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Czech Finance Ministry Proposes 7 Percent DST

Posted on Sep. 6, 2019

The Czech Ministry of Finance has proposed a 7 percent digital services tax payable by companies with global turnover exceeding €750 million and local turnover of at least CZK 50 million (about $2.13 million).

The tax on "selected internet services" would apply to turnover from advertising, multilateral digital interfaces with more than 200,000 user accounts, and user data sales, according to a September 5 MOF release.

The government received the finalized proposal September 5. The MOF had announced preliminary plans for a 7 percent DST April 30. If adopted by the Parliament, the tax would take effect in mid-2020. The government estimates the DST would raise CZK 2.1 billion (about $89.4 million) for next year’s budget and CZK 5 billion annually thereafter.

The DST is designed to avoid adversely affecting companies that aren't involved primarily in digital activities, according to Finance Minister Alena Schillerová. "The digital tax will indeed apply to the most important global players who have achieved a strong position in our market,” she said.

The Czech tax has been presented as a temporary measure to be applied until an international solution to digital taxation can be found, as was France's 3 percent DST, which became law in July.

“Internet giants do not pay taxes in our country to an extent that would match their profits in our country, which is unfair to other companies in the Czech Republic that pay the taxes. We have long supported the search for a common international solution, but unfortunately, negotiations at EU and OECD levels will take some time,” Schillerová said.

Polish officials had indicated that a digital taxation proposal could emerge this fall, but no such legislation is included in the country's fall budget, according to the Finance Ministry. The tax became a subject of controversy when Vice President Mike Pence thanked Poland for ruling out a tax on American digital companies during a recent visit.

“The United States is also deeply grateful that you rejected proposals for a digital service tax, which would have hampered trade between our two nations,” Pence said in Warsaw, as reported by the White House  September 2.

A spokesman for the Polish Finance Ministry told Tax Notes that although there is no DST provision in the 2020 draft budget, the ministry is still evaluating the proposal and will continue discussions with the EU and the OECD.

The Office of the U.S. Trade Representative had not issued a statement regarding the Czech DST proposal, clarified Pence’s statement, or responded to queries by press time.

Other EU countries considering a digital tax include Italy, Austria, Spain, and the United Kingdom.

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