Tax and Legal News – October 2023

What’s cooking in the Chamber of Deputies? 

The summer has whizzed by and the busy fall season is here. Cooler mornings, shorter days and ubiquitous germs are back. A lot of people I know don’t much care for the fall. So, it may be all the more surprising that, according to a recent US survey, 41% of American adults voted this season as their favourite.

This is also a challenging period for tax connoisseurs, given the traditional increase in activity of the Chamber of Deputies in the area of new tax legislation proposals. The imaginary “battle” for the attention of the tax advisor and the taxpayer is currently being fought by two major tax-related Chamber bills – numbers 488 and 515.

The first of these is the much-talked-about consolidation package, meaning lots of big changes that we’ve tried to keep you informed about. But I’d like to focus on one in particular: the proposal to remove the full exemption from income for securities and shares in a corporation for individuals.

The opponents of this proposal managed to pull off a last-minute stunt – postponing the effectiveness of the proposed change by one year (i.e. to 1 January 2025). Interestingly, the relevant amendment appeared sort of in passing, without much hype or attention (as the proposed change in employee benefits was the topic number one).

However, if I had to guess whether this time (after several previous failed attempts) the proposal to abolish the full exemption will succeed, I would say it will. First, politically, it doesn't seem like the best time to fight for the benefits of security holders (at least not publicly). How much better does the fight for benefits designed for the broader spectrum of employees sound, right? The second important aspect is that the latest proposal to abolish the full exemption provides a highly imaginative and original solution to the question of possible retroactivity. As a reminder, the proposal simplistically allows for the deduction – from future (taxable) income from the sale of securities or shares – of the market value of that security or share determined as of 31 December 2024 (31 December 2023 in the original proposal). The rule will probably also help those who would not qualify for the exemption under the current regulations due to failure to meet the time test. Under the current proposal, these taxpayers will also be able to choose whether to deduct the actual cost or the market value (as of 31 December 2024) from income realized after 2025. Well, anyway, we'll see how it all develops over the next year. Waiting tactics can sometimes be successful.  

And then there is Parliamentary Document 515 – Czech implementation of Pillar II, a topic we’ve consistently covered in Tax and Legal News over the past year. Quite rightly. For big taxpayers, this is likely to be one of the most significant tax moves in the last 30 years. The text of the paragraph-by-paragraph version of the law is essentially a rehash of the European directive and related OECD material. Moreover, it’s an extremely difficult text to read and understand, both for the layman and the tax adviser, and thus an ideal candidate for a navigable journey through the legislative process. This may also have been one of the reasons why the Government proposed to the Chamber that the bill be debated in a special way to enable the Chamber to give its assent to it on the first reading.

However, here too we got a surprise, because the Chamber of Deputies disagreed with this procedure. Thus, the bill has to earn its place in Czech legislation through the classic legislative route. The next discussion of the bill is scheduled for the session beginning on 10 October 2023 (as is the consolidation package Note: This commentary was prepared prior to this session).

Now, they just have to carry out the whole legislative process in time. If they do not, it would be rather bad news for the Czech state – any tax would probably be collected elsewhere. Although for some Czech taxpayers, it might make life easier for a year.

Of course, we will keep a close eye on further developments for you. You just enjoy the rest of the Indian summer in peace.