The Supreme Court, in its resolution No. 22/2007, addressed the differences between the loan agreement regulated by the Civil Code and the credit agreement pursuant to the Commercial Code. Pursuant to the Supreme Court, the difference is, inter alia, based on the subject of the agreement.

For the taxation period commencing 1 January 2008,  a newly concluded double-tax treaty between the Czech Republic and the Hashemite Kingdom of Jordan, which also prevents tax evasion in the area of income taxes, became effective.

On 19 August 2008, Act No. 304/2008, Coll. was published in the Collection of Laws, which amends the Act on Accounting. This amendment will become effective from 1 January 2010, and only selected provisions will become effective from already 1 January 2009.

On 4 July 2008, the amendment to the Road Tax Act became effective, which introduces a new system that reduces road tax rates for more environmental friendly cars from 2009.

The Chamber of Deputies had a first reading of the governmental proposal to amend the VAT Act and the Excise Tax Act, which has been proposed to take effect from 1 December 2008.

The Czech Statistical Office superseded the Standard Classification of Production by Production Classification (CZ – CPA) with effect from 1 January 2008. The Finance Ministry announced that for the purposes of the VAT Act, the Standard Classification of Production valid from 1 January 2003 shall continue to be applied. This classification shall be further binding for allocation of services after 1 January 2009.

In connection with the cancellation of fifty-heller coins, the validity of which was terminated as of 31 August 2008, the Czech Tax Administration published information concerning the rounding off of taxes in respect of VAT.

Václav Pátek, a tax expert at law firm Kocián Šolc Balaštík, prepared a contribution for the Bulletin of the Czech Union of Full-Blooded Horses and Owners of Race Horses, Český chov, which is a part of TURF Magazine. The contribution focused on a change of VAT rates for the sale of race horses resulting from the amendment to the VAT Act effective from 1 January 2009. To apply the lower VAT rate on the sale of race horses for 2009, VAT prepayment should be made before the end of the year, similar to housing for 2007. The whole article can be downloaded here (in Czech only)

Dagmar Dubecká and Vlastimil Pihera prepared an information document for the International Bar Association addressing the legal regulation concerning takeover bids in the Czech Republic. The document summarizes the basic principles of the new legal regulation of takeover bids in the Czech Republic, a new construction of the bid obligation, types of actions on the grounds of a takeover bid or an unfulfilled bid obligation and the method of performance of supervision over takeover bids by the Czech National Bank. The published text contains information applicable as of the editorial closing date, i.e. April 2008. The contribution can be downloaded here

Václav Pátek published an article concerning preclusion in tax law following the resolution by the extended panel of judges of the Supreme Administrative Court in the professional tax magazine Daňový expert.

Law firm Kocián Šolc Balaštík has been awarded the title of the Czech Republic’s leading law firm in the field of corporate law in the first year of the survey Leading Law Firm of the Year 2008.

Kocián Šolc Balaštík is organising the fourteenth annual Charity Concert of Good Will – Olga Havel Foundation. The concert is to be held in the Church of St. Simon and St. Jude, Old Town, Prague on Sunday 23 November 2008 at 7:00 pm.

The Act on Some Measures against Money Laundering and Terrorist Financing (effective since 1 September 2008) responds to a number of EU legislative requirements, primarily to Directive No. 2005/60 EC on the prevention of the use of the financial system for the purpose of money laundering and terrorist financing (the so-called 3.AML Directive).

The amendment (effective since 1 September 2008) responds primarily to the objections raised by the European Commission and abolishes the allowance guarantees for new facility operators or other operators whose facilities changed in terms of use, manner of operation or capacity as a result of major investment.

It has been over four years since the 15,000 Euro cap for cash transactions was introduced. The Act on Restriction of Cash Payments was amended in August to modify the penalties, including fines for breach of the cap.

One of the lecturers at the 20th annual conference of the European Air Law Association, which takes place on 7 November 2008 in Prague, is Jiří Horník, an attorney specializing in aviation law at law firm Kocián Šolc Balaštík.

Law firm Kocián Šolc Balaštík is preparing the second part of an ongoing seminar in the field of personal data protection. The seminar will focus on specific topics in this area, such as the transmission of personal data to foreign countries, the processing of personal data of employees (including the monitoring of employees and their electronic communications), CCTV, the sending of marketing communications and other related practical questions.

Delta Pekárny and Odkolek, both represented by Kocián Šolc Balaštík, won lawsuits against the Anti-Monopoly Office before the Regional Court in Brno and subsequently the Supreme Administrative Court, involving an alleged cartel agreement in the bakery market.

Kocián Šolc Balaštík (KSB) scored high by finishing second in a number of traditional autumn sport events and contests of attorneys, junior lawyers and back office staff.

For this year’s VIA Bona Awards given out by the VIA Foundation, law firm Kocián Šolc Balaštík (KSB) received the Award For Long-Term Partnership for its long-term support of the Good Will Committee – Olga Havlová’s Foundation (GWC) through Advent charity concerts.

Law firm Kocián Šolc Balaštík provided consultancy to Chapman University of Orange County, California in the establishment of a branch in the Czech Republic. The branch will provide the MBA program in the Czech Republic.

Within the framework of long-term consultancy services, the law firm Kocián Šolc Balaštík assisted the Kladno energy groups of Energy Businesses from Swiss corporate group ATEL during the restructuring of this group.

Vlastimil Pihera published an article on free movement of companies in Euro. The article refers to the European Court of Justice’s expected resolution in the Cartesio case and the new possibility for companies to move their registered offices within the European Union as a result of the resolution. To download the article click here

Professor Jan Dědič, a partner of the law firm Kocián Šolc Balaštík, published two extensive contributions in the Legal Information Bulletin, a professional monthly for legal practice, on the new act of transformations of commercial companies and cooperatives, which became effective on 1 July 2008.

Law firm Kocián Šolc Balaštík (KSB) provided legal advisory to the Michel Thierry Group, a leader in the production of textiles and leather for the car industry, during its acquisition of majority shares in FEZKO, a.s. and FEZKO SERVIS, a.s.

Law firm Kocián Šolc Balaštík has been engaged by the participants of Biofaktory Praha s.r.o., a Czech and Slovak leader in production of animal feed, fodder additives, veterinary medications, health supplements and pet products, to provide comprehensive advisory services on the sale of the Biofaktory Group to international holding company Nutreco, with its registered office in the Netherlands.

Since 1 July 2008, on the basis of Act No. 130/2008, Coll., amending the Trade Licensing Act, requirements for commencement of business activities and reduction of the overall administrative burden for tradesmen are significantly simplified.

Act No. 230/2008, Coll., a very important amendment to the Act on the Capital Market Business (“Capital Market Business Act”) was published and transposes Directive 2004/39 on financial tools markets known under the abbreviation MiFID as well as other European regulations into Czech law. The aim of the regulation is to enhance the transparency of financial markets, improve protection of investors and strengthen the competitive environment. The amendment took effect on 1 July 2008. New implementation regulations were issued on the same date.

Act No. 125/2008, Coll., on Transformations of Commercial Companies and Cooperatives, taking  effect 1 July 2008, supersedes the existing regulation of intra-state transformations in the Commercial Code and newly regulates certain transformations with foreign elements, i.e. cross border mergers and transfer of assets to a foreign participant.

Regulation of the road tax has been significantly changed. Act No. 16/1993, Coll., on the Road Tax, as amended, brings extension of the existing exemption from the tax for cars using further kinds of alternative fuels. It further introduces a newly drafted system of reduced rates.

From the beginning of July, creditors receive a more comfortable and perhaps faster possibility on how to collect their monetary receivables. Act No. 123/2008, Coll., introduces an electronic payment order into the Code of Civil Procedure.

Law firm Kocián Šolc Balaštík provided legal consultancy to ASIANA, spol. s r.o., one of the largest travel agencies with IATA accreditation in the Czech Republic, during its complete restructuring.

On 17 June 2008, the European Parliament approved a new directive on waste to supersede the current obsolete norm from 1975. The modernized approach to waste management should lead in particular to reduction of waste production.

Resolution of the European Court of Justice (ECJ) No. C‑309/06, Marks & Spencer plc of 10 April 2008. The ECJ gave a ruling in response to an application for a resolution on a preliminary issue that was filed within the context of a dispute between Marks & Spencer plc and the Commissioners of Customs & Excise wherein Marks & Spencer applied for return of value added tax unjustly collected by the Commissioner. The ECJ’s resolution interprets Article 28, paragraph 2 of the Sixth Directive (Directive of the Council No. 77/388/EHS on harmonization of legal regulations of EU member states concerning turnover tax).

In the July session, the European Parliament adopted a package of legislative measures for the gas market at first reading, the objective of which is to deregulate the market, increase its competitiveness and ensure consumer rights. The deputies supported two scenarios from which EU member states can choose: either full ownership separation of suppliers from gas networks or the so-called ITO model – the preservation of network ownership by suppliers with simultaneous introduction of “independent operators of transportation systems”.

In May 2008, the long-term process of preparing and putting through legal regulations to punish serious offences against the environment as criminal activities was completed. The European Parliament has approved a draft directive with minor changes pursuant to which infringement of communitarian regulations or Euratom regulations listed in annexes shall be deemed illegal conduct, as well as infringement national acts, administrative regulations or administrative decisions implemented by the regulations stated in the annexes.

European Parliament and Council Regulation No. 593/2008 (Official Bulletin No. L 177) on the law applicable to contractual obligations (Rome I), starts from the original Convention on the Law Applicable to Contractual Obligations that has been adopted in 1980 but not yet a part of the European Law. The Regulation implements certain changes to the original Convention in the direction of modernization and specification thereof.

Commission Regulation No. 622/2008 dated 30 June 2008 / (Official Bulletin No. L 171), which amends Regulation No. 773/2004 relating to the conduct of proceedings by the Commission pursuant to Articles 81 and 82 of the EC Treaty, introduces a procedure for settlement applicable should parties be prepared to admit their participation in a cartel and accept liability.

The European Parliament approved opening of the postal services market pursuant to Directive No. 2008/6, published in Official Bulletin L 52 on 20 February 2008. The exclusive right of national post offices to deliver postal consignments of up to 50 grams ceases to exist in most EU countries as of 31 December 2010, but the Czech Republic and other new members may postpone this change until 2013. Simultaneously, they may be refused the right to enter the already liberalized markets.

Law firm Kocián Šolc Balaštík (KSB) has recently launched a new website at www.ksb.cz and www.ksb.eu. The redesigned website matches in its scale and technology those of leading international law firms.

Kocián Šolc Balaštík was named for the third consecutive year the Czech Republic’s Law Firm of the Year in the international Who’s Who Legal Awards.

The Collection of Acts No. 166/2008 includes an award by the Constitutional Court dated 23 April 2008 cancelling the provisions of the Employee Health Insurance Act that award sickness allowance to employees after the fourth day of sickness, effective as of 30 June 2008. The sickness allowance should be newly paid out beginning the first day of the sickness.

Act on transformation of commercial companies and cooperatives (“Transformation Act”) takes effect from 1 July 2008. This new, comprehensive legislation applicable to commercial companies and cooperatives shall replace and supersede current provisions of the Commercial Code.

The Chamber of Deputies of the Parliament of the Czech Republic is currently discussing amendments to the Value Added Tax Act and Income Tax Act.  We will inform you of these amendments in the next issue of Tax News.

Pursuant to our information in the previous issue of Tax News, the Government presented a draft VAT Act to the Parliament of the Czech Republic. This long-prepared amendment primarily harmonizes the provisions of the Czech VAT Act with the provisions of Directive 2006/112/EC (the so-called Sixth Directive Recast) and provides suggestions for simplification and improvement of certain other provisions.

In February 2008, two new directives of the Council on VAT were approved. Council Directive 2008/8/EC fundamentally changes existing rules for determining the place of performance for services, i.e. determining EU member states for application of VAT. Most new rules shall be introduced from January 2010, and the remaining ones shall be introduced gradually up to 2015.

The House of Representatives (Lower House) approved an amendment to the Road Tax Act. The amended provisions should result in reduction of road tax rates for vehicles over 12 tons used as new for businesses that are more environmentally friendly. The lower rate should apply for 36 months following the first registration.

On 17 July 2008, the Senate approved a bill to amend the VAT Act. The Amendment, subject to the President’s approval which is expected to be granted, will not take effect before 1 January 2009, but we would like to inform you well in advance of the major changes to be introduced due to the fact some of them will require adjustment of accounting systems and redrafting of commercial agreements. 

In February 2008, Directive 2008/7/EC on indirect taxes on capital contributions took force. Effective January 209, this directive cancels the original Council Directive 69/335/EEC on indirect taxes on capital contributions. This tax is applied in certain EU member states, but not in the Czech Republic.

Since the VAT Act introduces many changes effective 1 January 2009 and preparation well in advance is highly desirable, KSB will hold a workshop specializing on VAT.

The Ministry of Finance of the Czech Republic published Guideline No. D – 317 on average prices of fuel for calculating the amount of compensation for expenses in consumed fuel to determine income tax bases for the 2007 taxation period. Taxpayers can use these prices to determine tax expenses for consumed fuel, unless they apply expenses in documented amounts.

For the taxation period commencing 1 January 2008,  a newly concluded double-tax treaty between the Czech Republic and the Hashemite Kingdom of Jordan, which also prevents tax evasion in the area of income taxes, became effective.

Vlastimil Pihera, attorney, and Helena Navrátilová, tax advisor at the law firm Kocián Šolc Balaštík, published an article in Euro concerning the current legal interpretation of ownership relations in respect of mutual funds and its impacts on application of the corporate income tax. To download the article click here

The Commission has presented for consultations new draft rules to exempt more subsidies from the notification obligation laid down in EC Treaty state aid rules.

At the end of March the ECJ issued its decision in Case C-111/05 Aktiebolaget NN on several preliminary matters relating to application of VAT on the laying of seabed optic cables. Although the issues arising particularly concern the criteria according to which supplies of goods may be distinguished from the provision of services, and how to determine the place of supply when providing line constructions, the ECJ decision also has general application.

The Commission adopted on 29 March an amended proposal of the modernised "Television without Frontiers" Directive. After a first reading in the Parliament and the Council, there is now broad agreement with the Commission about the future legal framework for the EU's audiovisual sector.

The Court of Justice (“ECJ”) ruled that the Italian criminal penalties for the collecting of bets by intermediaries acting on behalf of foreign companies are contrary to community law (Joined Cases C-338/04, C-359/04, C-360/04 Placanica of 6 March 2007).

The ECJ ruled that the Third Motor Insurance Directive (Third Council Directive 90/232/EEC of 14 May 1990 on the approximation of the laws of the Member States relating to insurance against civil liability in respect of the use of motor vehicles) requires all passengers to be covered by motor insurance and therefore Irish national legislation, which precludes those not travelling in a part of a vehicle designed to carry passengers, is incompatible with Community law.

In March European Parliament (“Parliament”) gave a first reading of a directive to change European rules on how mergers of banks and other financial institutions are approved. Since the text adopted has already been agreed in informal negotiations with the Council, the proposals should enter force without further changes.

The effectiveness of the Act on Stabilization of Public Budgets will provide VAT payers with the alternative of group VAT registration. The group registration makes it possible for affiliated parties (companies) to act as a single VAT payer with a single registration number for VAT purposes. This means that an entire corporate group will only file a single VAT tax return. Supplies delivered between individual group members are not deemed to constitute taxable supplies. The first groups of VAT payers shall be registered effective 1 January 2009, provided that they apply by 31 October 2008 at the latest.

The Ministry of Finance issued Instruction No. D-312 regarding application of reduced tax rates to license fees under the Double Taxation Treaty between the Czech Republic and Belgium. The Instruction sets forth, for the purposes of the aforementioned Treaty, that the listed license fees may be taxed in the country of origin by not more than 5 percent of the gross amount thereof. The Instruction shall take effect on 1 January 2008.

In connection with the tax entity’s authorization to draw attention to the tax administrator’s inactivity on the grounds of processing filings by tax entities by reasonable deadlines, the Ministry of Finance issued Instruction No. D-308 imposing deadlines on tax administrators for processing filings by tax entities and other parties involved in tax proceedings.

On 29 November 2007, law firm Kocián Šolc Balaštík (KSB) organized for its clients - major pharmaceutical companies - a seminar focused on important legislative changes in the pharmaceutical industry taking effect in early 2008. The lecturers at the seminar were Hana Heroldová, an attorney specializing in the area of pharmaceutical law, and Václav Pátek, tax expert at KSB.

The Ministers of Finance of the Czech Republic and Bosnia and Herzegovina signed a Double Taxation Treaty between both countries on 20 November 2007. The Treaty shall result in termination of the provisions of the Double Taxation Treaty between the Czechoslovak Socialistic Republic and the Socialistic Federative Republic of Yugoslavia (applicable to Income and property taxes) signed in Prague on 2 November 1981. The termination shall take effect on the effective date of the new Treaty. This may occur on 1 January 2009 if the following legislative procedure in both countries proceeds in the standard manner.

The Ministry of Finance issued Decree No. 338/2007 – on calculation of base rates of food allowances in foreign currency for 2008. Decree No. 549/2007 Coll., on base rates of food allowances in foreign currency for 2007 shall terminate on the new Decree’s effective date, i.e. 1 January 2008.  

The banking council of the Czech National Bank decided to raise the 2T repo rate to 3.50%, the discount rate to 2.50% and the Lombard rate to 4.50% at its meeting held on 29 November 2007. The new rates shall apply beginning 30 November 2007.

Parliament is currently debating several proposed amendments to ITA. The most important of these are the proposals set out in the "Government draft of the Act on stabilisation of public budget" ("Government Draft"). Amended several times, the Government Draft is now on its second reading and is likely to experience further amendment.