Is a complication really the only thing the digital tax will bring us?

In the previous issue, we drew your attention to the fact that a new tax will be introduced in our legal system, namely one that should respond to new business models operated via the internet. At the same time, we promised to keep you informed of progress in this area. And it can be said that the swift reaction came almost immediately.

The Ministry of Finance submitted a proposal to introduce a digital tax in the Czech Republic in early September. The proposal introduces a single digital tax of 7% on selected internet services available in the Czech Republic;

• placing targeted advertising on the Internet;
• digital mediation services;
• selling user data.

The declared intention is fair taxation of large technology companies that operate social networks, internet search engines or goods and services intermediaries which are not established in the Czech Republic.

However, the Chamber of Tax Advisors of the Czech Republic already draws attention to the complications that the introduction of such tax can bring. Its representatives argue that the whole concept is problematic, especially in terms of the Czech Republic's international obligations to avoid double taxation of foreign companies. Actually, there is no opinion of an independent expert authority to refute the fear of a conflict between the proposal and existing international treaties. Yet it is precisely this conflict that foreign companies can use to protect themselves against the obligation to pay a new digital tax.

In this respect, the representatives of the Chamber point out, first of all, that the bill does not allow the companies concerned to obtain information on how to proceed in questionable cases in the form of a binding opinion issued by the tax administration,.

Nevertheless, an even more significant problem appears to be that the bill introduces only a one-month period between the moment when the law becomes valid and the moment when it enters into effectiveness. Such a short preparatory period is practically unrealistic, especially given the wide range of filing obligations stipulated and the complexity of the information systems of the companies concerned.

The opinion of the Chamber of Tax Advisors of the Czech Republic can be found on their website, i.e.:

https://www.kdpcr.cz/informace/aktuality/tiskove-zpravy/nova-digitalni-dan-zkomplikuje-danovy-system