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News in VAT, expected to become effective on 1. 1. 2012

Fučík & partneři
ff@fucik.cz
+420 296 578 300

18.10.2011

We would like to guide you through some significant changes related to the amendments, which are now being discussed in the Parliament of the CR, which may affect you starting from 1^st January 2012, and which may require some system changes in the application of VAT to be made in your company. Despite the fact that currently the amendment of the VAT Act was rejected by the Senate, it can be expected that the Chamber of Deputies will outvote the Senate and the amendment will be published in this wording in the Collection of Laws.

Change in tax rates

• Since 1^st January 2012 the reduced tax rate will be increased from 10 % to 14 %. The basic tax rate will be maintained at 20%.

• In relation to the increase in the reduced tax rate it is necessary to resolve the transfer between 2011 and 2012, for instance when accounting for advance payments. For the delivery of water, electricity, heat, etc. special temporary provisions will apply.

• Since 1^st January 2012 the amendment counts with the implementation of a unified tax rate for the value added tax at the rate of 17.5%.

Changes in the correction of tax base and tax amount

• The amendment will allow recalculating the corrected tax base expressed in foreign currency to CZK by a “unified exchange rate” valid as at the first working day in the calendar year. The supplier should have a choice to use either the exchange rate for CZK of the original taxable fulfillment or the exchange rate valid at the first working day of the calendar year.

• This possibility however may complicate life to the customer, who is obliged to decrease the claim for deduction in that taxation period, when the customer finds about the decisive circumstances for the occurrence of the obligation to make the correction of the tax base.

• Pursuant to the wording of the VAT Act, after the amendment the corrective tax receipt does not have to contain the concrete reference numbers of the original tax receipts and the payer may state on the corrective tax receipt only the summed up difference. Until now the simplifications were stated only in the Information of the General Financial Headquarters on the application of VAT for the so-called bonuses and discounts dated 29.4.2011.

Changes in the claim for deduction

• After the amendment it will again be possible to prove the missing particulars of the receipt including the TIN also in another way, if they are not stated at the receipt.

• For the technical improvement of buildings, apartments and non-residential premises, the amendment will stipulate a period for the adjustment of the claim for deduction to ten years, by which the interpretation problem was eliminated.

Securing order in VAT

• Starting from 1. 1. 2012 the VAT Act will be harder in cases when it is threatening that the tax is not paid by the tax entity. Pursuant to the amendment the securing order will be effective and executable as of the moment it is issued. The executable securing order will automatically become also the execution title, based on which the tax administrator may immediately initiate a tax execution.

Expansion of the guarantee for unpaid VAT by the supplier

• Since 1. 1. 2012 the guarantee for unpaid VAT by the supplier will apply also to cases when the customer pays for the taxable fulfillment to the supplier completely or partially by a wireless transfer to the account kept by the provider of the payment services outside of the domestic country and the supplier shall not pay to the tax administrator the VAT stated at the invoice (without the need to prove the intention).

Mechanism of transfer of the tax liability in case of construction works

• We would like to remind you that since 1. 1. 2012 the already valid provisions of Sec. 92e of VAT Act become effective, which transfer the obligation to assess tax for construction works from the supplier (the Czech taxpayer) to the customer (Czech taxpayer).

• The content of the notion “construction works”, defined by a reference to the unified classification, does not correspond to the common meaning of this word. It includes for instance also painting works, scaffolding works, demolition works, investigation drilling works. Electrical works, installation of blinds and sunshades, etc.

• The mechanism of transfer of the tax liability requires issuing special tax receipts, to keep special records for tax purposes and to present to the tax administrator the extract from such tax records in the format and structure provided by it.

• If this mechanism applies to your company, it is necessary to solve the transfer between years 2011 and 2012 – e.g. accounting for the received advance payments.

Other news

• In relation to the reformation of healthcare, there will be a change in the VAT Act. The amendment newly defines healthcare services and the related services in relation to the new acts adopted within the reformation package: the Act on healthcare services and the Act on specific healthcare services. With respect to the fact that under certain conditions these services are exempted from VAT, we recommend verifying the correctness of the application of VAT in this field. It can be assumed that the amendment will become effective in the first half of 2012.

• We would also like to remind you of the resolution of the EU Court of Justice in the case C-106/2010 Lidl & Companhia, according to which it is not possible to consider the supplier’s expenses as expenses expended in the name and on the account of the acquirer, if the person obligated to expend the expenses is the supplier. Such expenses cannot be taken out of the tax base of the tax fulfillment. When used in the CR, it is not possible to apply Sec. 36 para. 11 of the VAT Act providing for the recharging of costs. 

Should you have questions regarding changes, please contact your contact partner as usual.