Fundamentals Level Skills Module, Paper F6 (CZE)

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2 Fundamentals Level Skills Module, Paper F6 (CZE) Taxation (Czech) Section B June 207 Answers and Marking Scheme MBTX, s.r.o. (a) MBTX, s.r.o. is obliged to submit a 205 additional corporate income tax return and pay any outstanding additionally declared tax by 3 October (b) Additional return and payment on January 207 Originally declared tax loss (70,000) Omitted sales 350,000 Corrected 205 tax base 280,000 Tax at 9% 53,200 Original due date 2 July 206 Date of payment January 207 Number of outstanding days 74 CNB REPO plus 4% (0 05% + 4%) Late payment interest 3,563 3 (c) Assessment by tax authority and payment on 5 April 208 Additional tax (as in (b)) 53,200 Original due date 2 July 206 Date of assessment and payment 5 April 208 Number of outstanding days 643 CNB REPO plus 4% Late payment interest 3,68 Penalty for lower tax loss: % of tax loss of 70, Penalty for additionally assessed tax: 20% of 53,200 0,640 Total penalty,340 3 (d) Due date for 205 corporate income tax return July 206 Original date for statute of limitation July 209 Additional 205 corporate income tax return submitted on 5 December 208 New date for statute of limitation July 2020 Tutorial note: Normally, the statute of limitation is July 209, i.e. three years from the due date for the filing of the corporate income tax return. The original statute of limitation is prolonged by one year if additional tax return is submitted in the last 2 months of the original statute of limitation, as in this case. The additional tax return was submitted on 5 December 208, therefore the new statute of limitation is July (e) The taxpayer s statutory representative (jednatel) The person nominated by the statutory representative (e.g. finance director, chief accountant) A person with a power of attorney representing the taxpayer (usually a tax adviser or other appointed person) The tax administrator and tax officials (úřední osoby) Witnesses Specialist consultants Third persons Only TWO items required, marks each, maximum 0 9

3 2 Erik Payroll tax for the months of February and June 206 February 206 June 206 Salary 62,000 62,000 Bonus 300,000 Company car (0 0*700,000) 7,000 7,000 Life insurance contribution exempted 0 0 Gift for 20th anniversary (7,500 2,000) 5,500 English course in London 35,000 Travel allowance above the limit (6,000 3,500) 2,500 Interest free loan exempt 0 0 Base 74, ,500 Social security contributions paid by employer at 34% 25,330 38,20 Tax base 99, ,70 Tax base rounded up to 00 99, ,800 Tax at 5% 4,985 8,720 Solidarity surcharge (406,500,296,288/2)*7% 20,893 Total tax 4,985 02,63 Total tax rounded 4,985 02,63 Personal tax credit (24,840/2) (2,070) (2,070) Tax credit for Nada (3,404/2) (,7) (,7) Advance payroll tax payable for month,798 99, Valeta, a.s. (a) Valeta, a.s. cannot claim the value added tax (VAT) on the purchase of the machine in its May 206 VAT return, because a claim for pre-registration VAT must be made in the month when the VAT payer is first registered, in Valeta, a.s. s case in February Tutorial note: The machine would satisfy the other conditions for a claim for pre-registration VAT, i.e. the expenditure was incurred within 2 months of registration and the asset was still the property of Valeta, a.s. at the date of registration. (b) VAT return for May 206 Tax base VAT at 2% Export of goods to China (exempt) 900,000 0 Consultancy services to Italian customer (place of supply is Italy) 80,000 0 Meeting room rental fee (exempt rental longer than 48 hours to a non-payer) 26,000 0 Sale of goods to Polish customer (delivered in CZ) 630,000 32,300 Building reconstruction 50,000 0,500 Import of raw material from Brazil (including customs duty) 57,500 33,075 Purchase from Slovak supplier 50,000 0,500 Total output VAT 86,375 Building reconstruction (reverse charge) 50,000 0,500 Import of raw material from Brazil (including customs duty) 57,500 33,075 Purchase from Slovak supplier (reverse charge) 50,000 0,500 Purchase of material from Czech VAT non-payers (not included in VAT return) 0 0 Purchase of chairs and tables (34,000*0 2*0 85) 34,000 6,069 Total input VAT 60,

4 4 ELENA CZ, s.r.o. (a) Tax depreciation for the year 206 () Electrical generator Alfa Accelerated tax depreciation by Melana, a.s. Acquisition price 8,500, tax depreciation (8,500,000/0) 850,000 Residual value 7,650, tax depreciation (2*(7,650,000)/( ),530,000 Residual value 6,20, tax depreciation (2*(6,20,000 +,400,000)/0),504,000 Residual value 6,06, tax depreciation(2*(6,06,000)/(0 ))/2 668,444 Accelerated tax depreciation by ELENA CZ, s.r.o. 206 tax depreciation (2*(6,06,000)/(0 ))/2 668,444 Note: Answer including 0% depreciation increase in the first year of depreciation of Alfa is also acceptable since the question did not state if Alfa is new asset. (2) Power line Beta linear tax depreciation Acquisition price 3,200,000 Tax depreciation rate increased by 0% year tax depreciation (3,200,000*0 025) 283,800 (3) Company cars accelerated tax depreciation method Car retained by ELENA CZ, s.r.o. Acquisition price 750,000 Depreciation period (years) tax depreciation (750,000/5) 50,000 Car sold to ELENA BV (no tax depreciation available) 0 (4) Software Acquisition price,540,000 Tax depreciation of an intangible asset: June to November 206 tax depreciation (,540,000/36*6) 256,667 December 206 tax depreciation ((,540, , ,667)/(36 6)*) 53,445 Total 206 tax depreciation 30,2 7 (b) ELENA BV holds more than 0% of the shares in ELENA CZ, s.r.o., therefore, any dividends paid to ELENA BV will be exempt from tax in the Czech Republic under the EU Parent-subsidiary Directive once the shareholding has been held for more than 2 months or more, i.e. after 4 February Dividends paid prior to this date will be subject to withholding tax at the rate of 5%, unless the double tax treaty between the Czech Republic and the Netherlands specifies a lower withholding rate. The dividends can be exempted even before 4 February 207 provided the 0% shareholding requirement will be met subsequently

5 5 Kamil and Kristina (a) Kamil Personal income tax for 206 Employment income Horystav, s.r.o. ((45,000*3) + 35,000) 70,000 Polonium, s.r.o. 4,000 Total employment income 84,000 Social security contributions paid by employer at 34% 62, ,560 Business income received in ,000 received in ,000 Production costs (200,000) Fuel consumption 25,000 Operational lease of truck (2,000*7) (84,000) Lump sum fuel (5,000*7) (35,000) 606,000 Income attributed to Kristina (50%) (303,000) Rental income (5,000*3) 45,000 Rental lump sum costs (45,000*30%) (3,500) 3,500 Other income: Inherited house (exempt) 0 Sale of shares (loss not deductible) 0 Notebook from Hana 20,000 Mortgage interest deduction (50,000*0 8) (40,000) Pension premiums (8,000 2,000) (6,000)* Total tax bases 555,060 Tax base rounded down to ,000 Tax at 5% 83,250 Personal tax credit (24,840) Spouse credit (not applicable) 0 First child credit (3,404) Second child credit (age above 26) 0 Advance tax payments deducted by Horystav, s.r.o. (2,500) Final 206 tax liability 32,506 4 * Note: Answers indicating 2,000 were also acceptable as the question did not state if the pension premium was with or without state subsidy. (b) Registration for personal income tax must be submitted to the tax authority within 5 days from when the taxpayer starts to perform an activity which represents a source of income from independent activity. In the case of Kamil, this will be by 20 June 206 at the latest. 5 22

6 6 LAMPY, s.r.o. (a) Corporate income tax for 206 Adjustment up Adjustment down Accounting profit,650,000 Interests on loan (W) 67, Entertainment costs 250,000 Damage to machine 20,000* SSC paid from ,000 Late payment interest re VAT 2,500 Contractual fine 5,400 Dividends from Lampiony, Kft 67,000 Direct costs of shareholding 23,000 Indirect costs of shareholding 8,350 ((5%*67,000) lower than 6,500) Outstanding 206 SSC 0 Difference in depreciation (2,250,000,600,000) 650, ,450 94,000 (554,550) Tax base after adjustments,095,450 Deduction from the tax base R&D costs 206 (W2) (360,000) 5 Tax base after deductions 735,450 Tax base rounded (down to 000) 735,000 Tax at 9% 39,650 Tax credits: Disabled persons (2 5*8,000) (45,000) Tax liability 94,650 3 * Note: Answer indicating zero is also acceptable as the question did not state the accounting depreciation charge for the damaged machine. W Thin capitalisation calculation Loan No. of days,700, ,500,000 4,000, ,000,000,080,500,000 Average loan 2,960,274 Equity 750, ,000, , ,90,000 94,90,000 Average equity 532,027 4 times equity 2,28,08 Ratio 0 72 Non-deductible interest costs (240,000*( 0 72)) 67,

7 W2 Research and development costs ,000 (00%) 250, ((350, ,000)* ) 0, ,000 5 (b) Tax advances for 207 and 208 LAMPY s 206 corporate income tax liability is higher than 30,000, but lower than 50,000, therefore its 207 and 208 tax advances will be payable on the half year basis. 5 40% of the 206 tax liability, i.e. 40,600 (0,300*40%), will be payable each half year