Tax and Legal News – September 2023

Life is change

Some 500 years BC, the Greek pre-Socratic philosopher Heraclitus formulated the idea that the only certainty is change. We tax people like to counter with a slightly more modern quote from Benjamin Franklin in 1789: Nothing is certain except death and taxes.

Our government has now managed to neatly tie it all together for us. On the last day of August, it sent an amendment to the consolidation package to the Chamber of Deputies. In its concise amended version, without the explanatory memorandum, the parliamentary document with the amendments is 211 pages long (the explanatory memorandum on selected amendments to the Income Tax Act alone is 21 pages long).

The original government proposal of 30 June sparked a whole series of discussions, negotiations, led by trade unionists, entrepreneurs, beekeepers... And so (despite the initial traditional folklore of "nothing will really change this time") negotiations and amendments began.

Every proper tax amendment in our country has always had a major, popular, controversial flagship. Typically, it was meal vouchers. Nothing fiscally interesting, but socially pressing, with a strong lobby at its back. For this year's consolidation package, it was employee benefits (so far).

At first glance, it’s a very simple and elegant change consisting in switching the benefits regime from exempt to taxable income, and now generally tax deductible. The motive was to unify the tax regime of ordinary wages and bonuses with the regime of benefits (and to prevent material bonuses from being translated into exempt benefits for children's school fees, above-standard health care, sports and cultural activities for the whole family, etc.). The result was complicated discussions about who and how much we tax when we rent out the gym for employees to play football every Thursday at 6:00 p.m.

In order to make the discussion thorough and complete, considerations around the tax treatment of so-called small snacks in the workplace (e.g. a bowl of fruit) were added. The related concept of "similar negligible benefits" is also introduced. The justification for the amendment then makes it clear in several lengthy paragraphs that refreshments are not income of the employee (however, they must not reach the size of a meal, i.e. they are not breakfast, lunch or dinner – if they do, the value of the meal is counted towards the exemption limit). I'm looking forward to the calculations of who ate what from the bowl and how extensive or insignificant it was for them. I hope no one ruins it for me with another amendment.

Just for the sake of completeness, when a business partner invites you to lunch, or you invite them, we have newly established that it should not be a taxable benefit for any of the participants, but the performance of work obligations.

As for benefits (real non-negligible benefits), the amendment works with a limit of 50% of the average wage (this would be a limit of CZK 20 162 for 2023). So I am also looking forward to the calculation and implementation of benefits in cafeterias, where companies currently provide employees with a limit of e.g. 25,000 per year.

Beekeepers fought back this year. The special provision on the amount of income from keeping bees for the purposes of the exemption was returned (with a slight reduction in the number of bee colonies from 60 to 50). Those of you who read the beekeepers' elaboration during the (this time very brief) comment procedure could not help but shed a tear. So a well-deserved win.

Then, out of the blue, we have the possibility to exclude unrealised exchange rate differences from taxation. A ground-breaking change. In addition, it will be left up to the taxpayer whether to opt for this regime or to stick with the current procedure. Calculations of the "advantage" of not taxing exchange rate gains but at the same time not deducting exchange rate losses will perhaps be even more interesting than the (in this light quite insignificant) benefits.

Another revolution is the introduction of a functional currency also for taxes (i.e. more as a proactive reaction to the amendment of the accounting regulations), but if the amendments in the currently proposed wording pass, there will be fewer exchange rate differences.

Behind the smokescreen of the above, a postponement of the abolition of the exemption for sales of companies (valued at over 40 million) until 2025 was subtly inserted into the amendment. So there will still be time for exempt sales. And the hunt for expert opinions as of 31 December 2023 is also postponed by a year.

We look forward to more amendments  because our only certainty is change (and those taxes and death). Otherwise, we wish all you parents out there a happy start to the new school year.