Česká implementace Pilíře 2 – výjimka pro počáteční fázi

Czech implementation of Pillar 2 - exception for the initial phase

Recently, a draft Czech implementation of the Pillar 2 rules was published - i.e. a draft law on top-up taxes for the purpose of ensuring a minimum level of taxation of large multinational or domestic groups (the TT Act). We have previously informed you about the administrative aspects and the so-called safe harbours under this Czech implementation.

This time, we bring you selected observations on an interesting exception for the initial phase of the group's activity under §117 of the TT Act and in the sense of Article 49 of the EU Directive on ensuring a global minimum level of taxation of large multinational or national groups.

In simple terms, this is an exemption from the application of

• the under-taxed profits rule (UTPR) and
• the "domestic part" of the Income Inclusion Rule (IIR) for the ultimate parent entity (or intermediate parent entity if the ultimate parent entity is an excluded entity).

The exception can be applied in the so-called "initial period" of the international activity of the group (simplified to the first 5 years of application of the DD rules), provided that in that year

• the constituent entities of the group have a place of establishment in no more than 6 jurisdictions; and
• the sum of the net book value of tangible assets of all constituent entities having their place of establishment in a country other than the reference country (i.e. the one with the highest value of assets) does not exceed EUR 50 million.

The fulfilment of the conditions for the application of this exemption must be reported to the tax authorities.

From our point of view, the crucial question in this context is whether, despite the fulfilment of the conditions for this exception, domestic TT can be applied (imagine, for example, a Czech group with a few not very material subsidiaries/operating companies outside the Czech Republic).

We will bring you more interesting insights on interesting exceptions and other aspects next time.

If you have any questions, please contact the author of this article or the EY tax team you regularly work with.

Author:

Karel Hronek