Investor Presentaiton

the profits of a different company. However, virtual tax consolidation can be achieved through a partnership structure. Dividends received by Czech resident compa- nies from non-residents are taxed at a rate of 15 percent. They are exempt from tax if the payer is a company resident in an EU member state, provided that at least 10 percent of the shares have been held for 12 months. The exemption also applies if all the following criteria are met: the payer is a tax resident of a state with which the Czech Republic has concluded a double taxation treaty; the payer has a similar legal form to a limited liability company (s. r. o.), joint-stock company (a. s.) or co-operative (družstvo); the recipient has held at least 10 percent of the shares for 12 months; the payer is subject to a tax similar to Czech corporate tax, and the rate is at least 12 percent. Exemptions for capital gains and dividends do not apply if the parent company or the subsid- iary are either: exempt from corporate income tax (or similar tax); - able to claim a corporate income tax exemption or corporate income tax relief; subject to corporate income tax at a rate of 0 percent, or if the recipient is not the beneficial owner of the income. An amendment regarding hybrid loan arrange- ments (i.e. payments which are treated as de- ductible expenses in the source state and as tax exempt dividends in the recipient state) is expected to be adopted during 2016, denying tax exemptions for such payments at the level of the recipient company. Mergers and divisions of companies can gener ally be carried out on a tax neutral basis. The EU Mergers Directive and the EU Cross-Border Merger Directive have been broadly assimilat- ed into Czech law. In general, domestic legis- lation maintains the tax neutrality of mergers and allows the transfer of unused tax losses for transactions satisfying certain legal conditions (transfers of business and mergers), provided that tax avoidance is not the main purpose of the transaction. Additionally, there is a "same activity" rule, under which tax losses can only be offset against income earned from the same economic activity that generated the tax loss. 55 59

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