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Amendment to Value Added Tax Act in comments stage; Amendment of Excise Tax Act in comments stage

Amendment to Value Added Tax Act in comments stage

The Ministry of Finance submitted a governmental bill for comments. The bill will amend the VAT Act with effectiveness from 1 January 2011. The Ministry of Finance called upon selected institutions and authorities to provide comments to the presented bill by 12 July 2010.

On the basis of the above-mentioned commentary procedure, a final draft amendment (bill) to the VAT Tax Act will be prepared and subsequently submitted to the government for approval and then to the Parliament for consideration. With regard to the deadlines for passing bills in Parliament, the approved bill is expected to be published in the Collection of Laws by early December of this year at the earliest.

The reason this bill has been presented is due to the obligation of the Czech Republic to implement EU directives regulating the value added tax issues. The bill simultaneously contains other changes that aim at preventing tax evasion which EU member countries can include in their acts. From the proposed changes, we state only the most important ones below:

  • Changes caused by EU directives

The amendment to the VAT Act, inter alia, aims to change the rule for determining the place of performance of services in the field of culture, art, sport, science, education, entertainment and similar services. Today, the place of performance is determined pursuant to the place where the event in question takes place regardless of the recipient of the performance. Effective 1 January 2011, the place of performance of services connected with the organized event (such as an organizer’s services) for the person obliged to pay the tax is determined by his/her registered office. In case of persons who are not obliged to pay the tax, the place of performance shall not be changed.

  • Fighting against tax evasion

Pursuant to the bill submitted by the Ministry of Finance, the customer’s guarantee for tax that was intentionally not paid by the supplier is to become a tool for fighting against tax evasion. The basic criterion for applying the proposed provisions will be failure to pay the tax for taxable supply by the supplier to the tax administrator. The guarantee is to be applied in two situations. The first situation is when the customer knew or should have known that the supplier would not pay the tax stated in the tax document and the other situation is when the payment is apparently different from the usual price without any economic justification. A similar amendment was instituted in Slovakia from 1 January 2010.

The Ministry of Finance proposes simultaneously to introduce a taxation system at the customer for deliveries of scrap and waste (the so called reverse charge rule). The bill includes a new Annex no. 5, which states a list of goods that the new taxation system relates to. The reverse charge is used for the performance between tax payers only.

  • VAT for outstanding receivables

Pursuant to the draft amendment, the tax payer should be allowed to correct VAT payment from the value of the identified receivable arising within six months prior to the court decision on the bankruptcy of the recipient of the performance . In such a case, the creditor shall deliver a tax certificate to the debtor in which the amount of the corrected tax is specified. The debtor is subsequently obliged to decrease its input tax. Corrections may not be executed between affiliated parties. If the receivable or a part thereof is finally satisfied, the creditor shall be obliged to report and pay tax from the payment received, and deliver a new tax certificate to the debtor.

  • Other changes

Pursuant to the bill, changes have been made in the introductory definition of terms. Certain terms defined earlier have been deleted due to redundancy (such as import tax, tax exemption with a claim), with other newly instituted terms (such as the definition of goods subject to the excise tax) and specification of other terms (e.g. business assets).

A new proposal permits the tax payer to decide on whether to pay tax on transfer of constructions, flats and non-residential premises older than three years, which otherwise are tax exempted. If the tax payer applied the claim for input tax deduction, it is suggested that the transfer of constructions, flats and non-residential premises always constitutes taxable performance.

Rules for raising claims on input tax deduction should also be changed. The claim to input tax deduction shall exist only in case of tax applied in accordance with the law. The question is raised whether the Ministry of Finance wishes to declare by this change that it is now possible to apply the input tax also in cases where tax was not applied in accordance with law.

Amendment of Excise Tax Act in comments stage

The Ministry of Finance submitted a governmental proposal for comments pursuant to which the Excise Tax Act is to be amended. The proposed date of effect of the amendment is from 1 January 2011. Comments to the submitted bill can be sent until 12 July 2010. Out of the proposed changes, we select the following:

  • Changes of rules in proceedings on securing, forfeiture and confiscation of selected products and transport means

The issuance of decisions and their delivery shall be stipulated independently to ensure rights in rem of parties to secured products or transport means.

  • Preferential treatment on application of excise tax on growers’ distillation

The proposal responds to the decision of the Supreme Administrative Court and specifies in detail which rate of excise tax shall be applied to alcohol in products from growers’ distillation. The reduced excise tax rate shall be applied for volume of up to 30 l of ethanol per grower for production period.

  • Increased rates for tobacco products

Rates of excise tax from tobacco products should be changed in accordance with EU directives by 1 January 2014. This planned change should be divided in two steps according to the proposal. This proposal includes the rates increase which should occur with effectiveness from 1 January 2012. Simultaneously the proposal stipulates that purchasing tobacco products with lower tax rates in advance are to be prevented by the proposed cancellation of valid provisions stipulating rules in case of a change of rates.

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