Income Tax Report and Its Relationship to the Equalization Tax
Income Tax Report and Its Relationship to the Equalization Tax
The end of 2025 is slowly approaching, and we are facing year-enend accounting work. What is changing this year in terms of the reporting obligations of accounting entities, and to what extent are these changes related to the new tax obligations brought about by the approved amendment to the Equalization Tax Act?
One of the new obligations applicable to accounting periods beginning after June 22, 2024, is the obligation to prepare and publish an Income Tax Report, the content structure of which may be identical to that of Country-by-Country Reporting (hereinafter "CbCR"). The reason for this is the transposition of Directive (EU) 2021/2101 of the European Parliament and of the Council, which imposes an obligation on large multinational and domestic groups to publish information on income taxes by country.
Given that in most cases the entity responsible for compiling and submitting the CbCR to its tax administrator on behalf of the entire group is the highest consolidating entity, it would appear that the new reporting obligation does not entail any extraordinary administrative burden for a company belonging to a multinational or domestic group with a turnover exceeding EUR 750 million.
It is important to note that the obligation to prepare and publish an Income Tax Report in the Commercial Register applies to all medium-sized and large accounting entities belonging to multinational or domestic groups with a turnover exceeding EUR 750 million, which have their highest consolidating entity outside the EU.
Will Czech accounting entities have the necessary information available in time? Where can developers find instructions on how to prepare a tool that will enable accounting entities to export data from their accounting systems in the required data structure and format? These are questions that are more than relevant given the approaching end of the year.
As for the data structure for electronic CbCR form submissions, if the Czech tax administration were to learn from the highest Czech consolidating entity, the current situation is that the Czech tax administration's website only provides information on the data structure that the report should have, based on which the highest reporting entity that compiles and submits the CbCR is identified. Information for developers that would enable them to prepare a tool for compiling the CbCR as such cannot be found on the Czech tax administration's website.
The CbCR is a document on the basis of which the Czech tax administration will check compliance with the conditions for applying the exemption from Czech top-up tax obligations. If the group decides to apply the exemption from Czech top-up tax obligations to Czech entities based on the calculation of profits of Czech companies excluded on the basis of economic substance, for the purposes of calculation, the entity that will be reported in the Country-by-Country Report (CbCR) on a separate line will be considered a member entity of the multinational group to which the exemption applies. This situation applies in particular to recipients of investment incentives and companies that claim deductions for science and research.
In practice, there may be situations where the data in the CbCR is filled in cumulatively for a given jurisdiction rather than at the level of individual companies.
We therefore recommend that when developing software that will enable the compilation and publication of income tax reports at the level of local medium-sized and large Czech accounting entities that have the highest consolidating entity outside the EU, attention should also be paid to the expected instructions from the Czech tax administration regarding the data structure of local form submissions for adjustment tax.