Answers
Fundamentals Level Skills Module, Paper F6 (CZE) Taxation (Czech) Section B June 208 Answers and Marking Scheme (a) Martinaria, s.a. (i) Binding rulings Corporate income tax The method for splitting expenses which cannot be assigned only to taxable revenues; The classification of actions related to the technical improvement of assets; The qualification of purchase expenses for the research and development tax allowance; Transfer pricing methodology; The application of a tax loss as a tax deductible item from the tax base. Value added tax (VAT) The correctness of the VAT rate applied; The application of a local reverse charge. Any THREE items only, mark each, maximum 3 (ii) A binding ruling is effective for a maximum of three years from the end of the year when it is made. (b) (i) Formulis, s.r.o.: the competent tax office is where the legal seat of the company is located. (ii) Mrs Helenska: the competent tax office is where the residential address (trvalý pobyt) of the individual is located. (iii) Mr Ivanko: the competent tax office where the real estate is located, i.e. in Plzeň. (iv) JAVINAS, a.s.: as the company has an annual turnover exceeding CZK 2 billion, the competent tax authority is the specialised financial office. 4 (c) Mr Vranička Late payment interest on March 207 value added tax (VAT) liability Original due date (fifth working day after the original deadline of 25 April 207) 3 May 207 Date of payment 3 May 207 No. of outstanding days 29 CNB REPO rate plus 4% 0 405 Late interest penalty (70,000 x 0 405 x 29/365) CZK 78 2 2
2 Marek (a) Payroll reconciliation on termination of employment CZK () Gross salary (37,000 x 2 months) 74,000 (2) Company car (minimum of,000 x 2 months) 2,000 (3) Hotel accommodation (exempt) 0 (3) Ski competition tickets 2,500 (4) Holiday compensation,500 (5) Interest free loan (exempt loan < CZK 300,000) 0 (6) Free house design for Marek s mother 40,000 (7) Sale of marking board (other income tax base, not in payroll) 0 Base 29,000 Social security paid by employer at 34% 43,860 Tax base 72,860 Tax base rounded (up to 00) 72,900 Total tax at 5% 25,935 Personal tax credit (24,840/2 x 2) (4,40) Tax advances withheld 2,795 8 (b) Jakub cannot prepare Marek s 207 annual payroll reconciliation, even if he was asked to do so, before 5 February 208, because Marek had other income of CZK 7,000 in 207 from the sale of the marking board. 2 3 (a) Salmona, s.r.o. Value added tax (VAT) transactions in May 207 Place of taxable supply Treatment () Invoice to Czech kindergarten Czech Republic Taxable output (2) Advance payment for summer camp in Brazil Brazil Zero rated supply (3) Course for marketing staff in Spain Spain Taxable output (4) Proofreading service Czech Republic Taxable output (5) Purchase of software upgrade from Germany Czech Republic Claimable input, reverse charge (6) Refunded course fee Czech Republic Taxable output decrease (7) Purchase invoice from UK school for courses UK UK input VAT, in London refund procedure 7 (b) Sirup GmbH Value added tax (VAT) obligations Sirup GmbH will become a Czech VAT payer on the date it makes its first taxable supply, i.e. on 2 June 207. Sirup GmbH must submit a VAT registration within 5 days after it becomes a Czech VAT payer, i.e. by 7 June 207. Sirup GmbH must file monthly Czech VAT returns and pay any applicable Czech VAT, but will be entitled to claim input VAT in respect of its Czech operations. 3 22
4 Kaleido, s.r.o. (Kaleido) CZK Car Alfa Total leasing price,080,000 Monthly instalment ((,080,000 270,000)/54) 5,000 Amounts paid 205 (5,000*2 + 270,000) 300,000 206 (5,000*2) 80,000 207 (5,000*) 50,000 Total 630,000 Monthly tax deductible expense (,080,000/54) 20,000 Accrued expense 205 (20,000*2) 40,000 206 (20,000*2) 240,000 207 (20,000*) 200,000 480,000 207 tax deductible costs of Kaleido 200,000 207 tax depreciation costs of Kaleido 0 Car Bem Total leasing price 8,000 Monthly accrued expense (8,000/54) 5,000 Accrued expense 206 (5,000*) 65,000 207 (5,000*9) 35,000 300,000 Net book value (NBV) using straight-line depreciation (Group 2) Purchase price 700,000 206 depreciation (700,000*%) (77,000) 207 depreciation (700,000*22 25%)/2 (77,875) NBV 545,25 207 tax deductible costs of Kaleido (purchase price of CZK 550,000 is higher than NBV) 35,000 207 tax depreciation costs of Kaleido (550,000*%) 60,500 5 David (a) David must increase his 206 tax base by the amount of the outstanding receivables as at 3 December 207 of CZK 80,000. He must submit an additional 206 personal income tax return by April 208. No penalties are applicable where the reason for submission of the additional tax return is a change from lump-sum costs to actual costs. 3 23
(b) 207 Personal income tax payable CZK CZK CZK Employment income () Contract for work with Milan: April 207 22,000 November 207 (taxed by withholding) 0 22,000 Social security paid by employer at 34% 7,480 Tax base 29,480 Business income (2) Revenues from dental practice,600,000 Actual costs Rental fees 360,000 David s social security and health care contributions (not deductible) 0 Gross salaries of employees 250,000 Employer s social security and health care contributions (75,000 5,000 unpaid (not deductible)) 60,000 Legal fees (not deductible) 0 (670,000) 930,000 (3) Receivables as at 3 December 206 (80,000) (5) Share of general partnership income (320,000*25%) 80,000 (7) Tax loss from previous periods (5,000) 85,000 Capital income (4) Private life insurance scheme income (taxed by withholding) 0 Other income (6) Inherited house (exempt) 0 (6) Sale of house (,250,000,200,000) 50,000 50,000 Tax base 894,480 (5) Share of donation by general partnership (60,000*25% up to 5% of the tax base) (5,000) (8) Mortgage interest (38,000) Tax base after deduction 84,480 Tax base rounded (down to 00) 84,400 Tax 5% 26,2 Personal tax credit (24,840) Spouse credit (24,840) First child credit (3,404) Final 207 tax liability 63,26 () Tax advances withheld by Milan (2,300) Final 207 tax payable 60,826 2 5 24
6 Palmona, s.r.o. 207 Corporate income tax liability CZK CZK CZK () Accounting profit,200,000 Adjustment Adjustment up down (3) Dividends from Palmonka, s.r.o. (exempt) 400,000 (3) Non-deductible indirect costs attributed to dividend (400,000*5%) 20,000 (4) Related party services (transfer pricing adjustment),000,000 (5) Contractual penalties (not settled) 2,000 (5) Late VAT filing penalties 4,000 (6) Written off receivable, recovered in full from Mr Holý 30,000 (7) Release of the provision for receivable recovered from Mr Kratky 90,000 (8) Loss on sale of land (6 5 million 6 7 million non-deductible) 200,000 (9) Licence fee from Telekomka OAO (taxable) 0 () Promotional gifts above CZK 500 50,000 () Gala dinner food (non-deductible) 80,000 () Gala dinner contribution (related to non-deductible expense) 80,000 (2) Technical appreciation cost 87,000 (3) Inherited house from Mr Kučera (not taxable) 500,000 (4) French input VAT (tax deductible as a cost) 0 (5) Difference in NBV of disposed cars (600,000 450,000) 50,000 (6) Tax non-deductible interest costs (Working) 24,000 W,727,000,200,000 527,000,727,000 (2) Tax loss from 204 (,800,000,600,700) (99,300) Tax base after adjustments,527,700 Tax base rounded (down 000),527,000 Tax liability at 9% 290,30 (9) Tax withheld from licence fee (675,000/( %)*%) (75,000) Final tax liability 25,30 Working: Thin capitalisation CZK Loan amount 2,500,000 Equity amount 500,000 Four times the equity 2,000,000 Ratio (2,000,000/2,500,000) 0 80 Tax non-deductible interest costs (( 0 80)*20,000) 24,000 5 25