Communication and instruction of the General Financial Directorate31/03/11 / cata_tax-news

• Information of the General Financial Directorate on the application of gift tax on free emission allowances

 Act No. 357/1992, Coll., on Inheritance Tax, Gift Tax and Real Estate Transfer Tax was amended (“Three-Tax Act”) in connection with the approval of Act No. 402/2010, Coll., which amended Act No. 180/200, Coll., on Support of Electricity Production from Renewable Sources (“Renewable Sources Act”). The cited amendment introduces the gift tax from EUA emission allowances allocated free of charge to electricity producers in 2011 and 2012.

The gift tax is to be applied to free emission allowances of greenhouse gases in 2011 and 2012 for electricity production in facilities that produced electricity for sale to third parties as of 1 January 2005 or later and in which, from activities to which dealing with allowances for emission of greenhouse gases relate, only fuel combustion by electricity producers is performed. 

For the calculation of the tax base, the number of allowances shall be adjusted by allowances not subject to taxation and by allowances exempt from tax. The tax base is the average market value of the allowance as of 28 February of the relevant calendar year multiplied by the number of allowances for electricity production acquired free of charge. On the Czech Tax Administration Office website, the Methodology of Determination of the Amount of Gift Tax is available, published by the Energy Regulatory Office, which has compiled a list containing the amounts of taxed allowances of electricity producers.

http://cds.mfcr.cz/cps/rde/xbcr/cds/Metodika_darovaci_dane_z_povolenek.pdf.

The 2011 price of an emission allowance amounts to CZK 349.84.

The gift tax rate amounts to 32%.

Taxpayers are obliged to file gift tax returns by 31 March of the relevant calendar year with their locally competent tax administrator. In addition to facts decisive for determination of the tax, taxpayers must state in their tax returns information on the share of the electricity production and the share of the heat production of the total emissions of greenhouse gases for the calendar year 2005 and the subsequent years.

Taxpayers who are entitled to tax-exemption by law must file the gift tax returns within the set deadline.  Such exemption shall be applied in the filed tax return. If this duty is not fulfilled, a penalty can be imposed on the taxpayer in the minimum amount of CZK 500 for the late tax statement.

• Supplementation to the Communication of the General Financial Directorate concerning levies pursuant to the Act on Renewable Sources

We informed you in Tax News No. 3/2011 of the Communication of the General Financial Directorate concerning duties of levy payers and payers of levy pursuant to the Renewable Sources Act. In connection with the cited communication, the General Directorate of Finance issued supplementing information concerning levy payers who are individuals keeping tax records.

For a levy payer, who is an electricity producer, the total amount invoiced for the state price for electricity, the green bonus, constitutes income pursuant to Section 7(1)(c) of Act No. 586/1992, Coll., on Income Tax, as amended (“Income Tax Act”), which is income from other business activities. The amount of levy withheld by a payer of levy, who is an operator of a transmission or distribution system constitutes a tax deductible expense for the levy payer pursuant to Section 24(2)(p) of the Income Tax Act.

• Information of the General Financial Directorate on the institute of guarantee pursuant to the provisions of Sections 109 and 109a of Act No. 235/2004, Coll., on Value Added Tax (“VAT Act”)

The recipient of a taxable supply (payer), performed by another payer of the tax with place of performance in the Czech Republic, who passed a knowledge test is deemed a guarantor pursuant to Section 109(1) of the VAT Act. The knowledge test means that the recipient of the taxable supply knew, or should and could have known, that the payer of the tax will not pay the VAT or will be in a position where he or she cannot pay the tax or where the tax duty will be evaded. Fault by negligence, including unintentional fault, is sufficient for the establishment of the guarantee. The guarantor relationship can also be established where the payer of the tax accepts a taxable supply the price of which, without any economic justification, apparently differs from the standard price (Section 109(2) of the VAT Act). The standard price is in such events determined pursuant to the Act on Valuation of Assets.

A legal method on how to avoid the guarantee and thus eliminate the risks connected therewith is a special method to secure the tax. The special method to secure the tax is stipulated in Section 109a of the VAT Act. A condition for application of such method is the fact that the recipient of the taxable supply has not yet been called upon as a guarantor. The tax securement consists of the fact that the recipient of the taxable supply shall pay the VAT on behalf of the provider. This may be performed at any time subject to fulfillment of the above-mentioned condition.

The VAT payment must be made to the performance provider’s personal deposit account administered by the locally competent tax administrator and be identified. The payment must include an identification of the taxable supply provider, tax in respect of which the payment is made, identification of the recipient of the taxable supply and the date of performance of the taxable supply or the date of the receipt of the payment.

• Instruction No. GFŘ-D-4, setting forth the format and structure of an extract from records for tax purposes pursuant to Section 92a(6) of the VAT Act 

On 22 March 2011, the General Financial Directorate published Instruction No. GFŘ-D-4, which sets forth the format and structure of an extract from records for VAT purposes (“Extract from Records”). This instruction became effective on 1 April 2011. Payers who rendered taxable performance or for whom taxable performance was rendered under the regime of transfer of tax duty (“Special Regime”) are obliged to keep such records. This institute was introduced by an amendment to the VAT Act, of which we informed you in several previous Tax News.

Payers who rendered taxable performance under the Special Regime are obliged to file an Extract from Records on the form “Extract from Records for Tax Purposes Kept pursuant to Section 92a(4) of the VAT Act”. Payers to whom taxable performance under the Special Regime was rendered must file the Extract from Records on the form “Extract from Records for Tax Purposes Kept pursuant to Section 92a(5) of the VAT Act”. Where the payer rendered as well as received taxable performance, he or she is obliged to file two separate Extracts from Records.  

The form may only be filed electronically. The Czech Tax Administration’s Tax Portal may be used for filing such forms. Recognized electronic signatures may be attached to data messages. If no electronic signature is attached to a data message, it is necessary to confirm the filing to the tax administrator within five days. Another option is to file a data message through a data box.

For more details concerning the completion of the form, go to the Czech Tax Administration’s website: http://cds.mfcr.cz/cps/rde/xchg/cds/xsl/legislativa_metodika_12863.html.