Czech Republic Gazettes Act No. 316/2025 to Amend its Minimum Tax Act

On September 2, 2025, Act No. 316/2025 Coll (the ‘2025 Amendment Law’) was published in the Official Gazette to amend the Minimum Tax Act (‘the Law’) for various aspects of the OECD Administrative Guidance as well as filing dates, QDMTT amendments and amending the Safe Harbour rules. This applies from tax periods starting on or after December 31, 2023.

Key amendments in the 2025 Amendment Law are:

OECD Administrative Guidance

The 2025 Amendment Law includes the following aspects of the first and second sets of the OECD Administrative Guidance:

-Sovereign wealth funds and the definition of Ultimate Parent Entity (Article 1.4)

-Forex hedge election (Article 2.2)

-Allocation of taxes arising under a Blended CFC Tax Regimes (Article 2.10 including the amendments from the December 2023 OECD Administrative Guidance)

-The extension of the taxable distribution method election to insurance investment entities (Article 3.1)

-Exclusion of Insurance Investment Entities from the definition of Intermediate Parent Entity and Partially-Owned Parent Entity (Article 3.2)

-Portfolio shareholding election (Article 3.5)

-Currency Conversion Rules (Article 1 of the Second Set of OECD Administrative Guidance)

Section 241 of the 2025 Amendment Law includes the deferred tax recognition amendments to Articles 9.1 of the GloBE Rules in the January 2025 OECD Administrative Guidance (including the grace period for DTA reversals). The consequential amendments to the Transitional CbCR Harbour (Section 92g) are also included.

Safe Harbour and Penalty Relief Guidance

The Transitional CbCR Safe Harbour is included in Part VI of the Law (Sections 92a-92m as inserted in the 2025 Amendment Law). The 2025 Amendment Law includes most of the amendments to this Safe Harbour that were provided in the December 2023 OECD Administrative Guidance. This includes:

-Purchase Accounting Adjustments (consistent reporting condition, goodwill impairment adjustment)

-JVs

-Same Financial Statements/Local Financial Statements for Statutory Reporting

-Using different accounting standards

-Adjustments to Qualified Financial Statements/Dividend Misatches

-MNEs not required to file CbC Reports

-Qualified Financial Statements for PEs

-Treatment of Taxes on income of PEs, CFCs, and Hybrid Entities

-Treatment of hybrid arbitrage arrangements

The OECD QDMTT Safe Harbour is included in Section 92a of the Law (as inserted by the 2025 Amendment Law). It also includes the three OECD requirements for the safe harbour to apply (the QDMTT Accounting Standard, the Consistency Standard and the Administration Standard). Whilst the Switch-Off Rule is not specifically included in the Law, it does refer to exceptions for ‘deviations specifically provided for in the OECD implementation framework’.

Section 92m of the Law (as inserted by the 2025 Amendment Law) includes the UTPR Safe Harbour which deems the UTPR Top-up Tax amount for a UPE Jurisdiction  to be zero if the UPE Jurisdiction has a corporate income tax rate of at least 20 percent.

This applies for Fiscal Years which begin on or before 31 December 2025 and end before 31 December 2026.

Under the 2025 Amendment Law, the Simplified Calculations Safe Harbour for Non-Material Constituent Entities is provided in Sections 92b-92c.

QDMTT Design Amendments

Sections 117-123 the Law includes a domestic minimum tax that is likely to be a QDMTT. This allows the Czech Republic to levy top-up tax on the profits of low-taxed Czech-based entities of MNE groups that don’t have a UPE in the Czech Republic.

The calculation of the QDMTT is relatively straightforward. In particular it applies the Top-Up Tax calculated under the general GloBE rules and then subjects this to a very small number of adjustments.

Key points to note are:

-Under Section 122 of the Law, MNEs could opt not to use the UPEs accounting standard and could instead use an accepted financial reporting standard or an authorized financial reporting standard provided that the information in the financial statements has been corrected to prevent any significant distortion of competition.

This means, for instance, that a Czech-based low-taxed group entity may choose to compute the excess profit for QDMTT purposes based on IFRS whilst its UPE uses GAAP of the USA in the preparation of its consolidated financial statements.

Section 122(3) of the Law also provided that the currency used in the local accounting standard can be used instead of the UPEs currency used in the consolidated financial statements. Note that the five-year election provided in the July 2023 OECD Administrative Guidance (for cases where not all Czech group entities use a local accounting standard) was not included in the Law.

This is removed in the 2025 Amendment law, as such, the accounting standard to be used will be the accounting standard based on the standard GloBE model rules.

-In order to avoid circularity, the top-up tax calculation formula for the QDMTT must be amended so that the QDMTT itself is not deducted. Section 119 of the Law provides for this.

-Tax paid or incurred by a Constituent Entity-owner under a CFC Tax Regime that is pushed down to a domestic Constituent Entity in the GloBE Rules must be excluded, as provided in the OECD Administrative Guidance. This is included in Section 119(3)/(4).

This preserves the Czech Republic’s primary right to tax income accruing to a Czech member entity which is also a CFC. If there were no statutory derogation from the general GloBE rules for the calculation of the domestic minimum tax, and the CFC tax paid by the controlling company abroad were included in the included taxes of the Czech CFC, the effective tax rate would be increased. Therefore, excluding the CFC tax from the Czech CFCs covered taxes allows the Czech Republic to tax low-taxed income at a higher rate than would be the case under an IIR.

Note that the same applies to a Czech entity subject to top-up tax that holds an interest in a foreign CFC.

Section 119(3)/(4) of the 2025 Amendment Law restructures this provision and also includes a restriction on the pushdown of taxes to Hybrid Entities and taxes on distributions (aside from Czech withholding tax), as provided in the OECD Administrative Guidance.

Section 38fa of the Income Tax Act applies provisions to tax a controlled foreign company where the CFC’s foreign tax is less than half of the corporate income tax that would be imposed domestically.

In such a case, for GloBE purposes, the CFC tax assessed on the Czech member entity under Section 38fa of the Income Tax Act is not included in covered taxes for the Czech entity as this is allocated to the foreign controlled company to whose income the CFC tax effectively relates.

-Any QDMTT that has not been paid within four years is usually taken into account for top-up tax purposes in the fifth year. This does not apply for the QDMTT calculation (just for tax under an IIR or UTPR). This is required to avoid circularity and ensure the QDMTT is not taken into account for the domestic minimum tax calculation.

The 2025 Amendment Law includes other amendments to the QDMTT design, and expands the scope of the QDMTT to include stateless entities, main entities whose activities are carried out in the Czech Republic provided that these activities can be taxed in the Czech Republic under a relevant international treaty, and tax transparent entities established under Czech law that are not resident in any state.

The OECD Administrative Guidance also allows for more flexibility for the QDMTT design, but the Czech QDMTT is very similar to top-up tax for GloBE purposes. For instance, the OECD Administrative Guidance provides that:

-The QDMTT can be more restrictive than the GloBE Rules where the tighter restriction is consistent with local tax rules.

-The GloBE Loss Election, Substance-Based Income Exclusion and De Minimis rules do not need to be included.

For Czech QDMTT purposes none of these adjustments are made and the general GloBE rules apply.

The explanatory notes to the Law states that the Czech domestic minimum top-up tax is fully based on the requirements in the EU Directive and OECD Model Rules (including accompanying guidance such as the Commentary to the Model Rules and the OECD Administrative Guidance ). As such they assume that the Czech domestic minimum top-up tax will be classed as a QDMTT by both the EU and OECD.

Section 128a inserted by the 2025 Amendment Law provides that for the QDMTT top-up tax calculations, including the calculation of the ETR and currency conversion, the calculations are carried out with an accuracy of 6 decimal places.

Transitional Year

Section 141a inserted in the 2025 Amendment Law provides for the transitional year refreshing rule.

A new transition year, arises in an accounting period in which the entities of an MNE fall within the scope of a qualified IIR or UTPR if this accounting period begins after the beginning of the transition year for QDMTT purposes.

In the new transition year the following attributes of the relevant Constituent Entities are refreshed:

-Any Excess Negative Tax Expense Carry-forward under Article 4.1.5 or Article 5.2.1 is eliminated at the beginning of the new Transition Year.

-The DTL recapture rule in Article 4.4.4 does not apply to any deferred tax liability that was taken into account in computing the ETR under the QDMTT and that was not recaptured prior to the new Transition Year.

-Any GloBE Loss Deferred Tax Asset that arose in a year preceding the new Transition Year must be eliminated. The Filing Constituent Entity may make a new GloBE Loss election in the new Transition Year.

– Article 9.1.2 shall apply to transactions occurring after 30 November 2021 and before the beginning of the new Transition Year.

– If QDMTT was payable due to the application of Article 4.1.5 in respect of a deferred tax asset attributable to a tax loss, the deferred tax asset is not treated as arising from items excluded from the computation of GloBE Income or Loss under Chapter 3 of the OECD Model Rules.

Filing

Section 129 of the Law (as amended by the 2025 Amendment Law) requires an entity subject to the IIR, UTPR or QDMTT to submit an Information Return no later than 15 months after the end of the tax period (increased to 18 months for the first year). Article 151b inserted by the 2025 Amendment Law provides that the filing deadline cannot be before June 30, 2026.

Under Section 132 of the Law, an entity subject to the domestic minimum tax was required to submit a tax return no later than 10 months after the end of the tax period. An entity subject to the IIR or UTPR, was required to submit a tax return no later than 22 months after the end of the tax period.

The amended Section 132 of the 2025 Amendment Law unifies these deadlines so that the filing deadline for all top-up tax return purposes is 22 months after the end of the tax period.

Section 129b of the 2025 Amendment Law requires an additional information overview to be submitted with a tax return.

Section 127 of the Law requires an MNE that does not have its registered office in the territory of a member state, to appoint an agent for the filing of the top-up tax return.

Section 131 of the 2025 Amendment Law includes an exemption from the filing of an information return for the domestic minimum tax. No filing is required if a an Information Return for IIR/UTPR purposes is filed and it contains the information as required for the information return on the Czech top-up tax.