Czech Republic: Discussion paper on anti-tax avoidance rules

Czech Republic: Anti-tax avoidance rules

The Ministry of Finance released a discussion paper on implementing the EU Anti-Tax Avoidance Directive into Czech law. The paper focuses on new interest deduction limitations, exit taxation, controlled foreign companies and hybrid mismatches.

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The Anti-Tax Avoidance Directive is based on the principle of a minimum standard of avoidance protection, while each state may also implement the rules in a stricter regime. The Czech ministry has summarised its approach in the discussion paper.

  • Interest expense (from related and unrelated parties) in excess of interest income will be deductible only up to 30% of earnings before interest, tax, depreciation, and amortization (EBITDA). Under the directive, the 30% of EBITDA rule does not have to be applied to interest expense (in excess of interest income) of up to €3 million. 
  • The interest deduction limitation of 30% of EBITDA should be applied to each entity on a separate basis, not to a consolidated group as a whole. 
  • Other rules, including those for controlled foreign corporations, exit taxation, and hybrid mismatches, will be implemented in the scope proposed by the directive, with no exceptions. The interest limitation rule and controlled foreign corporation rules will be effective from 1 January 2019, while the exit taxation and hybrid mismatches rules will be effective from 1 January 2020. 

 

Read an April 2017 report prepared by the KPMG member firm in the Czech Republic: MF issues discussion paper on ATAD implementation

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