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13.5. Other Anti-Avoidance Rules

Hybrid Mismatches

In line with the EU anti-tax avoidance directive, the Czech Republic introduced hybrid mismatch rules effective 1 January 2020.The target transactions involving a double deduction or a deduction without inclusion. Broadly, the rules provide that the hybrid mismatch will be addressed as follows:

  • When income is not included in another state, no deduction shall be granted in the Czech Republic; or
  • When a deduction has been granted in another state, then the income shall be included in the Czech Republic.

For non-inclusion, income will be considered included in the other state, and no deduction will be denied in the Czech Republic, if such income is included within 12 months post the Czech entities tax period or is expected to be included in a future tax period within a reasonable time frame, and the terms of the transaction are at arm’s length.

Financial Account Information Reporting and Exchange

In 2017, the Czech Republic implemented the automatic exchange of financial account information with the EU Member States pursuant to Council Directive 2014/107/EU of 9 December 2014, which synchronized EU rules with the global standard for exchange of information developed by the OECD under the Common Reporting Standard (CRS). In 2014, the Czech Republic concluded an Intergovernmental Agreement (IGA) with the US for the implementation of the U.S. Financial Account Tax Compliance Act (FATCA). The deadline for the annual reporting under CRS as well as FATCA is 30 June for the preceding calendar year.

Mandatory Reporting of Cross-Border Tax Arrangements (DAC6/ MDR)

The Czech Republic has published the law implementing the EU Council Directive (DAC6/ MDR), on the mandatory disclosure of cross-border tax planning arrangements and exchange of information with the other EU Member States. The reporting requirement primarily applies to intermediaries that design, market, organize, or manage the implementation of a reportable arrangement. However, the reporting requirements may also be shifted to the taxpayers in certain cases, including where an intermediary is subject to confidentiality obligations or where a taxpayer has designed an arrangement without external intermediaries.

The requirements apply from 1 September 2020 and reportable transactions must be disclosed within a period of 30 days from the date the arrangement was either implemented/ made available/ ready for implementation. However, under a transitional regime, historical transactions first put in place in the period 25 June 2018 to 31 August 2020 must be disclosed by 31 October 2020.

The information should be submitted electronically using a data message form issued by the tax authorities.

Persons that wilfully or through gross negligence fail to comply with the reporting requirements will be subject to a penalty of up to CZK 500,000.

COVID-19 Emergency Measures

Due to the COVID-19 pandemic, the EU Council adopted an amendment to the directive whereby the Member States may opt to defer the reporting under DAC6 by up to 6 months.

The Czech Republic has adopted the deferral option and is postponing the reporting requirements as follows:

  • The deadline under the transitional regime for reporting historical cross-border arrangements is deferred to 28 February 2021; and
  • The standard 30-day reporting deadline will begin on 1 January 2021 (but shall cover reportable arrangements from 1 July 2020).

Exit Tax Rules

In line with the EU Anti-Tax Avoidance Directive (ATAD), effective 1 January 2020, Czech Republic has introduced exit taxes on hidden reserves arising on the transfer of business activity or assets as prescribed under the Act (see Sec. 11.1.).

Ultimate Beneficial Owner Disclosure

Effective 1 January 2018, the Czech Republic introduced an obligation to record the ultimate beneficial owners of legal entities or trust funds in the ‘transparency register’ (i.e. the ‘ultimate beneficial ownership register’). Ultimate beneficial owners are defined as individuals that directly/ indirectly or solely/jointly hold 25% or more of the voting rights or registered capital or the right to participate in the profit of a company, or exercise control over the company, or act as a member of the statutory body of the company or hold a position similar to that of such a member.

Czech legal entities are required to electronically disclose the identity of beneficial owners along with the following information:

  • Name and address of the beneficial owner;
  • Date of birth and birth identification number (if assigned) of the beneficial owner;
  • Citizenship;
  • Information pertaining to:
    • Share in the voting rights and if the status is based on direct participation in the legal entity;
    • Share in distributed earnings and whether the status is based on the beneficiary being a recipient of such payments; or
    • Other facts that may give rise to the status of the ultimate beneficial owner.

The due date for initial disclosure for registered legal entities was 1 January 2019.

Non-Cooperative Jurisdictions

The Czech Republic published the list of non-cooperative jurisdictions, taking into consideration the revised list adopted by the Council of the European Union on 5 October 2021, for the purpose of its CFC rules. The inclusion of CFC income based on the EU list of non-cooperative jurisdictions generally applies from 1 January 2021 (see Sec. 13.3.1.).

For the period from 7 October 2020 to 25 February 2021:

American Samoa Anguilla Barbados
Vanuatu Fiji Guam
Palau Panama Samoa
Seychelles Trinidad and Tobago The US Virgin Islands

For the period from 26 February 2021 to 11 October 2021:

American Samoa Anguilla Dominica
Vanuatu Fiji Guam
Palau Panama Samoa
Seychelles Trinidad and Tobago The US Virgin Islands

From 12 October 2021:

American Samoa Fiji Guam
Vanuatu Palau Panama  
Samoa Trinidad and Tobago The US Virgin Islands

The EU list of blacklisted jurisdictions as on 5 October 2021 is as follows:

American Samoa Fiji Guam
Palau Panama Samoa
Trinidad and Tobago The US Virgin Islands Vanuatu