Period of application

• The new tax would be applied between 2023 and 2025, with advances due as early as 2023 based on the 2022 figures.

Which companies will be affected

• The new tax is expected to apply to companies with significant activities in electricity and gas production and trading, banking, fossil fuel extraction and production and distribution of petroleum and coke products¹.
• The entry criteria should be as follows:
  • for banks - an individual criterion of (domestic²) net interest income (for 2021) of at least CZK 6 billion plus an individual criterion of (domestic) net interest income in the current year of at least CZK 5 million.;
  • for others - group criterion of (domestic) net turnover from the respective activities (for 2021, probably excluding banks) of at least CZK 2 billion and in addition an individual criterion of (domestic) net turnover from the respective activities in the current year of at least CZK 5 million. CZK; 
  • for mining/treatment of hard coal / extraction of crude oil and natural gas / production of coke and refined petroleum products - it is sufficient to meet the individual criterion of (domestic) net turnover from these activities in the current year of at least CZK 5 million. CZK.

Rate

• The windfall tax rate would be 60% and would be applied to the companies concerned as a kind of surcharge on top of the 19% corporate income tax on their "windfall profits".

Background

• This windfall profit should be calculated by comparing the current year's tax base³ with the arithmetic average of the 2018-2021 historical bases plus 20%⁴.

Next steps

• The ambition, of course, is to get the legislative process done so that everything is approved and promulgated by the end of the year. The technical details (i.e. whether through a separate amendment to the Income Tax Act or through an amendment to the draft already under discussion - Parliamentary Print 254) are subject to discussion.

We will continue to monitor this area.

If you have any questions, please contact the authors of this article or the EY tax team with whom you regularly work.

Authors:

Lucie Říhová

Karel Hronek

Tereza Pospíšilová

References:

[1] More precisely, it should probably be the activities listed in the NACE classification under the codes:

• 05.1 - Mining and quarrying of hard coal,
• 06 - Extraction of crude petroleum and natural gas,
• 19 - Manufacture of coke and refined petroleum products,
• 35.1 - Production, transmission and distribution of electricity,
• 35.2 - Production of gas; distribution of gaseous fuels through networks,
• 46.71.2 - Wholesale of liquid fuels and related products,
• 46.71.3 - Wholesale of gaseous fuels and related products,
• 49.50.1 – Oil pipeline transportation,
• 49.50.2 – Gas pipeline transportation,
• 64 - Financial intermediation, except insurance and pension funding, except for the activities listed in the NACE classification under code 64.11 - Central banking, if the taxpayer is a bank.

[2] I.e. for a Czech tax resident apart from income from sources abroad, which according to the international treaty can be taxed abroad, or for a non-tax resident Czech sourced income apart from income which according to the international treaty cannot be taxed in the Czech Republic.

[3] Before the application of reducing/deductible items and without the inclusion of income from foreign sources that may be taxed abroad under an international treaty (and related expenses). Similarly, this applies to historical tax bases.

[4] It should be possible, under certain conditions, to transfer amounts of average historical bases between companies in a group.