TAX SUPPORT FOR THE USE OF LOW-EMISSION VEHICLES
- Taxation of employment income
The amendment to the Income Taxes Act that has been in effect since 1 July 2022 changed the amount that is considered to be the employee’s income when a company vehicle is provided to them free of charge for both business and private purposes. For each, even partial, calendar month in which the vehicle was provided, the following is now subject to additional tax:
- 5% of the entry price of the vehicle, if a low-emission vehicle is provided for private use;
- 1% of the entry price of the vehicle in other cases.
A low-emission vehicle is deemed to be a road vehicle of category M1, M2 or N1, which does not exceed the CO2 emission limit of 50 g/km and 80% of the emission limits for air pollutants in real operation according to Annex I of Regulation of the European Parliament and the Council (EC) No. 715/2007 of 20 June 2007, on type approval of motor vehicles with respect to emissions from light passenger and commercial vehicles (Euro 5 and Euro 6), as amended. Simply put, battery electric vehicles, hydrogen fuel cell vehicles, plug-in hybrids and possibly electric vehicles with an extended range will therefore be considered low-emission vehicles – provided they meet the environmental parameters set by the above-mentioned Regulation.
The new provisions of Section 6, Subsection 6 of the Income Taxes Act will already apply to the 2022 tax period. The annual settlement of wages and the calculation of tax advances on income of natural persons from employment for the months of January to June 2022, which ended before 1 July 2022, are subject to the procedure set out by the original wording of the law, i.e. additional tax on 1% of the entry price of the vehicle, regardless of the type of vehicle. A concerns employees who used company low-emission vehicles for private purposes in the first half of this year, a reduction in the amount of their non-monetary income to 0.5% of the entry price of the vehicle will be made in the annual settlement for 2022, or will be reflected in the certificate of income from the employer issued for the purpose of preparing a tax return for 2022. All the other rules regarding the calculation of the amount of non-monetary income from the use of a company vehicle for private purposes (including the minimum amount of non-monetary income of CZK 1,000 per month) will remain unchanged.
Changes in the depreciation of charging stations
Machines or equipment and electrical distribution equipment for a voltage of 1000 V and less, used exclusively for recharging a vehicle that has an electric drive or a drive combining a combustion engine and an electric motor (CZ CPA codes 27.11.50 and 27.12), i.e. classic charging stations and so-called wallboxes, are reassigned from the 3rd to the 2nd depreciation group starting from 1 July 2022.
As concerns assets acquired before 1 July 2022 and technical improvement to such tangible assets, completed and brought to a state suitable for normal use before this date, it is possible to change the depreciation group from July 2022 and depreciate this property in the 2nd depreciation group in the following tax periods. This procedure is not mandatory.
CHANGE IN MEAL ALLOWANCE RATES AND REIMBURSEMENTS FOR THE USE OF ROAD MOTOR VEHICLES with effect from 20 August 2022
The Ministry of Labour and Social Affairs used its authorisation to adjust, in an extraordinary term, the rates of basic compensation for the use of road motor vehicles, meal allowance rates, and the average price of fuel.
With effect from 20 August 2022, Decree No. 237/2022 Coll. introduced the following changes:
- Increase in the price of 98-octane petrol
The price for 1 litre of 98-octane car petrol increased from CZK 40.50 to CZK 51.40. This price is used if the employee is unable to document the purchase of petrol by submitting a receipt.
- Increase in meal allowance amounts
For each calendar day of a business trip, employees are now entitled to a meal allowance in the amount of at least:
- a) CZK 120, if the business trip lasts 5 to 12 hours;
- b) CZK 181, if the business trip lasts longer than 12 hours, but no longer than 18 hours;
- c) CZK 284 if the business trip lasts longer than 18 hours.
The Decree has also changed the meal allowance limits for employees in the public sector. The range of their meal allowances is now between CZK 120 and CZK 142, if the business trip lasts from 5 to 12 hours. Among other things, this change has the following effects:
- an increase in the maximum amount of the cash allowance for meals (the so-called lump-sum allowance), which is exempt from tax on the part of the employee, to CZK 99.40 (CZK 142 x 70%).
- an increase in the tax-deductible amount of meal allowance provided in the form of meal vouchers, to CZK 99.40
TAX DEDUCTIBILITY OF THE COSTS OF PROVIDING MEALS FOR EMPLOYEES DURING BUSINESS TRIPS and trips outside the regular workplace
Via Coordinating Committee No. 593/18.05.22, the issue of tax deductibility of the costs of providing meals for employees during business trips and trips outside the regular workplace was discussed with the representatives of the Financial Administration.
According to the Income Taxes Act, meal allowance provided to an employee on business trips is a tax deductible expense. However, the deductibility of the employer’s costs for providing free meals for the employee on a business trip is not addressed in more detail (except for the information contained in instruction D-22 of the General Financial Directorate, on the admissibility of the costs of meals in relation to participation in training). For this reason, the Coordinating Committee addressed the question of whether these costs incurred during other business trips (trips to business partners, events for customers) are eligible for tax deduction.
The General Financial Directorate has agreed with the conclusion that the costs of providing meals for employees (all food and all drinks and related services) on a business trip and/or a trip outside the regular workplace, served in the form of breakfast, lunch or dinner, are tax-deductible by the employer, provided that the employer (taxpayer) justifies the amount of the tax deductible cost claimed; however excessive situations, from which it is clear that the method of catering paid for by the employer has mainly or only the nature of the employer’s benefit provided to the employee and is disproportionate with regard to the circumstances of the business trip, are excluded.
On the employee’s part, income in the form of free meals paid by the employer on a business trip or a trip outside the regular workplace is not subject to tax.
NEWS IN VAT FOR THE YEARS 2023 AND 2024
Amendment to the VAT Act 2023
The amendment to the VAT Act (Parliamentary Press No. 254), which should come into force on 1 January 2023, is now on the agenda of the current meeting of the Chamber of Deputies, and it is expected to be discussed in the second reading in the near future.
Among other things, this Amendment should increase the limit for mandatory VAT registration to CZK 2,000,000. At the same time, the amendment should allow deregistration for payers whose turnover in 12 successive calendar months exceeded the amount of CZK 1,000,000, but did not exceed the amount of CZK 2,000,000.
Further changes relate in particular to VAT control statements, since the Government proposed to extend the period for responding to the Tax Administrator’s request from 5 to 17 days, as concerns requests delivered into a data box. The payer should now also have the obligation to file a so-called “zero VAT control statement.” Fines for a failure to submit the VAT control statement should be reduced.
Amendment to the VAT Act 2024
An amendment to the VAT Act is undergoing an external comment procedure, which should introduce a new administrative obligation for payment services providers (i.e. especially for banks) with regard to records of cross-border payments and their recipients with effect from 1 January 2024. This obligation will apply to all providers of payment services who provide them in the domestic market, i.e. even those who do not have their registered office in the Czech Republic, but have a branch here. They should now keep records of cross-border payments and their recipients, and submit information from these records electronically to the Financial Administration in the form of a data report having a predetermined form and structure, by the end of the month following the end of a calendar quarter.
The obligation to keep records of cross-border payments and their recipients arises in the event that the registered payment service provider provides the recipient with registered payment services corresponding to more than 25 cross-border payments per calendar quarter. A payment is included in the sum of these payments giving rise to the obligation to keep records only if the payee’s or originator’s state of residence is the local country. Payments received from another Member State and payments transferred to a third country will be recorded.
In particular, the following data will be recorded: BIC code of the provider of the registered payment service, name or business name of the payee, their VAT number, IBAN / BIC, address and specific data on individual cross-border or returned payments, such as: date and time of payment, amount and currency, Member State of origin of the payment.
This Amendment constitutes a mandatory implementation of Council Directive (EU) 2020/284, the aim of which is the establishment of the Central Electronic System of Payment Information (CESOP). This system should be able to aggregate all payment information related to VAT for individual payees and enable a more complete overview of the payments received by payees (i.e. businesses) from payers (i.e. consumers shopping online) in the European Union. The CESOP system will allow Eurofisc contact officers to cross-check payment data with VAT information.
SUPPORT TO ACTORS IN CONNECTION WITH THE ENERGY CRISIS
On 14 September, the Government approved a support program for entities that have increased costs for natural gas and electricity as a result of an exceptionally sharp increase in their prices. Starting from 1 November, the entities will be able to draw aid in the total amount of 30 billion Czech Crowns, which will be provided in the form of a subsidy for eligible expenses. The aid will be provided for the period from 1 February to 31 December 2022, and this period will be compared with the average energy costs of the previous year.
Entities that carry out business activities in agriculture, forestry, fishing, mining, and processing industries and submit a gas supply contract with an annual consumption of more than 630 MWh or, in the case of electricity, that they are connected to a high- or extra-high-voltage grid, will be able to apply for aid.
The amount of aid will vary depending on whether the applicant is an energy-intensive enterprise. These businesses will be entitled to up to 200 million Czech Crowns, whereas the aid will amount to 50% of eligible expenses, and may reach up to 70% in some types of industry. Other entities will be entitled to an aid in the amount of 30% of eligible expenses and will receive a maximum of 45 million Czech Crowns.
The Government has also been preparing a support program for small and medium-sized enterprises, regardless of their energy intensity. However, the framework of the support must first be discussed and approved by the European Union. The European Commission should vote on the proposal on 30 September. If the Regulation is adopted, the Government will reflect it in the national solution. Based on this, another 30 billion Czech Crowns should be distributed among these enterprises.
IMPACT OF THE AID ON TRANSFER PRICES
Lenka Pól Brožková
Obtaining support will bring additional questions especially for those entities that supply their products to related parties. Should the received aid affect the price of these controlled transactions?
Before formulating an answer, it will be necessary to determine, in accordance with the OECD Transfer Pricing Guidelines, whether the aid constitutes a material fact for its recipient. If this is the case, it is necessary to consider the aid as a relevant economic condition that must be taken into account when proving compliance with the arm’s length principle.
Guidance on the appropriate procedure can probably also be sought in the OECD Guidelines, which concerned the impacts of Government measures related to COVID-19 on pricing between related entities: the spread of the coronavirus, as well as the development of prices on the energy markets, is not and has not been under the control of either party to intragroup transactions. The assumption that the mere receipt of state aid should automatically affect the price of a controlled transaction would therefore be contrary to the arm’s length principle.
Aspects to be considered include, for example, eligibility, purpose, duration and other conditions set by the Government when providing aid. A decision made in compliance with the arm’s length principle also includes an assessment of how the group has reacted to receiving Government aid in general in the past.
Legal conditions that could limit or even make impossible the recipient’s opportunity to adjust the price of its intra-group transaction by the Government aid received, and thus exclude its “exporting” abroad, cannot be neglected, either.
AMENDMENT TO THE ACT ON REGISTRATION OF BENEFICIAL OWNERS
On 1 October 2022, the amendment to Act No. 37/2021 Coll., on the Beneficial Owners Registration (hereinafter referred to as the “BOR Act”) came into effect. The Amendment aims to correct the transposition of the so-called IV AML Directive in the wording of the so-called V AML Directive, since some provisions of the relevant Directives were incorporated into the Czech laws incorrectly.
The most important changes to the BOR Act consist in changing the definition of the beneficial owner and limiting exemptions from the obligation to register.
As concerns companies whose beneficial owners were entered in the register of beneficial owners by the so-called automatic registration, and as concerns most companies whose beneficial owner does not change as a result of the Amendment to the BOR Act, the terms in the information system of the beneficial owners register will be adjusted by the Ministry of Justice. According to the explanatory report on the Amendment to the BOR Act, this adjustment relates to approximately 95% of companies.
The changes will be implemented in the information system gradually, within 1 month from the effective date of the Amendment to the BOR Act. After this period expires, it is advisable for companies to check whether the data on their ownership structure has been brought into line with the Amendment to the BOR Act, by viewing the data in the beneficial owners register. Responsibility for the correctness of the data in the beneficial owners register lies with the companies.
Companies with a complex ownership structure that will not be subject to the automatic adjustment will have to submit a new application to change the entered data. In this context, it is appropriate to state that if the company had its beneficial owner registered in accordance with the original wording of the BOR Act (or did not have a registration obligation, as the case may be), the application for bringing data on the ownership structure into compliance with the Amendment will be exempt from court fees. This only applies if the application for registration is submitted within 6 months of the effective date of the new legislation. This deadline corresponds to the deadline set for companies to bring data in the beneficial owners register into compliance with the Amendment to the BOR Act.
Accordingly, companies are obliged to ensure compliance of registration with the new legislation by 1 April 2023; this also applies to entities that did not have a registration obligation before the effective date of the Amendment.
For the sake of completeness, we state that if the company has not fulfilled its obligation according to the original wording of the BOR Act, the above-mentioned deadline does not apply to it, and the company is exposed to the risk of fines.
A new definition of the beneficial owner
As concerns the change in the definition of the beneficial owner, the terms “person with ultimate influence” and “ultimate beneficiary” will no longer be distinguished, and the beneficial owner will be a natural person who ultimately owns or controls a legal entity or legal arrangement (Section 4 of the BOR Act).
The information on the nature of the beneficial owner’s position is thus narrowed down to whether they are direct or indirect and to whether they are a beneficial owner
- material, i.e. the person who owns or controls the legal entity;
- substitute, i.e. if no beneficial owner can be determined even after making every effort that can be reasonably required of the registering person, or if a legal entity that does not have any beneficial owner exercises decisive influence in the corporation; or
- formal – the formal beneficial owner is given by a legal fiction in relation to foundations, public benefit societies and legal arrangements, where in these entities, the beneficial owner is their founder or other managing persons, as the case may be.
The position of the beneficial owner of a company will be based on the following facts:
A corporation is ultimately owned or controlled by any natural person (i.e., a material beneficial owner) who directly or indirectly, through another person or legal arrangement:
- has a stake in the corporation or a share of voting rights of more than 25%;
- holds the right to a share in profits, other own resources (equity), or a liquidation balance of more than 25%;
- exercises decisive influence in a corporation or in corporations that individually or jointly have a stake of more than 25% in that corporation;
- exercises decisive influence in a corporation by other means.
Limitation of exemptions from the registration obligation
As already mentioned above, another change consists in reducing the exceptions from the registration obligation according to Section 7 of the BOR Act, and adding a general material test, on the basis of which it is possible to conclude that a legal entity does not have a beneficial owner.
The exemption from the registration obligation will continue to apply to the State and territorial self-governing units and entities that are owned or controlled by these entities.
The above-mentioned material test consists in establishing a rebuttable presumption of the non-existence of a beneficial owner for schools established by the State, public research institutions, state-owned enterprises, etc. In respect of these entities, this means that until the contrary is proven, they do not have a registration obligation.
The district and regional chambers, political parties and political movements, churches and religious societies, trade unions and employers’ organizations, associations of unit owners and hunting associations will have to register the data on their beneficial owners. In most cases, however, there will be an automatic registration, so the change should not bring a financial or administrative burden for these entities.
Changes in the consumer protection
The Chamber of Deputies is currently debating a Government bill, which should bring significant changes to consumer protection law. The aforementioned bill, which is now being discussed in the second reading, consists of two parts, namely an Amendment to the Consumer Protection Act and an Amendment to the Civil Code. With this bill, the Government responds to the current wording of the European Parliament’s directive regulating consumer protection at the EU level.
As this is an extensive bill, which also brings many legislative, technical and systematic changes, we have decided to introduce you to a few selected novelties in consumer protection law.
The first significant innovation is a reaction to the undesirable practice of some entrepreneurs, which consisted in artificially increasing the original price when providing a discount on certain goods. By this action, the seller was deceiving the consumer. Based on the information provided by the seller, the consumer felt that they had saved a significant amount, when in fact they saved much less, or even nothing. Now, when selling goods, the seller will have the obligation to provide information about the lowest price at which the goods were offered by the seller in the last 30 days. If the seller does not fulfil this obligation, they may be penalised by a fine of up to CZK 5,000,000.
Another novelty concerns in particular e-shop operators. When concluding a contract through an online marketplace, consumers should note that by concluding such a contract, they undertake to pay. At present, such a contract is most often concluded by clicking on a button labelled, for example, “order”. According to the legislator, this is insufficient from the point of view of consumer protection, since the use of such a control element does not clearly indicate the consumer’s obligation to pay for the ordered goods or services. Therefore, the e-shop operator should now use a button or other control element with the inscription, for example, “order obliging to pay” or “confirm your purchase in a binding manner”. Although this new obligation may not seem very important, the penalty that the e-shop operators face for their failure to fulfil it is considerable. Failure to comply with this obligation is subject to a fine of up to 4% of the total annual turnover of the e-shop operator, or up to CZK 50,000,000, if the figure for the annual turnover is not known.
The issue of selling products that are passed off as identical to products sold in other EU Member States, although such products have a substantially different composition or features than the products sold in other Member States, has been a big topic in recent years. The legislator reacts to this behaviour by classifying it as unfair commercial practices. Entrepreneurs that violate the ban on the use of unfair commercial practices may expose themselves to a penalty of up to CZK 5,000,000.
The bill introduces many other changes, which we will inform you about in the next editions of our Newsletter. As we mentioned above, this bill is now going through the legislative process, so it may still undergo fundamental changes.