Capítulo I. Preprocesamiento de datos
Ejercicio 6. Selección simple y mediante atributos, exportación de capas y
Pavel Fekar, Associate
Pavel Fekar has more than 14 years of experience as a tax consultant and now practices as an attorney specializing in corporate income tax, international tax planning and transactional tax advice (especially in relation to mergers and acquisitions and corporate restructuring). He has been a member of the Czech Chamber of Tax Advisors since 1996, and a Member of International Fiscal Association since 2001. From 2002 to 2010, Pavel Fekar headed the International Taxation Division of the Chamber of Tax Advisors. Pavel Fekar was admitted to the Czech Bar Association as an attorney in 2011.
[email protected] Tel: +420 236 045 001
Baker & McKenzie, v.o.s., advokátní kancelář Klimentská 46
110 02 Prague 1 Czech Republic
At a Glance
Corporate income tax (CIT) rate (%) 19 Local income tax rate (%) N/A Capital gains tax rate (%) 191
Tax losses carry forward (years) 5 Tax losses carry back (years) N/A Limitations to transfer of tax losses Yes Domestic withholding tax rate on
dividends (%) 15
2
Domestic withholding tax rate on
interest (%) 15
3
Capital duty (%) 0
Transfer tax rates (%)
Sale of movable assets 0 Sale of real estate assets 4 Sale of shares of a real estate
oriented company 0
1 Capital gains are treated as ordinary income for corporations; certain capital
gains on the sale of participations are exempt from corporate income tax under the Czech participation exemption regime.
2 Subject to tax treaty provisions and EU legislation.
Standard value-added tax (VAT) rate
(%) 21
Neutral tax regime for restructuring
operations Yes
Tax Consolidation No
VAT grouping Yes
I. Acquiring the investment
Acquisition through an asset deal 1.
CIT 1.1
In the case of an asset deal, a step-up in basis can be achieved by the acquirer as the latter will receive the assets and liabilities at their acquisition price. As a general rule, all tangible assets acquired will be revaluated at acquisition price. In the case of sale of a business or a part thereof, the difference (if any) between the aggregate price paid and the original net book value can be activated as adjustment to the acquired assets. Such adjustment to acquired assets can be depreciated over 15 years both for Czech accounting and tax purposes.
An asset deal also makes it possible for the financing costs of the acquisition (if any) to be directly offset against the income from the acquired business (which, as we will see, is less obvious to achieve in the case of a share deal in the Czech Republic). If the acquisition is funded through equity financing, no notional interest deduction will be available.
As a transfer of assets is normally subject to tax in the hands of the seller (see below), one can expect that, compared to a share deal, the price due under an asset deal will be higher (as it will take into account, the CIT due in the hands of the seller, possibly together with any further tax due upon remittance of the net gain to the ultimate shareholders).
In net present value terms, the advantage of the step-up in basis that will be achieved at the level of the purchaser is not likely to
compensate for the higher price that such purchaser will have to pay because of the additional taxation due in the hands of the seller, except if the latter taxation can be reduced on the basis of existing tax loss carry forward at the level of the selling entity, which would otherwise be lost after the transaction.
VAT 1.2
General comments
In an asset deal, the transfer of the assets is in principle regarded as several distinct supplies, each of which triggers its own VAT consequences. The local Czech sale of assets is normally subject to VAT at the standard rate of 21 percent or a reduced rate of 15 percent, which applies to several types of assets. The transfer of certain assets (e.g., receivables) and the transfer of liabilities are, however, not subject to VAT or VAT-exempt.
The transfer of residential real estate (including residential houses, family houses and flats) qualifying as social housing is subject to 15 percent VAT. Residential real estate qualifying as social housing is precisely defined in Czech VAT law.
The transfer of nonresidential real estate and residential real estate not qualifying as social housing within five years after first use or
issuance of first official (real estate) approval is subject to a 21 percent VAT rate.
The transfer of both residential and nonresidential real estate after a period of five years after first use or issuance of first official (real estate) approval (whichever occurs earlier) is VAT-exempt without the right of VAT deduction (unless the seller opts for charging of VAT) . Such transaction may, therefore, negatively influence the entitlement of the seller to recover input VAT.
The transfer of land is exempt from VAT without the right to input VAT deduction, with the exception of land on which a building or infrastructure is erected, which is subject to a 21 percent VAT rate. For the sake of completeness, even an in-kind contribution of assets (in respect of which the input VAT was deducted) is generally considered a taxable supply. This does not apply to an in-kind contribution of a “business” or “a part of the business” (see TOGC exemption below).
The VAT due on the transfer is normally paid by the purchaser to the seller, who will remit such VAT to the authorities. If the purchaser is entitled to fully deduct input VAT, the payment of VAT on the transfer will merely be a pre-financing cost. However, if the purchaser is not entitled to fully deduct the input VAT, the nondeductible VAT due on the transfer will constitute an actual cost for the purchaser.
Transfer of a going concern (TOGC)
As an exception to the above rules, the transfer of assets and liabilities that qualifies as sale of “a business” or “a part of the business” is not subject to VAT under the so-called transfer of a going concern (TOGC) exemption.
As a matter of law, a TOGC qualifies neither as a supply of goods nor as a supply of services and hence, falls outside the scope of VAT. VAT is therefore not chargeable at the occasion of such TOGC. In case the TOGC relief applies, but VAT is nevertheless invoiced by the seller, this VAT will qualify as “incorrectly charged VAT.” Such VAT is not recoverable for a buyer and will constitute a cost for the buyer. TOGC is, therefore, not an optional treatment under the Czech VAT law.
Classification of a deal as TOGC is a complex issue that requires detailed analysis of individual contractual conditions from the perspective of both Czech and EU VAT law, including relevant case law (e.g., C-497/01 Zita Modes Sarl). In general, in order to qualify
for TOGC exemption, the transaction must consist of transfer of an undertaking or a part of an undertaking capable of independent economic activity (i.e., not just a sale of a stock); the buyer must intend to operate the business or the part of the business transferred (i.e., not just liquidate the business); and the transfer must cover all assets related to a particular business.
Even though the TOGC itself falls, as a matter of law, outside the scope of VAT, the costs relating to such TOGC (e.g., consultancy fees) in principle qualify as VAT-deductible, subject to general rules.
Sale between a Czech VAT group members
If the transfer is made between members of a Czech VAT group, the transaction will not be subject to VAT (irrespective of whether the conditions for the TOGC exemption are met).
Summary table
Rate 21% (15% VAT rate or VAT exemption
may apply to certain assets)
Basis In general, agreed transfer price for the
relevant assets
Special rules could apply for transactions between certain related entities.
Date of payment VAT assessment (if relevant) is
generally triggered by the date of taxable supply or the date of receipt of payment, whichever occurs earlier.
VAT due on the transfer needs to be declared by the seller in its regular VAT return and paid (if not balanced by input VAT) by the deadline for filing of the relevant VAT return (i.e., upon end of
the monthly or quarterly taxable period of the seller).
Liable person Generally the seller, but VAT (if any) is
economically borne by the purchaser. Purchaser can become the guarantor for the VAT under certain conditions.
Recoverability Deductibility of VAT applied on transfer
depends on the business activities of the purchaser.
The deductible VAT is to be entered as a credit item in the periodic VAT return of the purchaser. If the deductible VAT for the period concerned exceeds the VAT due by the purchaser, a refund can be requested.
Exemption Exemption applicable to a TOGC or to a
specific transferred property (e.g., certain real estate) can be utilized.
Transfer tax 1.3
Real estate transfer tax is levied on the transfer of the ownership of real estate located in the Czech Republic. The seller usually pays the real estate transfer tax, unless the seller and the purchaser agree that the purchaser will be the one to pay. An increase in the tax rate from 3 percent to 4 percent went into effect as of 2013. The tax is levied on either the agreed purchase price or the value determined by special calculation, whichever is higher.
There are a number of exemptions from real estate transfer tax, including: (i) the first transfer, as part of the seller’s business, of uncompleted construction and completed construction that has not been used; and (ii) the transfer of real estate in the course of a merger and/or demerger of a company.
The transfer of share/quota holding in a Czech real estate company is not subject to real estate transfer tax.
Rate Real estate transfer tax of 4%
Basis The transfer price or a value determined
by special calculation, whichever is higher
Date of payment It is three months from the month of
registration of the transfer of ownership in the Real Estate Cadastre.
Liable person Seller; purchaser is guarantor, unless
parties agree that the Purchaser is liable for the real estate transfer tax.
Tax deductibility for
CIT Deductible for CIT if paid in the relevant tax period
Other acquisition costs 1.4
Notary fees Apart from the specific situation where a
special company law procedure is being applied for the transfer of a business or part of the business, notary fees are normally not due.
Mortgage registration
duties CZK1,000 (approximately EUR40).
Stamp duties N/A
Tax deductibility for
CIT Other costs relating to the acquisition of real estate are deductible under the same rules as the ones for the deductibility of real estate transfer tax (see above).
Other acquisition costs are deductible at once for CIT purposes.
Tax credits 1.5
Reinvestment tax credit As a general rule, any capital gain realized by a corporate seller at the occasion of a transfer of assets will be taxable at the standard CIT rate. There is no reinvestment relief available in the Czech Republic.
Other tax credits N/A
Transfer of tax liabilities 1.6
A purchaser of assets and liabilities (even in the case of sale of business or a part of the business) is not liable for the tax liabilities of the seller.
As an exception, the purchaser of a real estate guarantees the payment of the real estate transfer tax by the seller.
Acquisition through a share deal 2.
CIT 2.1
Contrary to what the case is in an asset deal, a purchaser cannot benefit from a step-up in basis in the Czech Republic if a business is acquired through a share deal. However, as the seller will usually be exempt from tax on any capital gain realized at the occasion of a share deal (often also if the seller is an individual), such share deal will normally result in a lower acquisition price (compared to an asset deal whereby the overall taxation to be suffered by the seller is generally taken into account for the determination of the purchase price).
An acquisition through a share deal, however, makes it more difficult for the purchaser to offset any financing costs (if any) against the income from the acquired business. There is indeed no tax consolidation in the Czech Republic, and it is not always easy to implement alternative debt pushdown strategies either (see below).
VAT and transfer tax 2.2
The sale of shares is normally exempt from Czech VAT.
The deductibility or recoverability of the input VAT incurred by the seller in the framework of a share deal (e.g., VAT on advisory fees) needs careful examination since it very much depends on the facts of each individual case and this topic is not really crystallized in case law. For example, the AB SKF case of the European Court of Justice (C-29/08 AB SKF) implies that the VAT related to “share deal” inputs is recoverable if the inputs constitute a part of a general overhead costs for the seller and relevant costs are not included in the price of the shares (but rather in prices of company’s taxable outputs). If the seller is a mere holding company, the VAT is generally
unrecoverable. However, under specific circumstances, even a holding company may qualify for the recovery of certain input VAT.
In general, the recoverability of input VAT incurred by a purchaser in the framework of a share deal (e.g., VAT on advisory fees) will depend on the purchaser’s outgoing transactions and circumstances of the particular deal.
Tax allowances and other tax benefits 2.3
The advantage of a share deal (compared to an asset deal) is that all tax allowances available at the level of the purchased company will normally be maintained after the change of control.
Tax losses carried forward and notional interest deduction carry forward may, however, be forfeited if the revenue structure test is not met.
Tax losses preservations 2.4
Czech law generally allows carrying forward tax losses for five years (created after 2004).
However, tax losses may not be carried forward if the persons directly participating in the capital or control of the purchased company substantially changed as compared to the period for which the tax loss was assessed (“Substantial Change”). A Substantial Change is deemed to be affected if there is a change of shareholders owning more than 25 percent of the registered capital or voting rights. There is no exemption from Substantial Change for intra-group transfers or reorganizations.
Despite the Substantial Change, the purchased company would be allowed to carry forward its tax losses if it provides evidence that at least 80 percent of its ordinary income (revenues) achieved in the period following the Substantial Change was generated as part of the same business activity as conducted by the purchased company in the period in which the tax loss occurred. Rules governing this restriction on losses carried forward are quite complex and it is also possible to ask for a binding ruling in this respect.
Transfer of tax liabilities 2.5
In the case of a share deal, all (including hidden) tax liabilities relating to the past are obviously being inherited by the purchaser.
Careful pre-acquisition due diligence in this respect is therefore of utmost importance. As a general rule, the statute of limitations in the Czech Republic is three years but may be extended up to 10 years under specific circumstances.
Under current practice, it is quite frequent to obtain a full indemnity from the seller for any tax liabilities relating to the past.
Transaction costs 2.6
If the purchaser is a Czech company, transaction costs relating to the acquisition of shares (including any irrecoverable VAT cost in relation to such transaction costs – see above) will normally not be deductible at the level of that purchaser as they will form part of the acquisition value of the shares.
Financing the investment 3.
Deductibility of financing expenses 3.1
As a general rule, financing expenses will be fully tax-deductible in the hands of a Czech purchaser only in the case of an asset deal. In the case of a share deal, the financing costs will not be tax- deductible if the income from the shares (dividends and possible capital gain upon its disposal) is exempt from the CIT under the participation exemption regime.
Interest and other financing expenses on credits and loans from related persons exceeding six times the debtor’s own equity (for banks and insurance companies), or four times the debtor’s own equity (for other entities) are not tax-deductible. The same treatment also applies to interest and other financing costs on loans provided by a third party but refinanced by a related party (back-to-back loans).
Obviously, the financing expenses need to meet the general deductibility conditions that apply for any expenses, which in a nutshell require that such expenses are incurred in order to generate, maintain or secure taxable income.
The interest expenses paid to related parties, of course, also need to meet the arm’s-length test.
Thin capitalization rules A 4:1 debt/equity ratio applies if the interest expenses are paid on loans provided by related parties or on loans provided by a third party but refinanced by a related party (back-to-back loans).
Arm’s-length principle In order to be deductible, the applicable interest rate on loans provided by related parties must follow an arm´s-length standard.
Other limitations to the
deductibility As indicated above, in order for the financing expenses to be deductible, such expenses must be incurred in order to generate, maintain or secure taxable income.
Under the case law of the Czech Supreme Administrative Court, in order to reduce the tax base, expenses must be incurred for the purpose of earning a profit and, further, there must be a direct and immediate connection between such expenses and anticipated income. Such a direct and immediate relationship implies that without incurring these expenses, the taxpayer would not earn or would not have an opportunity to earn, the anticipated income. It is always
necessary to consider whether or not an expense incurred will generate income (profit), secure such income in the future, or, at least, help maintain income
obtained as a result of previous activities of the company.
Withholding tax on interest 3.2
As a general rule, a 15 percent withholding tax applies on any interest paid, subject to possible tax treaty exemption or reduction. As of 2013, the interest paid to recipients of states with which the Czech Republic does not have any treaty for avoiding double taxation or treaty for exchange of tax information are subject to a withholding tax of 35 percent.
Moreover, there are a number of specific domestic exemptions of