (also known as Pillar 2) is to ensure that each country where the group operates can impose a minimum effective tax rate of at least 15%.

If your company is subject to the top-up tax, it must disclose relevant information in its 2024 financial statements and account for any top-tax expense related to 2024, as top-up tax obligations apply to taxable periods starting after 31 December 2023.

Please note that, according to the anticipated amendment to the Top-Up Taxes Act (detailed in our recent article), which is currently under discussion in the Chamber of Deputies of the Czech Republic, the deadline for filing information returns and tax returns for the 2024 top-up tax would be extended to 30 June 2026, at the earliest. However, the possibility of a later filing deadline does not waive the requirement to account for the top-up tax or report related information in the notes to the financial statements.

What should companies remember when preparing their 2024 financial statements?

Disclosures in the Financial Statements

First, check whether the company is liable for the top-up tax (see above). This information can be obtained from the company’s parent company or the consolidated financial statements of the ultimate parent company, by verifying consolidated group revenue.

If the company is liable for the top-up tax and also accounts for deferred tax (deferred tax must be accounted for by any entity subject to a statutory audit or one that prepares full financial statements), it must disclose the following in the notes to the financial statements, pursuant to Article 39(5) of Decree No. 500/2002 Coll., as amended:

• That the company is liable for the top-up tax;
• That the top-up tax has not been included in the deferred tax calculation; and
• The portion of tax payable related to the top-up tax.

Due to the complexity of top-up tax rules, companies may find it beneficial to provide additional information in the notes to the financial statements (e.g., use of safe harbours or the degree of uncertainty regarding the amount of top-up tax recognised – see below)

Obligation to Calculate the Top-Up Tax

Being liable for the top-up tax does not automatically require a company to calculate the top-up tax. Under transitional safe harbour rules, a company may be exempt from calculating the effective tax rate and top-up tax under certain conditions (see Act No. 416/2023 Coll, on top-up taxes for large multinational groups and large domestic groups, as amended, (the “Top-up Taxes Act”) Article 143 et seq.). Typically, this is a transitional safe harbour based on the information in the country-by-country report, per Article 145 of the Top-Up Taxes Act. The transitional safe harbour exception may apply if the company meets at least one of the criteria listed in Article 145 of the Top-Up Taxes Act. Calculation of values to assess these threshold criteria includes data from all group companies in the country. Meeting at least one criterion means the top-up tax for that country is deemed zero. In most cases, communication with the parent company will be essential, especially for groups with multiple subsidiaries in the Czech Republic.

Calculation of the Top-Up Tax

If a company does not utilise or meet the safe harbour criteria, it must calculate the potential top-up tax charge (the charge may still be zero if the company is not liable to pay the top-up tax – the aggregate effective tax rate in the Czech Republic is 15% or higher, for example).

This process can be time-intensive due to the complexity of the calculations and the need for accurate data (adjusted consolidation data for the entire country). If the calculation indicates an obligation to pay the top-up tax, and the calculation is preliminary (likely the most common scenario), the related expense should be recorded as follows:

• Debit side: 59x – Charge for the top-up tax
• Credit side: 45x – Reserve for the top-up tax

In the financial statements, the expense will appear under “Income tax payable,” and the reserve will be classified as “Income tax reserve.”

Finally, remember that in certain cases, not only the national top-up tax but also an allocated top-up tax may be relevant for Czech companies. Given the complexity of provisions and adjustments in calculations, consulting a tax advisor is recommended.