Czech Republic: Guidance on “windfall profits tax”

The tax authority published guidance on the windfall profits tax, which is to be applied from 2023 to 2025. 

The tax is assessed separately for each tax period, and the basic condition is generating relevant income of at least CZK 50 million for tax periods that at least partially fall within the windfall profits tax’s period of application. For instance, if a taxpayer’s fiscal year is 1 April 2022 to 31 March 2023, and the basic condition has been met, they must file a windfall profits tax return for the period; however, the tax base will be constructed only for the proportional part that falls within the period of windfall profits tax application (i.e., from 1 January 2023 to 31 March 2023).

A corporate group is subject to windfall profits tax if the total relevant income for windfall profits tax purposes of taxpayers who are part of the group reached at least CZK 2 billion for the first reported accounting period ended after 1 January 2021.Total relevant income must be calculated for all members of the group, including when the parent company is located abroad. Relevant income will include income of the Czech company (except for foreign income that may be taxed abroad under an international income tax treaty) and income of the foreign company taxed in the Czech Republic.

The guidance further provides that:

• Windfall tax profits is not subject to a special registration procedure.
• Relevant income does not include income from gas storage and re-billing of energies by lessors to lessees.
• A windfall profits tax return must be filed within the same deadlines as an income tax return even if the taxpayer declares a zero tax liability.
• Windfall profits tax is not a tax-deductible expense, and it is not possible to apply discounts against it that the taxpayer has not used for corporate income tax purposes.

When calculating average adjusted comparative tax bases, taxpayers must determine the comparative tax base for each tax period that began on or after 1 January 2018 and ended on 31 December 2021. The comparative tax base is further increased by 20% of that tax base, to arrive at an adjusted comparative base for the relevant period (e.g., a loss of CZK 800,000 is reduced to CZK 640,000 for the purposes of the calculation). From these adjusted comparative tax bases, the arithmetic average is then calculated.

When the comparative tax base is determined for a period with a length different than that of the tax base being compared, it must be recalculated pro rata as if it had been determined for a period of the same length as that of the tax base being compared. The document contains a practical example of how to approach the calculation.

If the conditions for transferring average adjusted comparative tax bases within a group are met, it is possible to:

• Make transfers from one payer to multiple payers of windfall profits tax within the group
• Make transfers to one payer from multiple payers of windfall profits tax within the group

The taxpayer must submit a notification of transferring the average adjusted comparative tax bases.

Whether the taxpayer is part of a corporate group subject to windfall profits tax together with another taxpayer in a certain tax period may be the subject of a binding assessment. A fee of CZK 10,000 per binding assessment covers an assessment of each relationship between a pair of taxpayers, meaning that the number of fees depends on the number of facts being assessed, not on the number of applications.

Windfall profits tax is paid in prepayments, and the same provisions that govern income tax prepayments shall apply (i.e., prepayments are based on the last known tax liability).

Only the prepayments for the first period (i.e., from 1 January 2023 to the last day of the deadline for filing the first tax return (e.g., 1 July 2024 for taxpayers with a calendar year taxable period)), are regulated separately. In the first prepayment period, prepayments are based on the amount stated by the taxpayer in the fictitious tax notice for 2022. The first prepayment due date is 15 September 2023; however, prepayments postponed to 15 September 2023 from 15 March 2023 and 15 June 2023 are also due on this date.

The tax authority published guidance in a separate document regarding the classification of selected activities for purposes of the windfall profits tax.

Read an April 2023 report prepared by the KPMG member firm in the Czech Republic