Top-up tax

Martin Sotolář 
The Act on Top-Up Taxes for Large Multinational Groups and Large National Groups (hereinafter the "Top-Up Taxes Act") is the result of long-term cooperation of the European Union States against the base erosion of the tax base and profit shifting via states with a low level of taxation, especially via so-called tax havens. The new legislation practically introduces two new taxes - the so-called domestic Top-Up tax and the assigned Top-Up tax. 

While the domestic top-up tax is aimed at entities operating in the Czech Republic and the idea is to secure income from domestic sources (in other words, to support the idea of taxation at the place where the profit is created), the assigned Top-Up tax will be imposed on parent companies.

The purpose of the Top-Up Taxes Act is to establish a minimum rate of effective tax that a multinational group or a national group of companies applies. The threshold for such a group of companies was set as consolidated revenue for the entire group in the amount of EUR 750 million in two of the last four periods. A group defined in this way is obliged to pay such profit tax that the effective tax rate is at least 15%

The effective tax rate itself is based on financial statements and it is calculated as the ratio of total taxes (specifically payable and deferred taxes) and the total of so-called qualified profits. This ratio is then compared for all companies in a given country (e.g. in the Czech Republic). In this respect, please be informed that the data used for the consolidated financial statements compiled by the ultimate parent company are considered the primary data source.

However, there is one difference between the data for the compensatory tax and the standard consolidated financial statements, and that is the situation in which the subsidiary company is excluded from the consolidated financial statements, for example, due to insignificance, etc. This difference needs to be taken into account for the purposes of calculating the top-up tax.

Therefore, if the company is part of a group with consolidated revenues of EUR 750 million, it is necessary to verify the effective tax rate with which the company's income is burdened. If the ratio of total taxes and so-called qualified profits is less than 15%, such a company is obliged to pay a matching tax and thus "match" the tax paid so that an effective tax rate of at least the aforementioned 15% is achieved.

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Andrea Kleinová
Andrea Kleinová
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