The Minister of Finance has presented a draft of a tax reform package for public discussion. Comments and proposals that should be submitted will then be taken into account in the final bill. According to the Minister, the main objective of the reform is to reduce paperwork both for taxpayers and the state administration and to have simpler and more comprehensible regulations.
According to the draft, the administration of taxes, customs and social security contributions should be united in a single institution. Another objective is to computerise as much as possible the process of tax collection.
In the field of corporate income tax, for partnerships two alternatives are being considered: to maintain the current regulations or to tax partnerships in the same way as all other companies. Another proposal is to make all employee related costs tax-deductible. Two options are being discussed for expenses for benefits not directly related to income generated by the employer. The first is that the expenses should be tax-deductible if they are subject to social security and health insurance; the second is that such payments should not be tax-deductible, even if they are subject to social security and health insurance.
Other proposals put forward by the Minister of Finance are: the dividend exemption should be retained in its current form; the exemption of income from the sale of shares should be limited to sales within a group of related entities (with at least 25% common ownership).
In the field of transfer pricing a requirement should be introduced to keep documentation for all transactions with related parties.
The Minister plans to maintain the allowance for research and development , but the exact form of is under review. At the same time, allowances for research and development purchased from universities should be introduced as long as the assets created by the research and development would be used in the Czech Republic.
With regard to thin capitalisation, the proposal intends to give the taxpayer the possibility to show that the actual debt/equity ratio, although higher than the statutory ratio, is arm’s length and that a loan would be obtainable under comparable conditions from an independent (unrelated) entity. The basic debt/equity ratio of 2:1 would be maintained.