Tax consequences of bonds, the methanol affair, and other news on the GFA’s website

Bonds

At a press conference held on Monday, 22 October 2012, the Minister of Finance Miroslav Kalousek presented details on the autumn issue (already the third of its kind) of state savings bonds, each with a nominal value of CZK 1, to be launched on 12 December 2012. Prospective purchasers may reserve the bonds from 5 until 30 November 2012, unless the subscription period is terminated earlier. Keep in mind that the tax applicable to state and non-state bonds will change for individuals as of 1 January 2013.

The tax laws provide an opportunity to avoid tax on bond yields if the yield attributable to a single bond is lower than CZK 7— note, however, that this does not apply to anti-inflation saving bonds that may only be subscribed for by individuals. The avoidance results from rounding off the tax base and the tax. The opportunity is available for interest accrued on cash on deposit or current accounts subject to withholding tax if the daily interest is less than CZK 7.

Starting in 2013, the capital income tax base and tax will not be rounded off. Only the total amount of tax withheld by the payer on each type of income will be rounded off. However, the important message here is that the current tax procedure will be applicable to all bonds to be issued by the end of 2012. This means no tax will be levied on yields of individuals starting with the autumn bonds issue.

Methanol Affair

The infamous methanol affair has resulted in prohibition of the sale and marketing of alcohol 40 proof and higher with a production date after 31 December 2011. Prohibition was imposed by the Ministry of Health and applies to all operators of food establishments, regardless of whether they are legal entities or sole proprietors. To compensate at least a portion of the damage to be incurred by some taxpayers as a result of the prohibition, the Minister of Finance released the relevant parties from the duty to pay tax on income that was not paid by 10 October 2012 and the original due date is before 31 December 2017. The amount of the waived payment will correspond to the amount of excise duty on alcohol, which will be listed on a certificate issued by the Customs Authority proving an investigation regarding tax verification and assisted removal of alcohol was conducted.

The application form and details on the release are available on the General Financial Authority’s website.

Interest on Deferred Tax Payments

The tax authority may, upon request or on an ex oficio basis, defer tax payments or spread out the payments into instalments. While a tax entity is not subject to the duty to pay default interest for the period of deferment, its interest on the deferred amount is lowered by 7%, for which the tax authority is to issue a payment assessment. The tax authority may refrain from imposing such interest if the claimed interest is too severe for the tax entity in terms of its own particular economic or social situation.

The General Financial Authority has issued Methodological Instruction No. 15/2012 in which it defines circumstances under which the interest can be waived due to severity. It also defines the circumstances under which the tax authority may not refrain from imposing such interest.

Another noteworthy point is that the tax entity must deliver the application for waived interest to the tax authority before the due date as per the payment assessment for the interest on deferred tax (the date of delivery prevails over the date of posting).

The full text of Methodological Instruction No. 15/2012 is available on the General Financial Authority’s website.

International Taxation

On 15 October 2012, the protocol to the double tax treaty concluded between the Czechoslovak Socialistic Republic and The Kingdom of the Netherlands regarding income and property tax was signed. Two prior protocols are already attached to the treaty. The new protocol should help boost legal certainty and, primarily, improve coordination between both countries in combating tax evasion and fraud.

The protocol to the double tax treaty concluded between the Czech Republic and the Republic of Croatia regarding income and property tax was published in the Collection of International Treaties under No. 82/2012 Coll. Int. Ts.