Amendment of the Top-Up Tax Act

It has been more than six months since the Chamber of Deputies received the government bill amending Act No. 416/2023 Coll., on a top-up tax for large multinational groups and large domestic groups. To this date, however, the bill has only passed through the first reading and is awaiting deliberation in committees before the second reading can start.

Given the protracted legislative process, there is a real risk that the amendment may not be approved in time and the extension of the time limits for filing a tax return and the Czech top-up tax information return proposed by the amendment is at risk to a certain extent. In addition to extending time limits, the amendment also aims to harmonise the Czech Top-up Tax Act with OECD’s interpretation and the European Directive itself. According to the transitional provisions, the amendment act on top-up taxes should come into force such as to apply to the taxable year starting 31 December 2023.

Below is a brief overview of selected changes that the amendment Top-up Tax Act is expected to bring.

• According to the currently applicable text of the Act on Top-up Taxes, there is an obligation to file a Czech top-up tax return within 10 months of the end of the taxable year, i.e., by the end of October 2025 for the taxable year of the calendar year 2024. The Czech a top-up tax information return must be filed by the same deadline. The amendment Top-up Tax Act extends the time limit for filing the Czech top-up tax to 22 months after the end of the taxable year. Furthermore, the amendment proposes to extend the period for filing a Czech a top-up tax information return to 15 months after the end of the taxable year, and for the initial period, the time limit is extended to 18 months after the end of the taxable year.
• The conditions of the transitional safe harbour rule, which is based on information featured in the country-by-country report, are being changed.
• Permanent safe harbour rules are being extended in relation to insignificant constituent entities, i.e., entities that are not included in a consolidated financial statement and whose revenues do not exceed EUR 50 million.
• Furthermore, the amendment specifies revenues from the consolidated financial statement that are relevant for determining the threshold value of EUR 750 mil.
• A new term is being introduced – the term ‘reporting period’ to replace the ‘taxable year’. The reporting period is defined as the period for which a consolidated financial statement is prepared. If the fiscal year of a constituent entity differs from the reporting period, data concerning the constituent entity is allocated to the reporting period in the same manner that is used for preparing a consolidated financial statement.
• Modifications are being made in the definition of one-off, short-term, medium-term, and long-term election. It will only be possible to make those elections in the information return.
• Furthermore, the amendment also introduces the possibility of filing a correction information return and a supplementary information return in line with the Tax Code.
• It should be possible to comply with the obligation to provide information concerning the Czech top-up tax by filing an information return for the allocated top-up tax provided it has the particulars of a Czech a top-up tax information return.

Given the uncertainty as to the timely approval of the amendment, taxpayers must expect to be obliged to file a tax return and the Czech top-up tax information return within 10 months of the end of the taxable year, i.e., by 31 October 2025.

We will continue to monitor the development of the legislative procedure of the amendment of the Top-up Tax Act.

In concluding, let us note that the Czech top-up tax applies to companies that are members of large multinational or national groups with consolidated annual revenues in excess of EUR 750 million.

In case of specific questions, please do not hesitate to contact us, we are always at your disposal.

Team WTS Alfery