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Czech Parliament to Review Proposal for 7 Percent DST

Posted on Nov. 19, 2019

The Czech government has submitted to Parliament a draft Digital Services Tax Act that calls for a 7 percent DST on companies with global turnover exceeding €750 million annually.

The tax would apply to companies that provide targeted advertising, the use of a "versatile digital interface," and user data, among other services, and that have annual sales in the Czech Republic of over CZK 100 million (about $4.3 million), according to a November 18 Ministry of Finance release published after the government’s announcement.

On April 30 the MOF announced its plan for a DST at a rate far higher than similar taxes planned elsewhere in the EU. In September it proposed a 7 percent tax on selected internet services. With Parliament’s approval, the tax could be implemented in mid-2020 and could result in CZK 2.4 billion to CZK 6.6 billion of annual revenue for the country, according to a November 18 release on the government's website.

The government said the tax would be temporary and would expire in 2024. The MOF said the Czech Republic would still prefer an international solution to taxation of the digital economy and that the draft law was created because neither the OECD nor the EU has obtained a consensus on a unified plan.

The OECD is still working on its ambitious two-pillar program to develop unified international digital tax rules by the end of 2020. On October 9 the OECD proposed a unified approach under pillar 1 that would increase market countries’ taxing rights through a mix of revised nexus rules based on revenue and a three-tier hybrid formulary transfer pricing system.

The work, which includes a second pillar calling for global minimum taxation, is often referred to as BEPS 2.0 and is seen as an extension of the OECD's 2013 base erosion and profit-shifting project. Members of the inclusive framework on BEPS, which develops standards for the project and oversees their implementation, is expected to reach political agreement on a solution for BEPS 2.0 in June 2020. 

The Czech Republic is among several countries that have decided to enact their own digital taxes. France received pushback from the United States because its DST, approved in July, is seen as discriminatory against U.S. companies. In August French President Emmanuel Macron announced a French-U.S. agreement under which France will effectively give a tax credit to companies that paid the French DST once an international solution is reached. No further details about that agreement have been made available. 

U.S. trade groups have also raised concerns about Canada's 3 percent DST, which they consider a threat to the OECD’s work.

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