Division by Spin-Off – Clarification of Tax Implications

Due to the absence of explicit regulation in the Income Tax Act (ITA), this form of business transformation raises several questions regarding tax assessment. These aspects were addressed by the Coordination Committee of the Chamber of Tax Advisors and the General Financial Directorate, which reached a consensus.

The institute of division by spin-off consists of separating part of the assets of the divided company and transferring them to one or more successor companies according to the spin-off project. The divided company does not cease to exist and becomes a shareholder of the successor company. The main difference compared to division by split-off is that in a spin-off, the share in the successor company is acquired by the divided company, whereas in a split-off, it is acquired by its shareholders.

The Coordination Committee addressed two key questions:

• Under which provisions of the ITA will the division by spin-off be carried out?
• How to determine the tax acquisition cost? (The article focuses on Czech tax residents.)

Spin-Off in General

Division by spin-off does not meet the definition of division of business corporations under Section 23c (2) ITA, because the shareholders of the divided company do not acquire a share in the successor company (a share is acquired by the divided company). However, the spin-off is considered a division of a business corporation under Section 23c (3) ITA, as it is a transformation under a special legal regulation. From an economic perspective, this transformation has the nature of a contribution of part of the assets, as confirmed by the explanatory report.

In general, division by spin-off is governed by Section 23c ITA.

Special Cases of Spin-Off – Business Enterprise and Share

If a business enterprise (meeting the conditions set out in Section 23a (1) ITA) is spun off, the provision of Section 23 ITA, governing the transfer of a business enterprise to a business corporation, shall apply. The decisive factor is the outcome of the transaction, i.e., the situation where the divided company acquires a share in the receiving company for the spun-off business enterprise or increases its contribution to  the registered capital of receiving company. Section 23a ITA can only be applied if the spun-off part of the assets constitutes an independent business capable of operation, as required by Council Directive 2009/133/EC (i.e., where all assets and liabilities are spin-off, including, for example, employees).

If a share in another business corporation meeting the definition under Section 23b (1) of the ITA is spun off, Section 23b of the Act will apply. The condition is that the divided company:

• spins off from its assets a share in another business corporation representing more than 50% of voting rights,
• this share is transferred to the successor company as part of the spin-off, and
• in exchange for it, the divided company acquires a share in the successor company.

Determination of Tax Acquisition Cost

Determining the tax acquisition cost of the share acquired for the spun-off assets depends on which provision of the ITA applies.

• Spin-off of a business enterprise: The acquisition cost of the share in the receiving company is determined under Section 23a (2) ITA – i.e., the value of the transferred business enterprise as it would be appraised for a non-monetary contribution under a special legal regulation (typically based on an expert opinion).
• Spin-off of a share in another business corporation: If the transaction meets the conditions of Section 23b ITA, for divided company the acquisition cost of the share in the successor company is determined under Section 23b (3) ITA, i.e., value of the spun-off share at the time of the spin-off.¹
• Other cases: The general rule under Section 24 (7) (b) (2) ITA applies, i.e., the acquisition cost of the share is determined at the amount of the tax residual value of the spun-off tax depreciated tangible assets and the accounting value of other spun-off assets.

KOOV 624/30.04.25
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¹For the successor company is used valuation in accordance with Section 23b (5) of the ITA – i.e. fair value as defined in the Accounting Act.

Authors:

Hana Račanská, Senior Consultant, Tax Department

Eliška Stránská, Tax Department Manager