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Czech government gives green light for digital tax on tech giants

Czech Republic
05/12/2019
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On 18 November 2019, the Czech government approved a draft bill that introduces a 7% digital tax on large technology businesses.

In introducing this bill, the Czech Republic is following the example of Austria and France that applied their own digital taxes after the European Commission failed to reach a bloc-wide agreement on the issue last year, due to opposition from Ireland, Finland and Sweden.

According to the government, the underlying reason for this tax is the need to balance the national interest in taxing income generated in the territory given that these companies usually remit taxes in the countries they are headquartered in.

Under the draft bill, technological giants will be subject to this tax if they boast a global turnover of over EUR 750 million where the annual turnover in the Czech Republic is at least CZK 100 million (EUR 3.9 million) with a minimum of 200,000 Czech user accounts. The proposed tax will be imposed on internet services provided in the territory of the Czech Republic and will specifically include income generated by targeted advertising placed on a digital interface; the use of a multilateral digital interface; and the sale of user data.

As a model for this tax, the Czech Ministry of Finance proposes adapting the digital services tax as earlier proposed by the European Commission. According estimates, such a tax should bring CZK 5 billion (EUR 196 million) annually to the state budget.

The Ministry also disclosed in its press release, that the draft bill will also exempt certain companies whose business activity includes digital services, but only a minority of these firms are expected to be eligible for a tax break. Exemptions are expected to be based on the proportion of taxable revenue for services rendered in Europe. Specifically, companies with 10% or more European-based revenue will be exempted from this tax. The exemption was included in response to the suggestions from the expert public.

The law is expected to be in effect until 2024 when it is expected that a harmonised digital taxation scheme will be in place on the EU or OECD level.

For more information, please contact your usual contact at CMS or one of the following local experts: Petr Beneš, Tomáš Matějovský and Patrik Przyhoda.

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