Tax package: will the proposed changes be effective from 1 January 2019?

This year, we informed you about the planned changes to tax law related to VAT and corporate income tax that are supposed to become effective from 1 January 2019. But the respective bill is still in the Chamber of Deputies awaiting approval, so the question is whether the approval process will be completed by the end of the year and the changes will really be effective from 1 January 2019 or later. We mention the important changes below.

VAT

The amendment contains some conceptual changes (e.g. a new VAT regime regarding cross-border electronic services provided to non-taxable entities) and also a number of partial changes and adjustments. If it becomes effective from 1 January 2019, we must first be concerned with those changes that can affect people from the first day. This concerns, for example, the below stated changes:

• Some rules treating issuing, correcting, and delivering tax documents

• Calculating VAT from the final amount using a coefficient without rounding the number (there is a difference in higher amounts)

• Rules for correction of VAT using the treatment of VAT deductions on irrecoverable receivables

• Applying VAT on vouchers

• Evaluation of subsidies that will be subject to VAT

One of the changes that is being discussed now is the newly proposed application of VAT to the remuneration of executive directors ("jednatel", income tax would be applied like in the employee regime). The change corresponds to a judgment of the Supreme Administrative Court and practical use in the EU. However, an amendment has been submitted that should leave the change out of the bill. If it is not left out, the new situation will bring a number of objective questions.

Corporate income tax

A number of changes relate to corporate income tax. They actually involve the implementation of rules emerging from the Anti-tax Avoidance Directive (ATAD):

• Reducing the tax deductibility of interest (excessive borrowing costs)

• Taxation of selected income of a foreign controlled company (the CFC rule)

• Introducing exit taxation - effective from 2020

• New notification duty regarding payments of income abroad (exempt from the withholding tax)

Abuse of tax law

The Tax Code should contain a new provision embodying prohibitions on the abuse of law. Using this, the Financial Administration can stipulate tax in cases where the legal form of a certain transaction or conduct does not have proper economic grounds because its main reason or one of the main reasons is acquiring a tax advantage which is contradictory to the sense and purpose of the tax legislation measure.