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Tax proceedings: new interest on tax deduction is really not comfortingAt the beginning of the year, among other things, a new item appeared in tax proceedings in the form of a claim for interest on a tax deduction.

Evidently, it concerns the reaction to the groundbreaking decision of the Supreme Administrative Court, issued in autumn 2014, whereby the court—with reference to EU legislation and the judicature of the European Court of Justice—awarded the plaintiff the claim for interest from withholding an excess VAT deduction in an amount corresponding to 14% annually. At the same time, the court stated that a reasonable period within which an excess VAT deduction can be withheld interest-free by the tax administrator is three months from the end of the tax period which the deduction is related to.

Under the new treatment, the conditions for the creation of an interest claim are considerably stricter from the perspective of the taxpayers. The basic annual interest rate on a tax deduction amounts to just 1%, and the interest can only be declared for the

period of the proceedings to eliminate doubts, which has lasted longer than five months. Thus some obvious bumps appear between the results of the taxpayer’s delay in paying tax (where the interest rate on the delay amounts to 14%) and the results of the tax administrator’s delay with returning the tax deduction.

In view of the fact that now even the courts of other EU member states are pursuing this issue, we may soon find out whether this new legal treatment is in accordance with the principles of EU law.

Radek Buršík +420 251 152 509

Excise duty on tobacco products is increasingThe increase in excise duties will not only affect cigarettes but also cigars, cigarillos and rolling tobacco, and it should have an even impact on all price categories. According to a submitted proposal, in 2016 the excise duty on

cigarettes should increase by CZK 3 per pack, which will mean an increase of CZK 3.60 in the cost of a pack of cigarettes. This is coming from the prepared amendment to the Excise Duties Act announced by the Ministry of Finance and according to which excise duties should be increased in three steps, effective January 2016, January 2017 and January 2018.

The reason for increasing the excise duty on cigarettes is the need to fulfil the minimum taxation requirements set by the European regulation.

Martin Diviš +420 251 152 574

Double taxation treaty between the Czech Republic and LiechtensteinWe’d like to notify you of the double taxation treaty between the Czech Republic and Liechtenstein, which can be included among interesting holding destinations from the Czech perspective. The treaty will take effect

in 2016. For payments from the CR, a zero withholding tax is imposed on interest and dividends (paid to, among others, Liechtensteiner foundations) if the given Liechtensteiner legal entity holds at least 10% of the capital of a Czech company for at least one year. In other cases, such as with dividend payments and licence fees from the CR, the rate is reduced to 10%. The income tax rate of legal entities in Liechtenstein is 12.5%, but local legislation enables for example the subtraction of “hypothetical” interest from own capital or of approved interest-free loans of 3-4%, which effectively leads to a tax rate of 8-9%. Liechtenstein applies almost no withholding tax on interest or dividends paid abroad.

Zenon Folwarczny +420 251 152 580

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If you are interested in receiving Tax, Legal & Business News, please contact Denisa Skalova, denisa.skalova@cz.pwc.com.

June 2015

Summary

› Tax proceedings: new interest on tax deduction is really not comforting

› Excise duty on tobacco products is increasing

› Double taxation treaty between the Czech Republic and Liechtenstein

› Interest-free loan offered to employees can be taxable benefit

› IFRS is changing

› News in energetics

› Turkish citizens have free access to Czech labour market

› Uwe Schwalm is the new German Business Group leader in the Czech Republic

› Bořivoj Líbal is joining PwC Legal as a managing partner

› Appendix - Business in Africa (known from our mobile application)

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LawAccountingTax

Interest-free loan offered to employees can be taxable benefitAn interest-free loan offered to employees that exceeds CZK 300,000 represents a taxable benefit for them. A property benefit that arises for the employee and that’s calculated as the usual interest on the remainder of a principal over CZK 300,000 is taxable income.

The relevant provision has again turned up in the law from 2015, and the obligation to tax a resulting property benefit undoubtedly applies to loans offered in 2015 and later. It’s not certain either from the law or from the instructions of the tax administration that the new provision also applies to interest-free loans granted before 1 January 2015.

It’s still true that for preferred low-interest loans offered by employers with lower interest than usual, the difference between the usual interest and the interest agreed with the employer is taxable income for the employee.

For more information on the taxation of loans in the specific conditions of your company, please get in touch with your usual PwC contact or alternatively with the author.

Zdeněk Drozd +420 251 152 558

IFRS is changingThe applicability of the new standard on recognising revenues (IFRS 15) will most likely be postponed for one yearThe IASB has proposed postponing the applicability of the new standard on recognising revenues, which was originally set for 1 January 2017, by one year. It can be expected that the proposal will eventually be accepted, and the new standard will thus be compulsorily valid from 1 January 2018. This way, companies get some more time to prepare for the switch to the new way of recognising revenues. It’s good news, but it shouldn’t make companies so comfortable that they slow down or even completely put off IFRS 15 implementation projects for later. Some corporations actually demanded the postponement just because they reacted to the new requirements too late, and they weren’t able to finish the work connected with preparing for the new way to recognise revenues.

Lessees are expecting a new way to recognise leasing according to IFRS

The IASB approved the start of work on the paragraph version of the new standard on accounting for leasing. The new regulation affects lessees in particular. Besides short leases of up to one year and the rent of “small things” (we’ll have to wait and see how the IASB defines “small things”), lessees will be obliged to prove the right to use rented property as an asset, but on the other hand they will have to report the contractual obligation to pay rent for the whole period of the agreed rental relationship. It most likely won’t lead to any significant changes for lessors. The new standard should see the light of day

by the end of 2015. It hasn’t yet been decided when it will take effect, but we can expect that it won’t be before 1 January 2018.

Milan Zelený +420 251 152 088

News in energeticsThe Chamber of Deputies approved a summary amendment to the energy laws via changes to certain laws, primarily the energetics law and the Law on Supported Energy Resources. The amendment passed with a tight majority of votes; next it must be approved by the Senate and signed by the president.

The amendment newly introduces:

Small power plants without a licence Smaller power plants with a capacity of up to 10 kW for customers’ own needs will no longer need a licence. Thus, households can produce electricity on their own more frequently (without the useless administrative burden which has until now often put them off) with for example photovoltaic systems located on the roof of the house.

ERO Council Effective 1 August 2017, the Energy Regulatory Office will be administered by a new collective body – a five-member Council of the ERO. Based on the proposal from the Ministry of

Industry and Trade, the Council should be named by the Government.

Consumer protection In connection with the Civil Code, there is now a 14-day period to withdraw from a contract on supply of electricity, gas or thermal energy, or from a contract on comprehensive services for supply of electricity or gas, which a customer as the consumer concluded with a licence holder from a distance or outside the licence holder’s business environment.

In case of a change of the supplier from a distance, the consumer is entitled to cancel a contract that was concluded for either a definite or an indefinite period without sanctions, within a period of 15 days which starts on the first day of the electricity supply.

Green energy payment The amendment states that the cost for supporting the purchase of electricity from renewable sources will now be calculated for households from the size of the circuit-breaker and for businesses from the reserved input to the network. To date, this payment—which is not a small amount on invoices—has been counted according to how much each customer consumes annually.

Daniel Pikal +420 251 152 974

Law

Law PwCAccounting Employees We invite youTax The Academy Appendix - Business in Africa

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Employees

Turkish citizens have free access to Czech labour marketTurkish citizens have the right to free access to the local labour market after four years of regular employment in the Czech Republic. Under the provisions of Section 98 e) of the Act on Employment, employers who employ these foreigners are obliged to inform the relevant branch of the Czech Labour Office about the start of work. Relatives of Turkish citizens working in the CR have the right to free access to the local labour market after five years of legal residence in the CR if they do not acquire this free access earlier under different grounds. This news was communicated by the labour market department of the General Directorate of the Czech Labour Office.

Jana Zelová +420 251 152 567

Uwe Schwalm is the new German Business Group leader in the Czech RepublicUwe Schwalm is taking over the roles and responsibilities as Assurance Partner and German Business Group leader in PwC Czech Republic as of

April 2015. He will also be in charge of key German clients in the CEE region.

Uwe has experience in audits of unlisted and listed companies and accounting under international accounting standards (IFRS), the German commercial code (HGB) or US GAAP in different industry sectors, e.g. automotive, defence, real estate, energy and telecommunications.

“Germany is the most important business partner of the Czech Republic, and German companies are among the key players in a number of industries on the Czech market. My goal is to strengthen good business relations with them and at the same time enter into deeper relationships with middle market German companies as they have a strong presence on the Czech market,” commented Uwe Schwalm on his appointment.

Uwe Schwalm (53) was promoted to PwC partner in 2001 after a three-year-secondment in New York. He is also a tax advisor and certified public accountant (CPA). He graduated with a degree in economics (University of Bonn). Uwe is married with one daughter and enjoys sports, particularly golf, tennis and running.

Bořivoj Líbal is joining PwC Legal as a managing partnerBořivoj Líbal will strengthen the team of PwC Legal as a managing partner. He specialises in corporate law and foreign and domestic acquisitions. In addition, he also focuses on company management and contract law. He started his career at Norton Rose, after which he worked at CMS Cameron McKenna. Since 2011, he was working at Havel, Holásek & Partners, where

he, in addition to other duties and responsibilities, led a variety of important Czech as well as international transactions. His role within PwC Legal is to build a strong and stable legal practice that will not only support other of PwC firms, but also successfully compete with other law firms in the Czech Republic.

Bořivoj successfully graduated from the Faculty of Law at Masaryk University in Brno in 2006. He also spent one year during his studies at the Faculty of Law at the University of Lisbon in Portugal, where he also studied Portuguese. During his career, he has proved himself to be a strong negotiator and strategist. His other activities include publication.

PwC hosted the conference on “Foreign economic relationships with countries in the Eurasian Economic Union”In the middle of April, delegates of Czech companies gathered on PwC’s premises with representatives from Belarus, Kazakhstan, Russia and Armenia.

The main theme of the meeting was investment opportunities for Czech companies in these countries.

The meeting was also attended by Sergey Borisovich Kiselev – the ambassador of the Russian Federation, Vasily Mikhailovich Markovich – the Belorussian ambassador, Sergey Kuzmich Stupar of the Russian Federation Business Council, and Milan Hovorka – advisor to the Minister of Industry and Trade.

PwC tax expert Zenon Folwarczny and Marek Kreisl of PwC Legal informed participants about the tax and legal aspects of doing business in the region. If you are interested in investing in this region, please feel free to contact us.

The event was organised by the Russian business representation in the Czech Republic together with the embassies of Russia, Belarus, Kazakhstan and Armenia; the Eurasian Economic Commission; the Russian-Czech Chamber of Commerce; the Chamber of Trade and Industry for CIS countries; and PwC Czech Republic.

Nominations for the Via Bona Award for philanthropy are openVia Bona will award individual and corporate donors for their thoughtful and inspired philanthropic actions. PwC CR is a partner of the competition for the sixth time.

The VIA Foundation in cooperation with the American embassy has opened nominations for the 18th annual Via Bona Award for philanthropy. Each year, this prestigious award highlights examples of donations, shows current

philanthropic trends and inspires new donors.

PwC Czech Republic is a partner of the Via Bona Award competition for the sixth year, covering the category for small and medium enterprises. Our colleague Vera Vytvarova, audit partner at PwC CR, also took up the patronage of the Via Bona Award 2015.

Nominate your favourites by 12 June. You can find all the information and the nomination form at www.cenaviabona.cz.

PwC

Law PwCAccounting Employees We invite youTax The Academy Appendix - Business in Africa

4

We invite you The Academy

News in investment incentivesDate: 9. 6. 2015, 9am – 12amPlace: PwC, Hvězdova 1734/2c, Prague 4

Registration: www.pwc.cz/investicnipobidky

For more information and registration, please fill in the registration form at www.pwc.cz/academy. Should you have any questions, please contact Lucie Kašparová, tel.: +420 251 152 035 or write to the.academy@cz.pwc.com.

www.pwc.cz/academy

Certified Internal Auditor: CIA 3 - Internal Audit Knowledge Elements

This five-day course will introduce Certified Internal Auditor – part 3 exam topics according to a new syllabus. These topics include governance and business ethics, risk management, organisational structure including business processes and risks, communication, management and leadership principles, information technology and business continuity, financial management and the global business environment.

Date: 15 - 19 June 2015 Place: PwC, Hvězdova 1734/2c, Prague 4 Time: 9am – 5pm Price: CZK 18,000 + VAT CZK 16,000 + VAT for CIIA members Language: English

Law PwCAccounting Employees We invite youTax The Academy Appendix - Business in Africa

Appendix - Business in Africa

You can manage your African business from Prague, Brno or Ostrava

AlgeriaAngolaBotswanaCameroonCape VerdeChadCongo (Brazzaville)Congo (Dem. Rep.)

Equatorial GuineaGabonGhanaGuineaKenyaMadagascarMalawiMauritius

MoroccoMozambiqueNamibiaNigeriaRwandaSenegalSouth AfricaSwaziland

TanzaniaTunisiaUgandaZambiaZimbabwe

We will be your single point of contact for all of Africa.We can coordinate your African business.

If interested, please, contact:

Zenon Folwarczny zenon.folwarcny@cz.pwc.com +420 251 152 580

Are you expanding to Africa?Do you conduct business activities in some of the African countries?Are you searching for answers to questions on tax, legal or other business topics?

PwC helps organisations and individuals create the value they’re looking for. We’re a network of firms in 157 countries with more than 195,000 people who are committed to delivering quality in assurance, tax and advisory services. Find out more and tell us what matters to you by visiting us at www.pwc.cz 

services

Contact

Jiří Moser Country Managing Partner PwC ČR +420 251 152 048

David Borkovec Lead Tax & Legal Services Partner +420 251 152 561

Věra Výtvarová Lead Assurance Services Partner +420 251 152 099

Miroslav Bratrych PwC Advisory Partner +420 251 152 084

Michael Mullen PwC Legal Partner +420 251 152 700

Prague OfficeHvězdova 2c, 140 00 Prague 4+420 251 151 111

Brno Officenáměstí Svobody 20, 602 00 Brno+420 542 520 111

Ostrava OfficeZámecká 20, 702 00 Ostrava+420 595 137 111

© 2015 PricewaterhouseCoopers Česká republika, s.r.o. All rights reserved. In this document, “PwC” refers to PricewaterhouseCoopers Česká republika, s.r.o., which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity.

Law PwCAccounting Employees We invite youTax The Academy Appendix - Business in Africa