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In January 2015, the EU Council amended Directive 2011/96/EU on the common system of taxation applicable to parent companies and subsidiaries of different Member States. The objective of the Directive is to exempt dividends and other profit distributions paid by subsidiary companies to their parent companies from withholding taxes and to eliminate the double taxation of such income for the parent company. The objective of January’s amendment is to prevent companies from taking advantage of unintended benefits from the Directive and requires Member States to deny tax benefits to companies which show transactions which merely provide a tax advantage but which otherwise have no due business grounds.

The Czech Republic is required to respond by 31 December 2015 and put in place legislation that will ensure that Czech law is harmonized with the Directive. Thus, taxpayers will need to be able to prove to the tax authorities that the transactions shown in their tax records did in fact take place on sound business grounds.

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