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Amendment to VAT Act – changes in the extent of affiliated persons; Amendment to Income Tax Act, Act on Territorial Financial Authorities and VAT Act

Amendment to VAT Act – changes in the extent of affiliated persons

On 13 April 2010 the Chamber of Deputies overruled the president’s veto concerning an amendment to the VAT Act (Parliamentary Press No. 1059 approved only in circumstances of legislative distress). The amendment supersedes the provisions of Section 36a, subsection 3, letter (d) and therefore persons in labour-law or similar relationship (simply said “employees”) are no longer included under the definition of affiliated persons.

The tax base of performance rendered to employees shall continue to be calculated on the basis of the price charged to them regardless of the fact that, as a rule, such charged price is lower than that for which similar performance is usually sold to third parties, and not from the usual price, as was the case from 1 January 2010.

The newly approved amendment to the VAT Act becomes effective on the date of announcement thereof, but the amendment described above shall be valid retroactively. This means that the new amendment shall apply to sales to employees realized under the effectiveness of the VAT Act valid as amended before the amendment described above, i.e. as if the provisions including employees among affiliated persons had never been valid. Such retroactive validity of an act is very unusual. The act was published in the Collection of Laws on 29 April 2010 under No. 120/2010, Coll.

Tax payers who, in circumstances of performance rendered in favor of employees, paid VAT from the usual price in the period from 1 January 2010 and simultaneously rendered such performance more cheaply to the employees in question shall be allowed, as a result of the act’s retroactivity, to apply for the recovery of the higher VAT paid by such tax payers.

Amendment to Income Tax Act, Act on Territorial Financial Authorities and VAT Act

The government’s proposal to issue an act amending the Income Tax Act, as amended (Parliamentary Press No. 959/0) was extended during the second reading by further proposed amendments. On Friday 16 April 2010 such amendments were approved on their third reading.

  • Amendment to the Income Tax Act amends the taxation of state bonds. Only interest revenue shall be subject to taxation. A 15% withholding tax shall apply to such revenue. The amendment also includes an amendment to the Budget Rules Act in the event where, in accordance with conditions for issue, only individuals shall be entitled to acquire state bonds. Such changes should become effective on the date of announcement of the act.
  • Amendment to Act on Stabilization of Public Budgets has an impact on the VAT rate applicable to housing construction work (save for the construction of social housing). The amendment cancels time limits for application of the reduced rate to the housing construction. Pursuant to the Act on Stabilization of Public Budgets, the reduced VAT rate may be applied to housing construction (except for social housing) only until the end of 2010. The cancelation of such limit means that even after 1 January 2011, the reduced rate shall apply to housing construction pursuant to Section 48 of the VAT Act. Legislators did not approve an amendment to VAT rates applicable to certain services with a great share of human labor, such as repairs of shoes, clothes or bicycles. Inclusion of services consisting of including meals in the reduced tax rate category was also not approved.
  • Amendment to the Act on Territorial Financial Authorities. The amendment establishes a new General Tax Directorate and a new specialized financial office. The specialized financial office shall have jurisdiction over all banks, insurers and entities with a turnover exceeding two billion Czech Crowns per year. According to the draft act, the changes in the field of territorial financial authorities should take effect on 1 January 2011.

The above-mentioned amendments must also be approved by the Senate and thereafter signed by the president. Should the bills not be approved by the Senate or be returned to the Chamber of Deputies by the president, in view of the date of the election taking place in late May 2010, the Senate’s resolution or the president’s veto could not be overruled and the amended provisions would not become valid.

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