Here comes the digital tax!

Just as the new school year comes, so does come the activity on the field of legislative and brings the so-called digital tax. Thanks to its introduction, the Czech Republic should rank among the growing number of European economies (such as France, Spain or Italy), that are actively solving the imbalance between companies operating on a basis of traditional business models and companies operating under new business models of digital economy.

The Ministry of Finance submitted to the Government a proposal to introduce the digital tax in the Czech Republic in early September. The proposal introduces a standardized digital tax of 7 % on selected internet services provided domestically. The newly taxed services will be:

• Placing targeted advertising on the Internet;
• Digital mediation services;
• Selling user data.

Only those companies that meet two conditions will be subject to the digital tax. Firstly, it is a condition of having a global consolidated turnover of at least €750 million per year. The second condition it a turnover of at least CZK 50 million per calendar year for taxable services performed in the Czech Republic. Therefore, the new tax will not target the end users.

On the contrary, the intention is to fairly tax large technology companies, typically giants which run social networks, internet search engines, brokers of goods and services etc. However, it is absolutely crucial that these companies will not be established in the Czech Republic.

The tax base will be represented by revenues for the above-mentioned services attributable to Czech users. Users' nationality should be determined by IP addresses that companies will need to monitor.

However, the bill raises a lot of questions, especially regarding its practical application. We will keep you informed about further developments.