February Deloitte Czech Republic. Accounting news Czech Accounting, IFRS and US GAAP. Tax news Direct, indirect and other taxation

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1 Accounting news Czech Accounting, IFRS and US GAAP Tax news Direct, indirect and other taxation Legal news Newly proposed legislative changes ICT news Data governance and TM predictions Deloitte Czech Republic Grants & Incentives news News from Grants and incentives area Real Estate News Selling Prices Map

2 Accounting news Czech Accounting Forthcoming Amendment to the Accounting Act IFRS Closing Out 2014 IASB finalised amendments to IAS 1 under the Disclosure initiative IASB issued amendments regarding the application of the investment entities exception IFRS EU Endorsement Process New IFRS Publications by Deloitte Czech Republic Accounting news Deloitte Czech Republic US GAAP Recently issued FASB Accounting Standards Updates

3 Accounting news Czech Accounting Forthcoming Amendment to the Accounting Act IFRS Closing Out 2014 IASB finalised amendments to IAS 1 under the Disclosure initiative IASB issued amendments regarding the application of the investment entities exception IFRS EU Endorsement Process New IFRS Publications by Deloitte Czech Republic US GAAP Recently issued FASB Accounting Standards Updates Forthcoming Amendment to the Accounting Act In this issue, we would like to introduce the forthcoming amendment to Act No. 563/1991 Coll., on Accounting and related regulations, which was prepared by the Ministry of Finance and submitted to the government for approval at the end of The amendment is expected to take effect from 1 January The principal objective of the amendment is to transpose Directive 2013/34/EU of the European Parliament and of the Council of 26 June 2013 on the annual financial statements, consolidated financial statements and related reports of certain types of undertakings (hereinafter the Directive ) in the Accounting Act. In fact, the Directive has replaced the so-called 4th and 7th Accounting Directives of the European Parliament and the Council. Pursuant to the decision of the European Union, member states are obliged to incorporate the new Directive in their accounting legislation by 20 July The Directive is expected to come into effect from 1 January 2016, or during 2016, depending on particular decisions of individual member states. The Directive principally focuses on small and medium-sized enterprises, specifying their characteristics and respective obligations. Detailed information on the Directive is available in our Accounting News, issued in January Pursuant to the individual provisions of the Directive, a member state may enable certain simplification for micro and small entities or even be exempt from some obligations that otherwise apply to medium-sized and large entities, including public-interest entities. The opportunity for simplification and exemption predominantly relates to disclosing data and information in financial statements as well as publishing financial statements, preparing and publishing annual reports and the audits of financial statements and annual reports by independent auditors. The presented amendment to the Accounting Act formulates the opportunities for simplification and exemption to a maximum extent in order to reduce the administrative burden for micro and small entities. The main proposed factual modifications of the Accounting Act, resulting from the transposition of the Directive in the Accounting Act, primarily include: 1. Introducing the categorisation of entities The following categories of entities shall be distinguished as follows (this categorisation is proposed to take effect from 1 January 2016): micro entity, small entity, medium-sized entity and large entity. The classification of the given entity under the relevant category depends on achieving or exceeding at least two of three defined criteria (ie the value of assets, net turnover and the average number of employees), as of the balance sheet date as follows: 2

4 Accounting news Czech Accounting Forthcoming Amendment to the Accounting Act IFRS Closing Out 2014 IASB finalised amendments to IAS 1 under the Disclosure initiative IASB issued amendments regarding the application of the investment entities exception IFRS EU Endorsement Process New IFRS Publications by Deloitte Czech Republic Micro entity is an entity that does not exceed the limits of at least two of the following three criteria as of the balance sheet date: a. Total assets of CZK 9,000,000; b. Annual net turnover of CZK 18,000,000; and c. The average number of employees in the reporting period: 10. Small entity is an entity that is not a micro entity and that does not exceed the limits of at least two of the following three criteria as of the balance sheet date : a. Total assets of CZK 100,000,000; b. Annual net turnover of CZK 200,000,000; and According to the explanatory memorandum to the amendment, most entities in the Czech Republic will be classified as small and micro entities. Owing to this fact, there is a proposal for further categorisation of small and micro entities, for the purposes of granting an exemption from certain obligations. The more detailed classification into sub-categories shall be based on the fact whether the obligatory audit of financial statements applies to the given small or micro entity. The categorisation of entities is important for imposing accounting obligations. A new provision specifies that the financial statements of business companies shall also contain the cash-flow statement and the statement of changes in equity. 3 c. The average number of employees in the reporting period: 50. Medium-sized entity is an entity that is neither a micro entity, nor small entity, and which does not exceed the limits of at least two of the following three criteria: a. Total assets of CZK 500,000,000; b. Annual net turnover of CZK 1,000,000,000; and In addition, the amendment to the Accounting Act proposes a number of potential exemptions: Small and micro entities shall not prepare the cash-flow statement and the statement of changes in equity; The notes to the financial statements of small and micro entities shall only include a portion of data, compared to the full-scale information disclosed by large entities; US GAAP Recently issued FASB Accounting Standards Updates c. The average number of employees in the reporting period: 250. Large entity is an entity that exceeds the limits of at least two of the criteria defined for medium-sized entities as of the balance sheet date. Public-interest entities are always treated as large entities. Micro entities will not use fair value measurement; All micro and small entities (of business and non-business nature) without the obligatory audit of financial statements: -- Could prepare a shortened version of financial statements; -- Would not be obliged to publish the profit and loss account; -- Would not be obliged to prepare the annual report; and All medium-sized, small and micro entities would be exempt from the obligation to disclose non-financial data.

5 Accounting news Czech Accounting Forthcoming Amendment to the Accounting Act IFRS Closing Out 2014 IASB finalised amendments to IAS 1 under the Disclosure initiative IASB issued amendments regarding the application of the investment entities exception IFRS EU Endorsement Process New IFRS Publications by Deloitte Czech Republic US GAAP Recently issued FASB Accounting Standards Updates 2. Introducing the categorisation of consolidation groups In compliance with introducing the categorisation of groups of entities, small, medium-sized and large consolidation groups will be newly differentiated. The classification into the relevant group will also depend on achieving or exceeding the limits of at least two of three defined criteria (ie the value of assets, net turnover and the average number of employees) as of the balance sheet date. Small groups of entities will be exempt from the obligation to prepare consolidated financial statements. A small group of entities is a group comprising the consolidating entity and consolidated entities and that, on a consolidated basis, does not exceed the limits of at least two of the following three criteria as of the balance sheet date: a. Total assets of CZK 100,000,000; b. Net turnover of CZK 200,000,000; and c. The average number of employees in the reporting period: Identification of a public-interest entity A public-interest entity is currently defined in Act No. 93/2009 Coll., on Auditors. It has been proposed to remove this definition from this act, modify it and incorporate in the amendment to the Accounting Act. Public-interest entities include: a. Entities with their registered office in the Czech Republic that are companies and issuers of investment securities admitted to trading on the European regulated market; and 4. Introducing the obligation to prepare and publish a report on payments to governments This report shall be prepared by large entities and public-interest entities, predominantly for the purposes of increasing the transparency of payments to governments. This will apply to entities active in the extractive industry or the logging of primary forests. The amendment also includes other minor adjustments, primarily related to completing the recodification of private law, as well as legislative and technical modifications. The amendment also includes a new treatment to the single-entry bookkeeping regime and its possible use by the relevant entities in case the defined criteria are met. This mainly relates to very small entities that were not established to generate profit (eg small associations) and for which double-entry bookkeeping would pose a significant administrative and financial burden. The amendment to the Accounting Act is also related to the proposed modifications of the Income Taxes Act, the Act on Reserves and the Act on Auditors. We would like to point out that the above facts may be changed during the process of approving the amendment. The complete wording of the proposed amendment to the Accounting Act is available here. 4 b. Entities with their registered office in the Czech Republic that include banks, savings and credit associations, insurance or reinsurance companies, pension companies and health insurance companies.

6 Accounting news Closing Out 2014 Czech Accounting Forthcoming Amendment to the Accounting Act IFRS Closing Out 2014 IASB finalised amendments to IAS 1 under the Disclosure initiative IASB issued amendments regarding the application of the investment entities exception IFRS EU Endorsement Process New IFRS Publications by Deloitte Czech Republic US GAAP Recently issued FASB Accounting Standards Updates This article provides a high-level overview of new and revised Standards and Interpretations that are effective for December 2014 calendar yearends and subsequent accounting periods. Entities are, however, generally permitted to adopt new and revised Standards and Interpretations in advance of their effective dates (refer to individual Standards and Interpretations for additional details).this article provides a summary of IFRSs and interpretations that an entity may elect to apply for the year ended 31 December Where applicable, we have made reference to past issues of Accounting News dealing with the specific Standard or Interpretation in greater detail. These past newsletters are also available at As always, entities should refer to the Standards and Interpretations themselves to identify all of the changes that may affect their particular circumstances. Where a Standard or Interpretation is adopted in advance of its effective date, disclosure of that fact is generally required. Even where there is no intention to implement a Standard or Interpretation in advance of its effective date, entities need to be aware of new Standards and Interpretations as they are issued, in order to comply with the requirement included in IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors to disclose in their financial statements the potential impact of Standards and Interpretations in issue but not yet effective. Finally, a word of caution regarding early adoption of Standards and Interpretations in the case of entities that prepare financial statements according to IFRS as adopted by the European Union (EU). Standards, Interpretations and amendments to the existing standards, which were not endorsed for use in the EU, cannot be applied by the entities preparing their financial statements in accordance with IFRS as adopted by the EU. The effective dates of IFRSs issued by the IASB and IFRSs as adopted by the EU can be different. New and Revised Standards and Interpretations The following tables provide a list of new and revised Standards and Interpretations in issue at December 2014 that are either effective, or available for early adoption, for 31 December 2014 calendar year-ends. All of the newsletters referred to may be found on here. 5 We therefore recommend reviewing further newly issued amendments to standards and interpretations that will be approved by the date of the issuance of a company s financial statements. We will be providing updates on these developments on and in our Accounting News.

7 Accounting news Effective for 31 December 2014 year-ends Czech Accounting Forthcoming Amendment to the Accounting Act IFRS Closing Out 2014 IASB finalised amendments to IAS 1 under the Disclosure initiative IASB issued amendments regarding the application of the investment entities exception IFRS EU Endorsement Process New IFRS Publications by Deloitte Czech Republic US GAAP Recently issued FASB Accounting Standards Updates New and revised IFRSs on consolidation, joint arrangements, associates and disclosures Effective for annual periods beginning on or after Effective in the EU for annual periods beginning on or after Accounting news IFRS 10 Consolidated Financial Statements 1 January January 2014 August 2011 IFRS 11 Joint Arrangements 1 January January 2014 August 2011 IFRS 12 Disclosure of Interests in Other Entities 1 January January 2014 August 2011 IAS 27 (2011) Separate Financial Statements 1 January January 2014 August 2011 IAS 28 (2011) IFRS 10, IFRS 11 and IFRS 12 IFRS 10, IFRS 12 and IAS 27 Amendments to Standards IAS 32 IAS 36 IAS 39 Investments in Associates and Joint ventures Amendments to IFRS 10, IFRS 11 and IFRS 12: Transition Guidance Amendments to IFRS 10, IFRS 12 and IAS 27 Investment Entities Amendments to IAS 32 Offsetting Financial Assets and Financial Liabilities Amendments to IAS 36 Recoverable Amount Disclosures for Non Financial Assets Amendments to IAS 39 Novation of Derivatives and Continuation of Hedge Accounting 1 January January 2014 August January January 2014 September January January 2014 November 2012 Effective for annual periods beginning on or after Effective in the EU for annual periods beginning on or after Accounting news 1 January January 2014 January January January 2014 July January January 2014 September

8 Accounting news Available for early adoption for 31 December 2014 year-ends Czech Accounting Forthcoming Amendment to the Accounting Act IFRS Closing Out 2014 IASB finalised amendments to IAS 1 under the Disclosure initiative IASB issued amendments regarding the application of the investment entities exception IFRS EU Endorsement Process New IFRS Publications by Deloitte Czech Republic US GAAP Recently issued FASB Accounting Standards Updates New Standards Effective for annual periods beginning on or after Effective in the EU for annual periods beginning on or after Accounting news IFRS 9 Financial Instruments 1 January 2018 Not endorsed for use in the EU yet December 2009 November 2010 September 2012 January 2014 September 2014 IFRS 14 Regulatory Deferral Accounts 1 January 2016 Not endorsed for use in the EU yet March 2014 IFRS 15 Revenue from Contracts with Customers 1 January 2017 Not endorsed for use in the EU yet July 2014 Amendments to Standards IFRS 10, IFRS 12 and IAS 28 IFRS 10 and IAS 28 IFRS 11 Amendments to IFRS 10, IFRS 12 and IAS 28 Investment Entities - Applying the Consolidation Exception Amendments to IFRS 10 and IAS 28 Sale or Contribution of Assets between an Investor and its Associate or Joint Venture Amendments to IFRS 11 Accounting for Acquisitions of Interests in Joint Operations Effective for annual periods beginning on or after Effective in the EU for annual periods beginning on or after Accounting news 1 January 2016 Not endorsed for use in the EU yet 1 January 2016 Not endorsed for use in the EU yet October January 2016 Not endorsed for use in the EU yet June 2014 IAS 1 Amendments to IAS 1 Disclosure Initiative 1 January 2016 Not endorsed for use in the EU yet IAS 16 and IAS 38 IAS 16 and IAS 41 Amendments to IAS 16 and IAS 38 Clarification of Acceptable Methods of Depreciation and Amortisation Amendments to IAS 16 and IAS 41 Agriculture: Bearer Plants 1 January 2016 Not endorsed for use in the EU yet June January 2016 Not endorsed for use in the EU yet September

9 Accounting news Continued from the previous page Czech Accounting Forthcoming Amendment to the Accounting Act IFRS Closing Out 2014 IASB finalised amendments to IAS 1 under the Disclosure initiative IASB issued amendments regarding the application of the investment entities exception IFRS EU Endorsement Process New IFRS Publications by Deloitte Czech Republic Amendments to Standards IAS 19 IAS 27 Amendments to IAS 19 Defined Benefit Plans: Employee Contributions Amendments to IAS 27 Equity Method in Separate Financial Statements Various IFRS Annual Improvements to IFRSs Cycle Various IFRS Annual Improvements to IFRSs Cycle Various IFRS Annual Improvements to IFRSs Cycle New Interpretation Effective for annual periods beginning on or after Effective in the EU for annual periods beginning on or after Accounting news 1 July January January 2016 Not endorsed for use in the EU yet September July January July January 2015 January January 2016 Not endorsed for use in the EU yet November 2014 Effective for annual periods beginning on or after Effective in the EU for annual periods beginning on or after Accounting news IFRIC 21 Levies 1 January June 2014 July US GAAP Recently issued FASB Accounting Standards Updates

10 Accounting news Czech Accounting Forthcoming Amendment to the Accounting Act IFRS Closing Out 2014 IASB finalised amendments to IAS 1 under the Disclosure initiative IASB issued amendments regarding the application of the investment entities exception IFRS EU Endorsement Process New IFRS Publications by Deloitte Czech Republic US GAAP Recently issued FASB Accounting Standards Updates IASB finalised amendments to IAS 1 under the Disclosure initiative On 18 December 2014, the International Accounting Standards Board (IASB) published Disclosure Initiative (Amendments to IAS 1). The amendments aim at clarifying IAS 1 to address perceived impediments to preparers exercising their judgement in presenting their financial reports. Background The IASB added an initiative on disclosure to its work programme in 2013 to complement the work being done in the Conceptual Framework project. The initiative is made up of a number of smaller projects that aim at exploring opportunities to see how presentation and disclosure principles and requirements in existing Standards can be improved. Among them is a narrow scope project on IAS 1 Presentation of Financial Statements to ensure that entities are able to use judgement when presenting their financial reports as the wording of some of the requirements in IAS 1 had in some cases been read to prevent the use of judgement. Amendments Amendments to IAS 1 Disclosure Initiative make the following changes: Materiality The amendments clarify that -- information should not be obscured by aggregating or by providing immaterial information, -- materiality considerations apply to all parts of the financial statements, and -- even when a standard requires a specific disclosure, materiality considerations do apply. Statement of financial position and statement of profit or loss and other comprehensive income -- The amendments introduce a clarification that the list of line items to be presented in these statements can be disaggregated and aggregated as relevant and additional guidance on subtotals in these statements. -- The amendments clarify that an entity s share of OCI of equity- -accounted associates and joint ventures should be presented in aggregate as single line items based on whether or not it will subsequently be reclassified to profit or loss. Notes -- The amendments add additional examples of possible ways of ordering the notes to clarify that understandability and comparability should be considered when determining the order of the notes and to demonstrate that the notes need not be presented in the order so far listed in paragraph 114 of IAS The IASB also removed guidance and examples with regard to the identification of significant accounting policies that were perceived as being potentially unhelpful. Effective date and transition requirements The amendments are effective for annual periods beginning on or after 1 January Earlier application is permitted. 9

11 Accounting news IASB issued amendments regarding the application of the investment entities exception Czech Accounting Forthcoming Amendment to the Accounting Act The International Accounting Standards Board (IASB) has published Investment Entities: Applying the Consolidation Exception (Amendments to IFRS 10, IFRS 12 and IAS 28). The amendments address issues that have arisen in the context of applying the consolidation exception for investment entities. A subsidiary providing services that relate to the parent s investment activities A subsidiary that provides services related to the parent s investment activities should not be consolidated if the subsidiary itself is an investment entity. IFRS Closing Out 2014 IASB finalised amendments to IAS 1 under the Disclosure initiative IASB issued amendments regarding the application of the investment entities exception IFRS EU Endorsement Process New IFRS Publications by Deloitte Czech Republic US GAAP Recently issued FASB Accounting Standards Updates Background In October 2012, the IASB issued Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27) providing an exemption from consolidation of subsidiaries under IFRS 10 Consolidated Financial Statements for entities that meet the definition of an investment entity. Subsequently, the IFRS Interpretations Committee received several submissions regarding the implementation of the exemption. The Committee recommended to the IASB to address the issues in a narrow-scope project. Amendments Investment Entities: Applying the Consolidation Exception (Amendments to IFRS 10, IFRS 12 and IAS 28) makes changes aimed at clarifying the following aspects: Exemption from preparing consolidated financial statements The amendments confirm that the exemption from preparing consolidated financial statements for an intermediate parent entity is available to a parent entity that is a subsidiary of an investment entity, even if the investment entity measures all of its subsidiaries at fair value. Application of the equity method by a non-investment entity investor to an investment entity investee When applying the equity method to an associate or a joint venture, a non-investment entity investor in an investment entity may retain the fair value measurement applied by the associate or joint venture to its interests in subsidiaries. Disclosures required An investment entity measuring all of its subsidiaries at fair value provides the disclosures relating to investment entities required by IFRS 12. Effective date and transition requirements The amendments are effective for annual periods beginning on or after 1 January 2016 and must be applied retrospectively. Earlier application is permitted. 10

12 Accounting news IFRS EU Endorsement Process Czech Accounting Forthcoming Amendment to the Accounting Act IFRS Closing Out 2014 IASB finalised amendments to IAS 1 under the Disclosure initiative IASB issued amendments regarding the application of the investment entities exception IFRS EU Endorsement Process New IFRS Publications by Deloitte Czech Republic In December 2014, the European Commission endorsed the following three documents: Annual Improvements to IFRSs Cycle; Annual Improvements to IFRSs Cycle; and Amendments to IAS 19: Defined Benefit Plans: Employee Contributions. Annual Improvements to IFRSs Cycle was issued by the International Accounting Standards Board (IASB) in December These annual Improvements include amendments to the following four standards: IFRS 1 First-time Adoption of International Financial Reporting Standards (changes to the Basis for Conclusions only, so not part of the EU endorsement); IFRS 3 Business Combinations; IFRS 13 Fair Value Measurement; and Annual Improvements to IFRSs Cycle was issued by the IASB in December These annual Improvements include amendments to the following seven standards: IFRS 2 Share-based Payment; IFRS 3 Business Combinations; IFRS 8 Operating Segments; IFRS 13 Fair Value Measurement (changes to the Basis for Conclusions only, so not part of the EU endorsement); IAS 16 Property, Plant and Equipment; IAS 24 Related Party Disclosures; and IAS 38 Intangible Assets. You can find more information about the Annual Improvements to IFRSs Cycle in our Accounting News from January IAS 40 Investment Property. You can find more information about the Annual Improvements to IFRSs Cycle in our Accounting News from January All amendments are effective in the EU for annual periods beginning on or after 1 ; however, earlier application is permitted so that EU companies can adopt in accordance with the IASB effective date (1 July 2014). US GAAP Recently issued FASB Accounting Standards Updates The amendments are effective in the EU for annual periods beginning on or after 1 January 2015; however, earlier application is permitted so that EU companies can adopt in accordance with the IASB effective date (1 July 2014).

13 Accounting news Czech Accounting Forthcoming Amendment to the Accounting Act IFRS Closing Out 2014 IASB finalised amendments to IAS 1 under the Disclosure initiative IASB issued amendments regarding the application of the investment entities exception IFRS EU Endorsement Process New IFRS Publications by Deloitte Czech Republic Amendments to IAS 19: Defined Benefit Plans: Employee Contributions was issued by the IASB in November The IAS 19 amendments clarify the requirements that relate to how contributions from employees or third parties that are linked to service should be attributed to periods of service. You can find more information about these Amendments to IAS 19 in our Accounting News from January Amendments to IAS 19 are effective in the EU for annual periods beginning on or after 1 ; however, earlier application is permitted so that EU companies can adopt in accordance with the IASB effective date (1 July 2014). The European Financial Reporting Advisory Group (EFRAG) updated its report showing the status of endorsement of each IFRS, including standards, interpretations, and amendments, most recently on 9 January As of 20 January 2015, the following IASB pronouncements are awaiting European Commission endorsement for use in the EU: Amendments Amendments to IFRS 10 and IAS 28 Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (issued in September 2014) Amendments to IFRS 10, IFRS 12 and IAS 28 Investment Entities: Applying the Consolidation Exception (issued in December 2014) Amendments to IFRS 11 Accounting for Acquisitions of Interests in Joint Operation (issued in May 2014) Amendments to IAS 1 Disclosure Initiative (issued in December 2014) Amendments to IAS 16 and IAS 38 Clarification of Acceptable Methods of Depreciation and Amortisation (issued in May 2014) Amendments to IAS 16 and IAS 41 Bearer plants (issued in June 2014) Amendments to IAS 27 Equity Method in Separate Financial Statements (issued in August 2014) Annual Improvements to IFRSs Cycle (issued in September 2014) Click here for the Endorsement Status Report 12 US GAAP Recently issued FASB Accounting Standards Updates Standards IFRS 9 Financial Instruments (issued in July 2014) IFRS 14 Regulatory Deferral Accounts (issued in January 2014) IFRS 15 Revenue from Contracts with Customers (issued in May 2014)

14 Accounting news Czech Accounting Forthcoming Amendment to the Accounting Act IFRS Closing Out 2014 IASB finalised amendments to IAS 1 under the Disclosure initiative IASB issued amendments regarding the application of the investment entities exception IFRS EU Endorsement Process New IFRS Publications by Deloitte Czech Republic New IFRS Publications by Deloitte Czech Republic Model Financial Statements under IFRS as adopted by the EU for the year ended 31 December 2014 in Czech and English The version of the Model con solidated financial statements under IFRSs as adopted by the EU prepared by the Prague office of Deloitte is available on in both the Czech and English languages. This version should be used by the entities that prepare financial statements in compliance with IFRSs as adopted by the EU for the year ended 31 December The main difference between IFRSs issued by the IASB and IFRSs as adopted by the EU as of 31 December 2014 is in the effective date of the package of five consolidation standards which are effective in the EU for accounting period starting on or after 1 January The global version of IFRS Model con solidated financial statements for the year ended 31 December 2014 is available on The model financial statements are intended to illustrate the pres entation and disclosure requirements of IFRSs as adopted by the EU. They also contain additional disclosures that are considered to be best practice, particularly where such disclosures are included in illustrative examples provided with a specific Standard. The publication includes: Section 1 Overview of new and revised IFRSs adopted by the EU: -- An overview of new and revised IFRSs adopted by the EU that are mandatorily effective for the year ended 31 December An overview of new and revised IFRSs adopted by the EU that are not yet mandatorily effective but allow early application for the year ended 31 December An overview of new and revised IFRSs issued by the IASB but not yet adopted by the EU. Section 2 Model financial statements of International GAAP Holdings Limited for the year ended 31 December 2014 under IFRSs as adopted by the EU. 13 US GAAP Recently issued FASB Accounting Standards Updates

15 Accounting news Czech Accounting Forthcoming Amendment to the Accounting Act IFRS Closing Out 2014 IASB finalised amendments to IAS 1 under the Disclosure initiative IASB issued amendments regarding the application of the investment entities exception IFRS EU Endorsement Process New IFRS Publications by Deloitte Czech Republic US GAAP Recently issued FASB Accounting Standards Updates Recently issued FASB Accounting Standards Updates Towards the end of 2014 and in early 2015 the US Financial Accounting Standards Board (FASB) issued several new Accounting Standards Updates (ASUs) that amend the Accounting Standards Codification going forward. Issued in January 2015 Update No Income Statement Extraordinary and Unusual Items (Subtopic ): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items Issued in December 2014 Update No Business Combinations (Topic 805): Accounting for Identifiable Intangible Assets in a Business Combination (a consensus of the Private Company Council) Issued in November 2014 Update No Business Combinations (Topic 805): Pushdown Accounting (a consensus of the FASB Emerging Issues Task Force) Update No Derivatives and Hedging (Topic 815): Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share Is More Akin to Debt or to Equity (a consensus of the FASB Emerging Issues Task Force) We have provided you with a detailed summary on ASU No in the Accounting news issue in January ASU No related to changes in push down accounting gives an acquired entity (relates to both public and nonpublic acquired entities) the option of applying pushdown accounting in its stand-alone financial statements upon a change-in-control event. The guidance is effective immediately. For further information on application of the new ASU see the full text on FASB.org. ASU No provides alternative accounting for a private company (defined as an entity other than a public business entity, a not-for-profit entity, or an employee benefit plan within the scope of ASC 960 through ASC 965 on plan accounting) that recognizes or considers the fair value of identifiable intangible assets 1. in a business combination, 2. as part of an investment accounted for under the equity method, or 3. upon the adoption of fresh-start accounting. The accounting alternative is effective prospectively upon the first eligible transaction entered into in an annual period beginning after December 15, 2015 (with early adoption permitted), and will apply to all future transactions after the adoption date. The alternative will help private companies reduce the cost and complexity of accounting for a business combination and other eligible transactions because many customerrelated intangible (CRI) assets and all noncompete agreements (NCAs) would not be recognized separately and would be subsumed into goodwill. 14

16 Accounting news Czech Accounting Forthcoming Amendment to the Accounting Act IFRS Closing Out 2014 IASB finalised amendments to IAS 1 under the Disclosure initiative IASB issued amendments regarding the application of the investment entities exception IFRS EU Endorsement Process New IFRS Publications by Deloitte Czech Republic US GAAP Recently issued FASB Accounting Standards Updates Under current U.S. GAAP, an entity must recognize and measure at fair value on the date of acquisition intangible assets that meet either the contractual-legal criterion or the separability criterion described in the definition of identifiable in the FASB Accounting Standards Codification (ASC) Master Glossary. Under the alternative in ASU , which applies to assets acquired in a business combination, to investments accounted for under the equity method, and upon fresh-start accounting, a private company would be required to separately recognize CRI assets only if they are capable of being sold or licensed independently from the other assets of the business. In addition, a private company that elects to adopt this alternative will no longer separately recognize NCAs that arise within the scope of the ASU. Accordingly, it would potentially recognize fewer intangible assets and, correspondingly, recognize more goodwill. ASU Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items applies to all entities for annual periods beginning after December 15, 2015 and will most likely affect a significant number of entities. The FASB released the new guidance as part of its simplification initiative, which is intended to identify, evaluate, and improve areas of US GAAP for which cost and complexity can be reduced while maintaining or improving the usefulness of the information provided to users of financial statements. At the same time, the update will align more closely US GAAP income statement presentation guidance with IAS 1 Presentation of Financial Statements, which prohibits the presentation and disclosure of extraordinary items since re-issuing the standard in 2003, effective Under current U.S. GAAP an event or transaction to be considered as an extraordinary item must be unusual in nature and must occur infrequently. If an event or transaction meets the criteria for extraordinary classification, an entity is required to segregate the extraordinary item from the results of ordinary operations and show the item separately in the income statement, net of tax, after income from continuing operations. The entity also is required to disclose applicable income taxes and either present or disclose earnings-per-share data applicable to the extraordinary item. It has been often difficult to assess if both criteria are properly met and the added value of the information was not always of significance to stakeholders. To respond to this and in a manner consistent with its simplification initiative, the FASB decided to eliminate the concept of an extraordinary item. Entities will no longer neither segregate an extraordinary item from the results of ordinary operations nor separately present an extraordinary item on its income statement, net of tax, after income from continuing operations nor disclose income taxes and earnings-per-share data applicable to an extraordinary item. However, the ASU does not affect the reporting and disclosure requirements (ASC and ASC ) for an event that is unusual in nature or that occurs infrequently. For more information see the ASU on the FASB s website. 15

17 Accounting news Contact If you have any questions regarding any of the articles in this publication, please contact one of the following audit experts: Czech Accounting Forthcoming Amendment to the Accounting Act IFRS Closing Out 2014 IASB finalised amendments to IAS 1 under the Disclosure initiative IASB issued amendments regarding the application of the investment entities exception IFRS EU Endorsement Process New IFRS Publications by Deloitte Czech Republic Czech Accounting Stanislav Staněk IFRS and US GAAP Martin Tesař Soňa Plachá Gabriela Jindřišková sstanek@deloittece.com mtesar@deloittece.com splacha@deloittece.com gjindriskova@deloittece.com Deloitte Advisory s.r.o. Nile House Karolinská 654/ Prague 8 - Karlín Czech Republic Tel.: Fax: US GAAP Recently issued FASB Accounting Standards Updates Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee ( DTTL ), its network of member firms, and their related entities. DTTL and each of its member firms are legally separate and independent entities. DTTL (also referred to as Deloitte Global ) does not provide services to clients. Please see for a more detailed description of DTTL and its member firms. Deloitte provides audit, tax, consulting, financial advisory and legal services to public and private clients spanning multiple industries. With a globally connected network of member firms in more than 150 countries and territories, Deloitte brings world-class capabilities and high-quality service to clients, delivering the insights they need to address their most complex business challenges. Deloitte s more than 200,000 professionals are committed to becoming the standard of excellence Deloitte Czech Republic

18 Tax news Direct Taxes Taxation of Foreign Statutory Executives - Specification of Procedures for Czech Companies BEPS Action Point 4 Discussion Draft Released on Deductibility of Interest Expense FATCA Notification Form Harmonisation of the Automatic Exchange of Information for Tax Purposes at the EU Level Indirect Taxes Information Papers Issued by the Financial Administration The Financial Administration s Upcoming Information Papers Ruling of the Supreme Administrative Court 9 Afs 170/ on Receivables from Debtors in Insolvency Ruling of the Court of Justice of the EU (the CJEU ) Regarding C-590/13 Idexx Excise Tax Act News Tax news Deloitte Czech Republic Appendix Tax liabilities for February and March 2015

19 Tax news Taxation of Foreign Statutory Executives - Specification of Procedures for Czech Companies Direct Taxes Taxation of Foreign Statutory Executives - Specification of Procedures for Czech Companies BEPS Action Point 4 Discussion Draft Released on Deductibility of Interest Expense FATCA Notification Form Harmonisation of the Automatic Exchange of Information for Tax Purposes at the EU Level Indirect Taxes Information Papers Issued by the Financial Administration The Financial Administration s Upcoming Information Papers Ruling of the Supreme Administrative Court 9 Afs 170/ on Receivables from Debtors in Insolvency Ruling of the Court of Justice of the EU (the CJEU ) Regarding C-590/13 Idexx Excise Tax Act News After a year of uncertainties, the General Financial Directorate has confirmed the procedure for the taxation of statutory executives of Czech limited liability companies, who are Czech tax non-residents. Since January 2014, statutory executives have been treated as members of a statutory body, rather than a statutory body pursuant to the new Civil Code. Unfortunately, the Income Tax Act, as amended in 2014, did not reflect this change and continued to distinguish between members of a statutory body and a statutory body of the corporate entity in the taxation of individuals. In respect of Czech tax residents, this discrepancy had no impact, since the incomes of both were taxed by an advance income tax from dependent activities. However, a different approach was determined for tax non-residents: while the income of the members of statutory bodies was subject to withholding tax (the rate of 35% for residents of selected states, 15% for others), income of the statutory body of the corporate entity was taxed by an advance tax (15%, with the solidarity increase of 7% for higher income). Starting from 2015, an amendment to the Income Taxes Act has specified that the income of the statutory executive is taxed as income of a member of the body of the corporate entity; however, in 2014, it remained unclear which treatment was correct and whether a different approach would be sanctioned. Pursuant to the initiative of the Czech Chamber of Tax Advisors, the General Financial Directorate confirmed that statutory executives should have been treated as members of the statutory body of the corporate entity in 2014 for tax purposes, ie withholding tax should have been paid from the income of tax non-residents. Given the unclear interpretation of the legislation, the financial administration will not dispute the contrary treatment for If companies paid the withholding tax from the income of statutory executives in 2014, there is no risk of sanctions being imposed on them. However, it has been necessary to pay withholding tax since Appendix Tax liabilities for February and March 2015

20 Tax news BEPS Action Point 4 Discussion Draft Released on Deductibility of Interest Expense Direct Taxes Taxation of Foreign Statutory Executives - Specification of Procedures for Czech Companies BEPS Action Point 4 Discussion Draft Released on Deductibility of Interest Expense FATCA Notification Form Harmonisation of the Automatic Exchange of Information for Tax Purposes at the EU Level On 18 December 2014, the OECD, as part of its work on the action plan to address base erosion and profit shifting (BEPS), released a discussion draft on Action 4 in relation to the deductibility of interest expense and economically equivalent financing payments. FATCA Notification Form The discussion draft outlines three main alternatives to tackle non-taxation through the use of interest deductions. Also, itsets out how Action 4 may interact with other BEPS measures, such as the hybrid mismatch proposals in Action 2 and the CFC proposals in Action 3. 3 Indirect Taxes Information Papers Issued by the Financial Administration The Financial Administration s Upcoming Information Papers Ruling of the Supreme Administrative Court 9 Afs 170/ on Receivables from Debtors in Insolvency Ruling of the Court of Justice of the EU (the CJEU ) Regarding C-590/13 Idexx Excise Tax Act News Appendix Tax liabilities for February and March 2015 The financial administration published on its portal details on the method of reporting between Czech financial institutions and the tax authority for FATCA purposes. As we have already informed you, the implementation act to the FATCA agreement between the Czech Republic and the US is the Act No. 330/2014 Coll., on the exchange of information on financial accounts with the US for tax administration purposes (the FATCA Act ), which has been passed in December Czech financial institutions will report information of some of their clients to the U.S. tax authority based on FATCA requirements, through the Czech financial authority via a Notification. The Specialised Financial Office has been appointed to be the relevant authority for this matter. The deadline for sending the first Notification covering the period as at 31 December 2014, has been set on 30 June The financial administration deals in the document published on its websites with procedural requirements underlying the correct completion of the FATCA Notification. As part of the Notification, the financial institutions are required to provide also its Global Intermediary Identification Number ( GIIN ) which was assigned to them by the U.S. tax authority IRS. The reporting financial institutions have to report the assigned GIIN to the Specialised Financial Office within 15 days after its assignment. It will be possible to file the FATCA Notification on financial accounts only in electronic form through the EPO application and using electronic signature or via the entity s data box. The EPO form will include only general identification information and a declaration stating that the relevant financial institutions comply with FATCA requirements. The Notification s data will be appended as the form in an.xml file which structure was published on the IRS website. In the event of breaching the registration, due diligence or reporting obligations based on the FATCA Act, the tax administrator may impose a fine of up to CZK 500 thousand to the taxable entity for non-compliance with the non-monetary obligation, according to the amendment to the Tax Code applicable from For more information see here.

21 Tax news Harmonisation of the Automatic Exchange of Information for Tax Purposes at the EU Level Direct Taxes Taxation of Foreign Statutory Executives - Specification of Procedures for Czech Companies BEPS Action Point 4 Discussion Draft Released on Deductibility of Interest Expense FATCA Notification Form Harmonisation of the Automatic Exchange of Information for Tax Purposes at the EU Level On 9 December 2014, the European Council approved Council Directive 2014/107/ EU which changes the preceding Council Directive 2011/16/EU in the field of exchange of information for tax purposes. One of the basic reasons for this change is extending the automatic exchange of information on financial accounts at the EU level as a response to the multiple bilateral intergovernmental agreements of EU member states arising with the US in relation to FATCA. Based on Article 19 of the preceding Directive, a member state providing a wider cooperation to another member state than that provided for under this Directive, may not refuse to provide such wider cooperation to any other member state wishing to enter into such mutual wider cooperation with that member state. As the extension of the provided information is now defined at the level of EU directive, member states do not have to enter into other multi or bi-lateral agreements in a similar manner. Following FATCA, the extension of the Directive also reflects a global trend of fight against tax evasion, which has been formalised at the OECD level by a global model for automatic information exchange on financial account information, adopted in the first half of 2014 (the Common Reporting Standard). The goal of a single global reporting standard, among other things, is to prevent the existence of a complex set of rules different for particular countries, which would lead to higher costs for the both tax authorities and reporting financial institutions. The advantage of standardization of reporting in multilateral context is not only a simplification of the process of information collection and exchange and improving the overall efficiency, but also a lower financial burden for the both tax authorities and financial institutions. The Directive essentially implements the Common Reporting Standard among the EU member states with the first reporting period being the year 2016 and the reporting of the data in Indirect Taxes Information Papers Issued by the Financial Administration The Financial Administration s Upcoming Information Papers Ruling of the Supreme Administrative Court 9 Afs 170/ on Receivables from Debtors in Insolvency Ruling of the Court of Justice of the EU (the CJEU ) Regarding C-590/13 Idexx Excise Tax Act News Appendix Tax liabilities for February and March 2015

22 Tax news Direct Taxes Taxation of Foreign Statutory Executives - Specification of Procedures for Czech Companies BEPS Action Point 4 Discussion Draft Released on Deductibility of Interest Expense FATCA Notification Form Harmonisation of the Automatic Exchange of Information for Tax Purposes at the EU Level Information Papers Issued by the Financial Administration In early January, an information paper providing a summary description of the status and impacts of the most recent amendments to the VAT Act was published on the Financial Administration s website. The purpose of this paper is to give a high-level summary of the range of changes rather than address unclear issues and matters. One of the changes in the VAT Act relates to the extension of the reverse charge treatment from April 2015 (September 2015 with regard to sugar beet). In this context, the Financial Administration has issued a standalone press release stating that new codes of supplies (codes always applicable to the relevant type of commodity) will be used in respect of the Statements from the VAT Records filed jointly with the tax return. Another separate information paper of the Financial Administration relates to electronic filing. This paper makes it possible, inter alia, to file VAT returns and EC Sales Lists via the EPO application without an authorised digital signature (or without any other guaranteed identification) if the filings are confirmed within the relevant period of time (eg by filing a signed print form). 5 Indirect Taxes Information Papers Issued by the Financial Administration The Financial Administration s Upcoming Information Papers Ruling of the Supreme Administrative Court 9 Afs 170/ on Receivables from Debtors in Insolvency Ruling of the Court of Justice of the EU (the CJEU ) Regarding C-590/13 Idexx Excise Tax Act News Appendix Tax liabilities for February and March 2015 The Financial Administration s Upcoming Information Papers The Financial Administration is working to prepare an information paper on the application of the second reduced VAT rate of 10%. This information paper should provide a more detailed description of the criteria that goods will need to fulfil in order for the 10% rate to be applied. The definition of gluten-free food and infant food appears to be problematic and the obligation to label these foodstuffs is also unclear. The paper should also clarify which publications are books that should be subject to the 10% VAT rate and which are not. In addition, we would like to inform you that the Financial Administration is working on an extensive guidance note on the application of VAT with regard to real estate transactions. This paper will be of crucial importance since it is otherwise extremely difficult to interpret the relevant provisions of the VAT Act and to apply the appropriate VAT rate (or a tax exemption).