CZ: Instinct Quaterly - June 2017

instinct quaterly 06/2017
© 2017 IB Grant Thornton Consulting s.r.o. All rights reserved.
IB Grant Thornton Consulting s.r.o. je členská firma Grant Thornton International Ltd.
Introduction
Dear clients and readers
We almost had no time to stop for a while and enjoy the spring
sunshine and the season of financial statements, their audits and
tax returns is coming to its end. Nevertheless, even in these times
we prepared another issue of our newsletter for you.
And you definitely have something to look forward to!
At the very beginning, my colleague Hana Brothánková continues
in the updates of the country by country reporting and brings new
information on the delayed effectiveness of respective law. The
next article of Monika Chvalová reminds us of the reporting obliga-
tion of exempted income applicable in case of tax payers who are
natural persons.
When talking about natural persons, the following article of Anna
Šatrová deals with the issue of seconded employees.
Another interesting topic brought to you is the one on the resto-
ration of E-Sick Notes projects described in the article of
Ivana Hamplová.
The articles of Lucie Teplá and Ondřej Štědrý focus on the Electronic
Records of Sales and Ondřej has also contributed with brief infor-
mation concerning the application of VAT in free zones.
The accounting area in this issue is represented by the article of Jiří
Horáček on the calculation of consolidation difference.
A comment of Martina Hemrová on the Information of the General
Financial Directorate concerning the assessment of tax liabilities
(VAT, income tax and road tax) of the providers of transport
services (UBER) may seem as a little curiosity.
The last article of this issue is the one of Jiří Dvořák who informs us
about a survey on the support of hydrogen-powered cars in the
Czech Republic performed by the advisory team in the first quarter
of this year.
At the end you will find a tax calendar for the next quarter.
We would like to also invite you to one of our events. Some of the
approaching events are:
11. 10. 2017 Transfer Pricing business breakfast held in coopera-
tion with Schönherr s.r.o.
Have a nice time and I wish you all a peaceful vacation.
Gabriela Hoppe
Executive Director
+420 296 152 111
gabriela.hoppe@cz.gt.com

CbCR
Country by Counry Reporting – something new again
In the past issues of our newsletter we informed you on the introduction of Country by
Country reporting in the Czech Republic and the basic conditions a Czech parent com-
pany or its subsidiary has to meet to be covered by this obligation.
Let’s briefly go over the basic conditions:
The CbCR applies to a multinational group of companies with
a consolidated turnover of more than EUR 750 million
The report is submitted by the ultimate parent company, or
its representative company (also a Czech subsidiary if its parent
company is located outside the EU and is not obliged to file a CbCR
in its country)


The report contains data of all Group companies (information
or revenues between related and unrelated entities, their profits
or losses, information on tax obligations, number of employees,
assets, etc.)
Remaining Group companies have a reporting obligation; they
are obliged to inform the financial authority what Group company
is the ultimate parent company and what company is going to
prepare the country by country report.

Hana Brothánková
Tax Manager
+420 296 152 111
hana.brothankova@cz.gt.com

Postponed deadlines for the submission
of report
The first reporting period is the period beginning in 2016. The
original deadline was postponed during the legislation process
and according to the latest information from the General Financial
Directorate:
the information on what company is the ultimate parent com-
pany or its representative submitting the report should be submi-
tted by January 1st
, 2018 for the period of 2016
the report for 2016 should be submitted by April 30th
, 2018
Another important thing is that an electronic submission through
EPO (electronic portal of Financial Administration) will be the only
way how to submit both the information and the report itself. Czech
company, which is a member of several Groups, has to report each
Group separately.
As the CbCR has already been regulated through legislation in
most neighbouring countries, our recommendation is to check the
deadlines for associated obligations.
High sanctions may be imposed against those who fail to meet the
reporting obligation or the obligation to draw up the report.



Income tax
Duty to report income exempted from personal income tax
We would like to remind you of the obligation to report an exempted income of more than
CZK 5 000 000 received in 2016.
The deadline for reporting coincides with the deadline for submis-
sion of personal income tax return; i.e. those who used the services
of a tax advisor have to meet this obligation by July 3rd, 2017.
Please note that the obligation to report exempted income may
arise even if you are not obliged to file a tax return.
What income should be reported?
Incomes not reported in the personal income tax return as they are
tax exempted according to the Act on Income Tax, unless the data
are available from public sources.
These are, for example, the following types of income:
Income from the sale of a real estate
Income from the sale of
tangible assets
Received insurance com-
pensations



Income from the transfer of securities for consideration
Inheritance income
Winnings from lotteries and betting
Each individual income exceeding the limit of CZK 5 million shall be
reported.
What needs to be reported?
The following needs to be reported:
the amount of income
circumstances under which the income was obtained
the date of income
The reporting can be done through a form recommended or in
another way.






Penalties
A taxpayer may be penalized for a failure to comply with the repor-
ting obligations within stipulated deadline as follows:
0,1% of the income not reported, if the taxpayer meets the repor-
ting obligation later without being invited to do so;
10% of the income not reported, if the taxpayer meets the repor-
ting obligation within an alternative deadline, after being invited to
do so;
15% of the income not reported, if the taxpayer fails to meet the
reporting obligation within an alternative deadline.
Considering the circumstances, the tax authority may fully or
partially remit the penalty imposed.



Monika Chvalová
Tax Manager
+420 296 152 111
monika.chvalova@cz.gt.com

Employees
What’s new for seconded employees?
At present time, if an employer with a seat in another EU Member State (hereinafter the
„AMS“) sends employees to perform work in the Czech Republic, then the seconding
employer must secure that the employees will work having at least basic Czech working
conditions, if those conditions are more favourable to those employees. Some of the con-
ditions concern for example the number of working hours and vacation, minimum salary
including overtime payments or equal treatment of employees.
However, the practice shows that these conditions are not often
met and that is why the EU adopted a new directive aimed to
more efficient enforcement and control of the existing obligations.
These rules have been implemented in the Czech legislation
through amendments to the Labour Code that are effective as of
April 1, 2017, except for two provisions. Below is a list of the
most important changes introduced by the
amendments:
Labour Code
The Labour Code introduces a concept of liability where a party,
to whom an employee was seconded by the employer, shall now
guarantee that the salary of seconded employee will be paid. The
liability arises when these conditions are met:
a) Remuneration in the amount of minimum salary including
overtime payments was not paid by the employer based in AMS to
the employee seconded
Anna Šatrová
Senior Tax Consultant
+420 296 152 111
anna.satrova@cz.gt.com

b) A lawful fine was imposed to the employer for an offence under
Section 13 subs. 1b) or for an administrative tort under Section 26
subs. 1b) of the Act on Labour Inspection
c) Person to whom the employee was seconded to knew about the
remuneration not being provided or should and could have known
if due care had been exercised.
Act on Labour Inspection
A cross-border administration cooperation of labour inspection
authorities is being enhanced. Information and documents
identifying the secondment and controlling the compliance with
legislation in case of seconded employees will now be provided to
relevant authorities of the AMS.
State Labour Inspection Office is now obliged to publish informa-
tion on its websites concerning the work conditions of employees
seconded to work performance under the multinational provision of
services. This information must be provided in Czech language and
other languages most commonly used by seconded employees.
The Employment Act
A corporate entity or an individual, who acts as an employer, is
obliged to keep the copies of documents proving the existence
of employment relationship in the workplace. The seconding
employer from AMS is now required to have the copies of docu-
ments substantiating the existence of employment translated into
Czech language.
The recording duty of an employer to whom the employee is
seconded has been narrowed down. Some of the information
that do not have to be recorded by the employer any longer are
for example the highest education achieved, the classification of
economic activity, the period for which a work permit was granted
to the employees, etc.

e- Sick Notes
The possibility to issue an electronic sick note has existed since the turn of 2010 and
2011. In order to be able to use this electronic form, a doctor must have a special module
installed to the medical software, enabling direct communication with the Czech Social
Security Administration. Only about 2 % of the total number of sick notes has been issued
in electronic form up to this day.
The Medical Chamber, an association of general practitioners and
outpatient specialists, has refused the project of CSSA as unpre-
pared one from the very beginning.
The original deadline stipulated by the law for the mandatory
transition to electronic sick notes was April 1st, 2014. In 2013 the
deadline was postponed for the first time to January 2016, following
the pressure put by physicians; later on, the amendment on com-
pulsory electronic communication with the CSSA was cancelled
entirely without much information provided to public.
Main reasons for the cancellation of mandatory e-sick notes
were the arguments of the Medical Chamber, which defends the
interests of physicians, that due to objective reasons some of the
physicians will never work with the computer as one
fifth of the GP’s has no computer and only
60% of them has fast internet
connection. In some areas the
connection is nonexistent or
unreliable.
Now, almost seven years later the Ministry of Labour and Social
Affairs is trying to make use of the Act on Social Security Insurance
Contributions and wants to implement the legislation changes
needed for the introduction of electronic sick notes. If these
changes pass through the approval procedure, the e-sick notes
should work in a trial mode in the second half of 2018 and should
be obligatory for all physicians as of January 2019.
The advantages of this electronic system lie mainly in the fact that:
the doctor does not have to fill in the paper form called
„Decision on the temporary incapacity for work“ (hereinafter just
„DTIW“) obtained from the CSSA, or competent local social secu-
rity administration.
most of the data being provided is obtained from the medical
SW records; it is not necessary to fill them in repeatedly.
it is not necessary to deliver the paper DTIW to a competent
local social security administration.



the physician may monitor the processing of DTIW parts sent
electronically. The advantage is that a program answer is received
from the CSSA with a report on the outcome that is automatically
processed by the medical software. If an error is detected, the
doctor may immediately correct it and send it again.
Let’s believe, that the second and logical attempt to simplify the
work of both the physicians and the employees of local social
security administrations, who still have to record these documents
manually in the system of Czech Social Security Administration,
will succeed and that the new system will be designed as not to
discourage the physicians from its use but to motivate them to use
this system thanks to a simple access to the CSSA system without
the need for additional SW modifications.

Ivana Hamplová
Head of HR and Payroll Services
+420 296 152 111
ivana.hamplova@cz.gt.com

ERS
Do you electronically report your sales and use the services of external
transport companies?
If your answer to the above questions is YES, than you might be interested in the following
information on the moment of registration of sales the taxpayers receive via carriers.
The General Financial Directorate published a methodical pub-
lication on its websites for the taxpayers who use the services of
external carriers for the dispatch of goods (e. g. couriers or postal
service providers).
To determine when and whether there is an obligation to record
the sales received by an external carrier, it is necessary to deter-
mine under what contractual arrangements the carrier provides its
services. The options are as follows:
Direct Representation (Contracts of Mandate)
If the carrier accepts payments from custo-
mers on behalf of a taxpayer
(represented person) and
on taxpayer’s account, the

decisive moment for the evidence of sales is the acceptance
of payment by the carrier from the customer. In this case, the
taxpayer (represented person) is the one obliged to record the
sales. A subsequent receipt of payment by the taxpayer from
carrier is no longer subject to the evidence of sales.
The latest moment to record the sales is the moment of
acceptance of payment by the carrier. The registration duty may
thus be met at any time before that moment. Another option is to
provide the carrier with equipment necessary to record the sales or
to authorize the carrier to the recording.
Indirect Representation (Consignment Contract)
If the carrier accepts payments on own behalf and on taxpayer’s
account, the decisive moment for the evidence of sales is once

again the acceptance of payment by the carrier from the cus-
tomer. Unlike the direct representation, the obligation to record
goes to the carrier.
„Mediation“ Category
If there is no relation of direct or indirect representation between
the taxpayer and the carrier, the carrier acts as a „mediator“ (e.g.
provider of postal services ). In such a case, the taxpayer is the
one obliged to report and the decisive moment is the receipt of
payment from the carrier by the taxpayer.

Lucie Teplá
+420 296 152 111
lucie.tepla@cz.gt.com

10
ERS
ERS and Associates – Increased Limit for the Sales from
Ancillary Business
The Ministry of Finance has increased the limit of sales from ancillary business up to which
the associates do not have to keep the electronic records of sales. The limit was increased
from CZK 175 thousand to CZK 300 thousand per year or 5% of total income per year.
Ancillary activity is for example the organization of volunteer fire
brigade ball.
Despite this increase, the limit is still considered low by
the Association of Local Authorities, according to which the limit of
half a million Czech crowns would be a desirable one.
Ondřej Štědrý
+420 296 152 111
ondrej.stedry@cz.gt.com

11
VAT
Information of General Financial Directorate on the application of VAT
Act in free zones
The Amendment to the Act on VAT („VAT Act“) effective as of July 29, 2016 has introduced
a significant change in the application of VAT in the free zones. The reason for this is that
the VAT Act should follow up the customs regulations and the fight against tax evasion.
The term “free warehouse” has been left out from the customs regulations and the storage
in free zones is now among special customs regimes.
Before the amendment was in effect, the delivery of goods or the
provision of services relating to goods in customs warehouse or in
customs zone was considered an exempted supply with an entit-
lement for deduction. The supply of goods to a free house or a free
zone in the Czech Republic was also exempted from the tax with
a deduction entitlement.
The above mentioned provisions have been left out
since the amendment came into effect.
Business in free zones is
treated the very same way as
business in the Czech Republic. Both the delivery of goods to a free
zone and within the free zone is now a standard taxable supply
subject to VAT.
A simple example:
Situation before July 29, 2016: Company A sold goods to Company
B. The goods were located in the free zone following the decision of
customs office. This transaction was exempted from VAT in compli-
ance with Section 66/4 of the VAT ACT. Company B had the goods
reprocessed and sold them to Company C in the free zone. The
reprocessing service and subsequent sale were exempted from
VAT. Company C could then e.g. sell the goods in the free zone,
export them or import them to another member state. Any return of
the goods to the Czech Republic was considered as import.
Situation after July 29, 2017: The exemption is not applied and all
the transactions above are subject to standard VAT regime.
The General Financial Directorate issued information in April 2017
that deals in detail with the individual types of business transac-
tions in the free zone.
Ondřej Štědrý
+420 296 152 111
ondrej.stedry@cz.gt.com

12
Consolidation
Alternative method of consolidation difference calculation
On April 10th
, 2017 the National Accounting Board published an interpretation concerning
an alternative solution applied when determining consolidation difference in specific
situations
Czech accounting standard no. 020 defines the consolidation
difference (CD) as a difference between the acquisition cost of
the shares of the consolidated accounting entity and their value
according to the share interest of the consolidating accounting
entity in the amount of the equity expressed at fair value as at the
date of acquisition or as at the date of share increase.
The date of acquisition is stipulated as a date on which the con-
trolling entity begins to exercise control over the consolidated
accounting entity. The calculation of difference concerns the
subsidiaries, associates and joint ventures.
However, the CAS no. 020 does not address the
problem that might actually occur if
the obligation to consolidate
arises several years after
the date of acquisition and
the determination of actual values of assets and liabilities is thus
quite problematic. (The interpretation does not apply to accoun-
ting entities that had already prepared the consolidated financial
statements prior to the acquisition of shares; these entities proceed
in compliance with CAS no. 020)
The consolidation difference is depreciated over the period stipu-
lated by the accounting entity, but 20 years at most. In the period
between the date of acquisition (increase in) share and the date
of first consolidated balance sheet the depreciation is recognized
against the consolidated retained earnings of previous years (as
a part of equity). In the following period the CD is depreciated as
an expense of the respective period.
Another option is the determination of positive or negative CD out
of the acquisition cost and the accounting value of equity as at the
date of original consolidated balance sheet, i.e. as at first date of
comparable period. The CD is than offset with retained earnings of
previous years. The consolidated balance sheet thus shows zero CD.
An advantage of this procedure is the fact that it might be applied
for all types of businesses that are included in the consolidated
financial statements. If an unpaid loss of previous years or even
a negative equity were reported due to the above procedure, it
should not be applied. In these cases it is more appropriate to
proceed in line with the provisions of the CAS no. 20.
In the end let us point out that the accounting entity should indi-
cate the calculation of CD for each company in the notes to the
first consolidated statements together with a method of calculation
of the consolidated undistributed profit or loss.
Jiří Horáček
Audit Assistant
+420 296 152 111
jiri.horacek@cz.gt.com

13
Tax Obligations
Tax Obligations of UBER Drivers
UBER is a service that connects drivers with potential customers. It works on a principle
of mobile application through which the customer requests the ride that is subsequently
confirmed by the driver. As this service is charged, the General Financial Directorate has
focused on summarizing the tax obligations of drivers providing passenger transport th-
rough UBER application and on May 29 it published the „Information on tax obligations of
the providers of transport services (UBER)“ document. The list of tax liabilities covers VAT,
income tax and road tax.
Value Added Tax
The Act on VAT No. 235/2004 Coll., as amended, stipulates that an
individual providing the transport of persons through
UBER application is subject to tax if s/he
carries out a business activity. Transport provided by a driver who
is VAT payer falls within standard taxable supplies. Driver becomes
VAT payer upon reaching the turnover of CZK 1 000 000 for the
preceding 12 months. The provider of transport is also a recipient
of service from UBER (located in different member country) ena-
bling the access to software. This implies that the place of taxable
supply is in the Czech Republic and that the drivers are obliged to
deduct tax for the service received. A person who is not VAT payer,
but receives service from a non-resident, becomes an identified
person.
Martina Hemrová
Tax Assistant
+420 296 152 111
martina.hemrova@cz.gt.com

14
Tax on Personal Income
According to Section 420 of the Act No. 89/2012 Coll., Civil Code,
the provision of transport services through UBER application shows
all features of the business. The income of the provider who is a
natural person is subject to personal income tax. The income of the
driver who performs this activity based on trades licence is taxed
under Section 7 subsection 1b) of the Income Tax Act. The costs
may be claimed either in the actual amount or as a percentage
(60) of the income. The income of drivers without trades licence
is taxed under Section 7 subsection 1c) of the Income Tax Act. If
these drivers do not claim actual costs, they may claim 40% of the
income. Each individual with income arising from self-employment
has to register within 15 days from the commencement of business
activity or from the receipt of income from business activity. The
taxpayer is obliged to file a tax return at the end of taxable period
if the annual income subject to personal income tax exceeds CZK
15 000 or is s/he shows tax loss. Tax return does not need to be
filed by an individual with income from dependent activity who
signed tax declaration at the tax payer and has no other income
exceeding CZK 6000 in compliance with Sections 7 to 10 of the
Income Tax Act.
Road Tax
Vehicles registered and used in the Czech Republic by drivers who
provide transport services through mobile application UBER are
subject to road tax. Any vehicle used by the driver, the income of
which is subject to tax on income from independent activity, is sub-
ject to road tax in the month in which it was used for this activity.

15
Hydrogen-powered
cars
Czechs support hydrogen-powered cars. Price is the key factor
together with the density of fuel stations.
Czechs look with favour on the alterna-
tive hydrogen power. This is the result of
a survey of 630 respondents from all over
the Czech Republic, which we realized in
the first quarter of this year within a com-
prehensive study prepared for the Ministry
of Transport.
The survey shows that the future of hydrogen-powered cars is
closely linked to their price. A total of 69 % respondents said they
would not buy a hydrogen-powered car if it was more expensive
than a conventional car with classic combustion engine. Three
out of ten people would be willing to accept a price higher by 25%
and only 3.5 % of the respondents would accept a price higher by
50%. If the costs of operation were lower or at least the same as in
case of conventional car with combustion engine, than up to 95%
of respondents would consider buying a hydrogen-powered car
as an alternative. High price and operating costs are perceived as
one of the main risks of mass use of hydrogen-powered vehicles.
State support or support from producers would mean a positive
purchase incentive for 9 out of 10 respondents.
When it came to the driving range or time needed for refuelling,
the respondents were more lenient; 60 % of them would not mind if
they had to fuel their car twice as long compared to conventional
cars. Total driving range of less than 500 km would not be a pro-
blem for 66 % of people. The positive thing is that the respondents
are not afraid of the hydrogen technology. Altogether, 87 % of them
considered this type of fuel safe or rather safe. Considering, that
hydrogen-powered cars are not common in our country yet, two
thirds of people knew that these cars are already being produced.
The infrastructure, mainly the density of hydrogen stations, appears
to be crucial when considering the purchase. The lack of hyd-
rogen filling stations would discourage 90 % of respondents from
Jiří Dvořák
Manager
Grant Thornton Advisory s.r.o.
+420 224 813 299
jiri.dvorak@cz.gt.com

16
purchasing a hydrogen-powered car. This is understandable.
People do not want to drive cars that can barely be refilled. It is
up to the Czech state to come up with a strategy and to give both
the producers and the drivers a clear signal whether they take the
hydrogen power into account and how they plan to support it. As
for the fuel station operators, our analysis showed that especially
Unipetrol (Benzina to be specific) with its largest network of petrol
stations in the Czech Republic focuses on the development of
hydrogen filling stations.
We are currently working on an extensive study of hydrogen
propulsion in the Czech Republic. While in Munich, Germany there
is already a “BeeZero” project going on, where everyone can rent
a hydrogen-powered car for a short-time period, Czech Republic
is still in the concept preparation stage. Although there has been
a non-public hydrogen filling station since 2009 in Neratovice near
Prague and the prototype of hydrogen-powered TriHyBus is being
tested, any future development is still being awaited.
The development of hydrogen mobility is only at its beginning.
However, the Czech Republic is likely to move the right direction in
the years to come. Germany and its plans in this area might be
a good example.

17
July 2017
Monday,
July 3rd
Income Tax tax return and payment of tax for 2016, provided that the
tax payer is obliged to have statutory audit and the tax
return is submitted by a tax advisor
Monday,
July 7th
Excise Duty tax for May 2017 due (except excise duty on ethyl alcohol)
Monday,
July 17th
Road Tax tax advance for 2nd quarter 2017
Thursday,
July 20th
VAT tax return and tax to MOSS
Income Tax monthly payment of total withheld tax on the income of
individuals from dependent activity
Tax Calendar
Tuesday,
July 25th
VAT tax return and tax for 2nd quarter and June 2017
EC Sales List for 2nd quarter and June 2017
Control Statement for 2nd quarter and June 2017



Energy Tax
tax return and tax on gas, solid fuels and electricity for
June 2017 due
Excise Duty tax return for June 2017
tax return for the refund of excise duty refund on
petroleum oil and other (technical) petrol for June 2017
(if applicable)
tax for June 2017 due (only excise duty on ethyl
alcohol)



Gambling Tax tax for June 2017 due (only excise duty on ethyl alcohol)
Monday,
July 31st
Income Tax withholding tax payment based on special tax rate for
June 2017

18
August 2017
Wednesday,
August 9th
Excise Duty tax for June 2017 due (except excise duty on ethyl
alcohol)
Monday,
August 21st
Income Tax
monthly payment of total withheld tax on the income of
Thursday,
August 24th
Excise Duty tax for July 2017 due (only excise duty on ethyl alcohol)
Friday,
August 25th
Excise Duty tax return for July 2017
petroleum oil and other (technical) petrol for July 2017 (if
applicable)


VAT tax return and tax due for July 2017
EC Sales List for July 2017
Control Statement for July 2017



Energy Tax tax return and tax on gas, solid fuels and electricity for
July 2017 due
Thursday,
August 31st
Income Tax withholding tax payment based on special tax rate for
July 2017
Property Tax 1st tax instalment due (farm producers and fish breeders
with tax obligation exceeding CZK 5 000)
September 2017
Monday,
September 11th
Excise Duty tax for July 2017 due (except excise duty on ethyl alcohol)
Friday,
September 15th
Income Tax quarterly tax advance
Wednesday,
September 20th
Income Tax
monthly payment of total withheld tax on the income of
Monday,
September 25th
Excise Duty tax for July 2017 due (only excise duty on ethyl
alcohol)
tax return for August 2017
petroleum oil and other (technical) petrol for August 2017
(if applicable)



VAT tax return and tax for August 2017
EC Sales List for August 2017
Control Statement for August 2017



Energy Tax tax return and tax on gas, solid fuels and electricity for
August 2017 due

CZ: Instinct Quaterly - June 2017

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CZ: Instinct Quaterly - June 2017