Authors: David Krch, Kamila Chládková
Although there are not many changes for 2022, let us briefly summarise the most important ones and add some insights from recent case law and tax audits. We will also mention the 2021 tax developments that most companies will have to address at the outset of the New Year 2022.
Next year as every year, tax changes will impact the family budget, especially by:
In the context of business trips abroad, we would like to remind you of the employer’s reporting obligations in each Member State under the Posting of Workers Directive.
Regarding corporate taxes, there are no significant changes for 2022, the increase in the maximum deduction for gifts from 10% to 30% of the tax base remains unchanged. However, in connection with the preparation of financial statements and documents for 2021 tax returns, we would like to remind you of the changes in the tax write-offs of intangible assets, which is now governed by the company’s accounting rules, the increase in the limit for the inclusion of separate movable assets in fixed assets for write-offs to CZK 80,000 or the possibility of extraordinary write-offs for assets acquired from 1 January 2020 to 31 December 2021.
In January 2022 the annual Notification of "Exempt" Income Arising Abroad should be filled using a new form, replacing the original monthly report, while the limit of reportable income has been increased to CZK 300,000 per year for the same type of income. The final version of this form and the instructions for filling it in are not yet known, therefore we will inform you of the details at a later date.
It is not only at the end of each year that we recommend reviewing transfer pricing for intra-group transactions, both in terms of the actual prices and the documentation for proving the transactions received and their value. Based on our experience, audits conducted by the tax authorities with a focus on this issue are ongoing, while at the same time, the General Tax Directorate has issued guidance on transfer pricing in financial transactions in 2021. Popular costs that are under the scrutiny of the tax authorities include expenses for advertising, repairs versus technical improvements or documentation of various consultancy services, leases of premises or other similar services in terms of the scope and timing of provision.
Attention should also be paid to the obligation to verify the correctness of the information entered in the register of beneficial owners, which is necessary for any payment of dividends. Similarly, if a member of the company receives remuneration for serving in the office, it is required for such expenses to be tax deductible that all such benefits be regulated under a contract which must be approved by the company's supreme authority. Otherwise, the member could be deemed to have unjustly enriched themselves with all the legal consequences. For managing directors or chairpersons of the board of directors, a judgment regarding VAT may be relevant, by which it was again upheld that their activities may constitute the execution of an economic activity for VAT purposes. As Czech law does not yet reflect this approach, managing directors can currently choose whether or not they wish to act as entities executing an economic activity.
For VAT payers, most changes have already taken place in the second half of 2021 in relation to cross-border trade, i.e. distance sales of goods to non-taxable persons (B2C), supply of services to non-taxable persons (B2C), and sales of goods via electronic interface (B2C). As part of these changes, the one-stop shop system has been extended to cover VAT on distance sales of goods and the exemption for imports of goods worth up to EUR 22 has been abolished. VAT on the supply of electricity and gas has been waived for November and December.
Travel service providers will, however, face a significant change: rules for VAT applied on the surcharge. It will no longer be possible to calculate the surcharge on travel services in aggregate for the tax period, but it will be necessary to calculate it separately for each travel service provided to a specific customer. It will therefore be administratively burdensome to ensure that VAT is to be declared already on the receipt of an advance payment for a travel service or the splitting of the taxable amount for travel services provided in the EU and in a third country (e.g. an air tour to a third country).
Other changes for 2022 in the field of VAT include the adjustment of the rate for medical devices and their repairs, and in particular changes related to Intrastat reporting or supplies to the UK. From 31 December 2021, there will no longer be the possibility to defer import customs declarations for up to 175 days when exporting goods from the EU to the UK, and from 1 January 2022 it will be required to file standard full declarations or simplified declarations using a UK intermediary. If you are reporting to Intrastat, simplified annual reporting will be introduced for entities with exports/imports worth between CZK 12-20 million that do not trade in goods in the Notice of the Czech Statistical Office on the list of goods excluded from simplified reporting. Other changes include, for example, adding TIN and country of origin to export-related data to be reported and changes to codes designating the nature of transactions.
One of the most interesting judgments in the field of VAT is the judgment challenging the historical information of the Ministry of Finance according to which a house built on a turnkey basis cannot be considered as self-created property for VAT purposes. In the field of tax liability, we should mention a ruling in favour of taxpayers holding that it is not sufficient for fulfilling the conditions for liability if the recipient qualifies as an unreliable taxpayer. The tax authorities must also examine and prove other circumstances based on which the recipient could and should have known that the tax would not be paid.
From the perspective of tax audits and VAT, supply chain fraud and the related so-called knowledge test are probably the most topical issues for the tax authorities now. Any recipient in this chain is called upon to prove that it did not know and should not or could not have known of the tax fraud. A mere lack of the recipient’s prudence is sufficient to challenge entitlement to the deduction.
There are continued efforts in the tax process to simplify tax administration and communication between the tax administrator and the taxpayer. The Moje Daně (My Taxes) project is continuing to achieve a larger scale of electronic filing for 2021 tax returns in the coming year. This is supported by the extension of the basic deadline for filing tax returns electronically by 1 month (i.e. until 2 May 2022). In addition, the control procedures will be simplified, a remote form of communication is allowed for initiating a tax audit and a change in the scope of the audit can be arranged by correspondence. However, in the case of additional tax returns, we would like to draw your attention to inadmissible submissions and the related penalty if the additional return is submitted before the tax authorities assess the tax according to the previous submission.
We will be happy to assist you in setting up processes taking into account not only the 2021 and 2022 tax novelties or in identifying and addressing areas to reduce the tax and legal risk for your company and yourself.
