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The Czech Government published, on 5 September 2019, a revised draft of its proposal regarding a new digital tax (the revised bill). The first draft bill was published in July 2019. The revised bill is based on the European Union (EU) model of the Digital Services Tax (DST). The Czech Ministry of Finance's goal is for the new DST to come into force mid-2020. However, currently, the revised bill presents many issues regarding its practical implementation.

This Alert summarizes the key provisions of the proposed DST.

Key highlights of revised bill

Rate and period

• The proposed tax rate is 7%.
• The tax period would be the calendar year.

Scope of DST

• The DST would apply to the provision of a taxable service for consideration in the Czech Republic (CR).
• Taxable service is defined as:
  • A targeted ad campaign provision
  • Use of a multilateral digital interface
  • Provision of user data
• These digital services are characterized by value creation by users.
• Provision of a taxable service to another member entity within a group would be exempt from the tax.

Persons subject to DST

• Obliged person is a member entity of a group that provided a taxable service during the effective period (previous year for which financial statements were already finalized), if:
  • Total (consolidated) group revenues were more than €750m annually and
  • The remunerations for the provision of taxable services attributable to the CR were more than CZK50m annually (approx. €2m).
• Payer of partial tax is an obliged person that carried out in the CR during the effective period the provision of:
  • A targeted ad campaign with a tax base exceeding CZK5m, or
  • Use of a multilateral digital interface with the total number of user accounts above 200,000, or
  • User data with a tax base exceeding CZK5m.

Targeted ad campaign

• Placement of a targeted ad on a digital interface with the provision of a service supplementary to the targeted ad placement (e.g., marketing evaluation of an ad campaign).
• A targeted ad is an ad targeted at a user of a digital interface based on data collected about this user (or his technical device).

Use of multilateral digital interface

• Digital interface represents software accessible to a user, in particular a website, app, or mobile app.
• Multilateral digital interface enables the user to search for and interact with other users.
• Use of multilateral digital interface is:
  • Executing a transaction between users of a multilateral digital interface enabling related supplies of goods or services and
  • Affording access to the multilateral digital interface by users.
• Use of multilateral digital interface is not:
  • Providing a regulated financial service by a regulated financial entity
  • Operating gambling activities
  • Providing accessibility to a multilateral digital interface, if the main objective is the provision of:
    1. Digital content to users
    2. Computer game-playing or use of other similar interactive software for leisure and entertainment
    3. Communication services to users
    4. Payment services to users

Provision of user data

• Provision of user data is a provision of data set collected about digital interface users and acquired (or created) on the basis of their activity on this interface, with the exception of the provision of data
  • Obtained from a sensor, or
  • By a regulated financial entity

Other considerations

• The Ministry of Finance states in the Explanatory Memorandum that double tax treaties will have no impact on the proposed tax.

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CONTACTS

For additional information with respect to this Alert, please contact the following:

Ernst & Young, s.r.o., Prague

• Lucie Rihova
  lucie.rihova@cz.ey.com

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ATTACHMENT

PDF version of this Tax Alert