Answers
Applied Skills, TX CZE Taxation Czech (TX CZE) December 208 Answers and Marking Scheme Section A A Income subject to taxation in the Czech Republic: () Income from permanent establishment of Ahaefekt, s.r.o. in Monaco (2) Income from provision of services performed at customer premises in Slovakia where Ahaefekt, s.r.o. has no permanent establishment (3) Income from sale of goods sold from warehouse located in France where Ahaefekt, s.r.o. has no permanent establishment (4) Income from sale of Czech subsidiary seated in Zlín, Czech Republic Income not subject to taxation in the Czech Republic: None 2 B Annual rental income (2* 2,000) 44,000 Lump sum costs 30% (43,200) Partial rental tax base 00,800 3 C VAT coefficient calculation of Hobliny, s.r.o. Sales for marketing services,600,000 2 Sales for promotional materials 300,000 3 Rental income 0 4 Commission 0 5 Sale of goods 400,000 Total nominator 2,300,000 Sales for marketing services,600,000 2 Sales for promotional materials 300,000 3 Rental income 200,000 4 Commission 20,000 5 Sale of goods 400,000 Total denominator 2,620,000 0 88 4 D The Czech tax authority is entitled to commence a tax audit as the time limit for a tax audit is three years from the date the tax return is due. The tax return was due on 25 April 205. 5 C The company is entitled to deduct donations made to a political party, however, only up to 0% of its tax base. The tax loss in year 207 is not relevant. 9
6 B Revenues from fitness club,400,000 Expenses from fitness club (800,000) 2 Sale of fitness machines 50,000 Tax base 650,000 50% of the tax base 325,000 29 2% social security 94,900 7 A Total input VAT reclaimable by Nebudit, s.r.o. in September 208 November 207 assets (42,000 x 4/5) 33,600 2 July 208 assets 0,500 3 August 208 rental fees 0 4 September 208 telecom services 2,00 Total input VAT 46,200 8 C Birth certificate of his 5-year-old son 9 B Company car 600,000 66,000 Copy machine 37,000 0 Software 25,000 0 66,000 Company car depreciation (600,000*%) 66,000 0 D Elena has exceeded the turnover of million in 2 consecutive calendar months (February 208 to January 209), i.e. in January 209 ( 950,000 50,000 + 80,000). Elena must submit the VAT registration form within 5 days of the following month when exceeding the turnover of million, i.e. by 5 February 209. Elena will become a Czech VAT payer from the second month following the month in which she exceeded the million turnover, i.e. as of March 209. B Teodor March 208 tax base tax base Gross salary 30,000 30,000 2 Company car (% of 500,000) 5,000 5,000 3 Daily allowances ( 4,500 3,000) 4,500,500 4 Advance payment 8,000 0 Total 36,500 34% insurance (25% + 9%) 2,40 Total tax base 48,90 20
2 A Creating registration obligation for Polish corporation: () Creating a permanent establishment in the Czech Republic (2) Obtaining permission to perform activities that are subject to tax in the Czech Republic 3 C Petr April 208 salary Salary 20,000 Super gross salary (+34%) 26,800 5% tax 4,020 Personal tax credit (2,070) Student tax credit (335) Total tax withheld,65 4 A Galisia, s.r.o. taxable receivables Sale of company products 208 50,000 2 Contractual penalty, settled in 208 25,000 3 Provision of company services unsettled 80,000 4 Late interest sanction, unsettled 0 55,000 5 D Exempted income: Sale of securities amounting to 80,000 she bought in January 204 which where not part of her business assets Income of 250,000 from inheritance from her father 2 marks each 30 2
Section B Tamaha, s.r.o (a) (i) The corporate income tax return for 207 was due for filing on July 208 because Tamaha, s.r.o. has its accounts audited. The September value added tax (VAT) return was due for filing on 25 October 208. The employees 207 wages reconciliation filed electronically is due for filing on 20 March 208. 3 (ii) Tamaha, s.r.o may communicate with the tax office: via Data Box via data message with electronic signature/certificate by post in person at tax office Any TWO for mark each 2 (b) Late payment interests of Mr Kopitko Original due date (fifth working day after the original deadline of 2 July 208) July 208 Date of payment 23 July 208 No. of outstanding days 3 CNB repo plus 4% 0 45 VAT liability 80,000 Late payment interest 44 2 Tutorial note: Equal credit was awarded to candidates who used CNB repo as at July 208 plus 4%, i.e. 5%, although this rate was not examinable as it became law after the cut-off date for examinable legislation. (c) Kitrosa, a.s. A tax office decision must contain: reference number of tax assessment date of signature recipient name of the tax office legal basis/reference justification time limit to comply details about notice of appeal signature/name/official stamp mark per point Max 3 0 22
2 Marie March 208 payroll reconciliation Salary 24,000 2 Pension insurance exempt 0 3 Truck for private purposes (% of 2 million) 2,000 4 Working equipment exempt 0 5 Toaster, price difference (,800 900) 900 6 Meal vouchers exempt 0 7 Special bonus 5,000 8 Ski trip ( 27,000 20,000) 7,000 0 Travel allowance (,800 800),000 Base 49,900 Social security paid by employer at 34% 6,966 Tax base 66,866 9 Re-certification exams fee (applied within annual payroll) 0 Raw Tax base rounded up to 00 66,900 Total tax at 5% 0,035 Personal tax credit March 208 (2,070) st child tax credit (,267) 2nd child tax credit (,67) Total payroll tax 5,08 The March 208 payroll tax must be paid by Koblihy, s.r.o. to the tax office at the latest by 20 April 208. 0 3 Feburias June 208 Czech VAT return VAT base VAT at 2%/7 36% Outputs Sale of products to the Czech customers 450,000 94,500 2 Advance payments ( 242,000*0 736) 99,989 42,0 3 Sales to EU customers 70,000 0 3 Sales to EU customers stayed in CZ 30,000 6,300 4 Sales to Italian customers (out of scope of CZ VAT) 0 0 5 Services to US customer 60,000 0 6 Transportation services to Czech customer 20,000 4,200 6 Transportation services to Italian customer 5,000 0 8 IT services from US firm 40,000 8,400 0 Material from Slovak supplier 320,000 67,200 Total outputs,305,000 222,6 Inputs 7 Acquired material from Czech supplier 50,000 3,500 8 IT services from US firm 40,000 8,400 9 Advance payment to Chinese supplier no effect 0 0 0 Material from Slovak supplier 320,000 67,200 Fitting from Czech supplier (non-vat payer) no effect 0 0 2 Purchase of office supplies will be reflected in July 208 VAT return 0 0 3 Refreshments (input VAT cannot be claimed) 0 0 Total inputs 50,000 07,00 VAT payable 5,5 0 23
4 Stavomania CZ, a.s. Transfer pricing adjustment required to increase the 208 corporate income tax base. (,700,000,200,000) 500,000 2 Loan from Stavomania AT No transfer pricing adjustment required as the interest charged is calculated at arm s length. Thin capitalisation calculation Shareholder s capital as of January 208 3,000,000 Pay of profit share on May 208,500,000 Reserve fund pay out on May 208 500,000 Computation of the shareholder s capital (vlastní kapitál): [(3,000,000*20/365) + (3,000,000,500,000 500,000)*245/365)]*,657,534 2 The amount of loan 7,000,000 Thin capitalisation computation: (4*,657,534/7,000,000) 0 9472 Interest not allowed as a tax expense (208 tax base increasing item): (7,000,000 x 5%)*( 0 9472) 8,480 3 The interest is allowable. Accordingly, no adjustment is needed as the commercial bank is not a related party. 4 Social security and health insurance costs for the year 207 decrease the tax base in the year 208 by 80,000. 5 Pickup truck Sale price 20,000 Accounting residual value 50,000 Tax residual value 85,000 Difference between accounting and tax residual value increases the 208 tax base ( 50,000 85,000) 65,000 Stavomania CZ must release the reserves created for the maintenance of the truck as in 206 and 207 it was treated as tax deductible cost. In 208 it is considered to be taxable income. No adjustment required. 0 * In relation to the computation of the shareholder s capital (vlastní kapitál), equal marks were awarded to candidates who assumed the date of change was 2 May 208 and therefore used fractions of 2/365 and 244/365. 24
5 (a) Roman 208 personal income tax Unemployment compensation (exempt) 0 Business income 2 Total income,800,000 3 Insurance compensation 80,000 4 State subsidy (exempt)* 0 0.5 Actual costs 5 Commercial insurance 60,000 Veterinary treatment 40,000 Financial lease 50,000 Other costs 250,000 400,000 Lump sum expenses (80%*(,800,000 + 80,000)),504,000 Maximum lump sum costs up to 800,000 (800,000),080,000 5 Letting of pieces of art 36,000 Tax base,6,000 8 Life insurance (3,450) 8 Pension insurance (6,000 2,000) (4,000) Tax base after deduction,098,550 Tax base rounded down to 00,098,500 Tax 5% 64,775 Personal tax credit (24,840) Spouse credit (income more than 68,000) 0 First child credit (5,204) Second child credit (9,404) Final 208 tax liability 05,327 2 * State subsidies are only exempt in certain circumstances, and candidates who stated an assumption that these conditions were not met and included the state subsidy of 20,000 as taxable income were also awarded marks. The question has been clarified to make it clear that the subsidy is exempt. (b) Roman tax advance payments 209 Final tax liability 05,327 Advance payments from the final tax liability (more than 30,000 but less than 50,000, i.e. 40% of final tax, rounded up to 00) 42,200 Payable on 5 June 209 and 5 December 209. 2 3 5 25
6 Persony, s.r.o. 208 corporate income tax calculation Total accounting revenues 0,600,000 2 Accounting expenses 5,200,000 2 Copy machine depreciation 45,000 Copy machine cost (not meeting technical appreciation limit of 40,000) 30,000 2 Accounting depreciation 50,000 2 Creation of accounting provisions 40,000 2 Screen protection costs for disabled employees 25,000 Total accounting expenses (5,590,000) Accounting profit 5,00,000 Items increasing the tax base Tax non-deductible costs related to shareholding 5% of dividends (400,000 x 5%) 20,000 2 Difference between accounting and tax provisions (40,000 60,000) 80,000 Total increasing items 00,000 Item decreasing the tax base 2 Difference between accounting and tax depreciation working 55,000 0.5 Release of accounting reserves 90,000 Dividends received from Green, s.r.o. 400,000 Total decreasing items (545,000) Tax base 4,565,000 3 Korelia, k.s. tax base share (40% of mil.) 400,000 Tax loss from 206 (250,000) Tax loss from 207 (00,000) Adjusted tax base 4,65,000 3 Donation made by Korelia, k.s. (40% of 50,000) (20,000) Tax base after adjustments 4,595,000 Rounding down 000 4,595,000 Tax liability at 9% 873,050 2 Disabled employees ( 8,000* 7) (30,600) Final tax liability 842,450 Working tax depreciation copy machine* Tax depreciation 208 (250,000*40%) 00,000 Difference between accounting and tax depreciation ( 00,000 45,000) 55,000 5 Tutorial note: Candidates were awarded equal credit if they worked with net adjustments rather than calculating accounting profits and then tax liability. * Candidates were awarded equal credit for capitalising the technical appreciation amount of 30,000 rather than treating the amount as a tax deductible expense, and therefore calculating tax depreciation on 280,000 ( 250,000 + 30,000). 26