In the January issue, we informed you that the Chamber of Deputies is discussing an amendment to the Act on International Cooperation in Tax Administration, which implements the so-called European Directive DAC 6 into Czech law. From this obligation, financial administrations in European countries promise to gain a better overview of the use of tax regulations and therefore the possibility of reacting to possible tax evasion.
Originally, the amendment was to be effective by 1 July 2020 at the latest. However, as the Czech Republic and a number of other European countries did not meet the effective date due to the COVID-19 pandemic, the European Union allowed the deadlines for fulfilling the reporting obligation under the DAC 6 Directive to be postponed by up to six months. The Czech government has taken advantage of this opportunity, and after an uncertain summer, it is clear today that we will report for the first time in January next year.
What needs to be reported?
The reporting obligation applies to cross-border arrangements that fulfil at least one characteristic feature listed in the annex to the Act. Let's mark them for better clarity of tax optimisation schemes.
The annex lists a number of them, for example, the artificial purchase of a loss-making company to reduce its own tax or the intentional transfer of one income to another type of income, which is taxed at a lower tax rate or completely exempt from tax.
For some characteristics, fulfilment alone is not enough to give rise to the reporting obligation; they must also pass the so-called main benefit test, which means that the main benefit or one of the main benefits of a given tax optimisation scheme must be obtaining a tax advantage.
The reporting obligation is retroactive. Tax optimisation schemes for which the first step was implemented in the period from 25 June 2018 also must be reported.
Who will report?
The so-called "intermediary" of such an arrangement should be notified, i.e. a consultant, which may be a tax advisor, a lawyer, an auditor or someone else. However, if the consultant is bound by confidentiality, the reporting obligation passes to the client. However, the consultant must inform the client when legal confidentiality applies.
By when will we be obliged to report?
The deadline for reporting varies according to when the arrangement fulfilled the following characteristics:
- tax optimisation schemes, the first step in the introduction of which was taken in the period from 25 June 2018 to 30 June 2020, must be reported by 28 February 2021;
- tax optimisation schemes that have been made available for implementation, ready for implementation or for which the first step has been taken by 31 December 2020, must be reported by 30 January 2021;
- tax optimisation schemes that have been made available for implementation, ready for implementation or for which the first step has been taken by 1 January 2021, must be reported within 30 days of such decisive fact.
How to report?
The report can be submitted electronically. The financial administration promises to publish a report form in the second half of October, so let's hope we will have enough time to become familiar with it.
Therefore, be prepared to meet a new obligation in relation to the tax office. As the deadline for notifying new cross-border arrangements will be only 30 days, it is important that you are able to identify whether you are required to notify. Failure to do so could result in a fine of up to CZK 500,000. If necessary, we are ready to help you with this. DAC 6 is a complex topic and you will need to proceed individually for each transaction, so we have prepared a webinar called "Exchange of information according to DAC 6 and how to comply with it" where we will discuss deadlines, the form of reporting and other reporting obligations under DAC 6.