Since its EU accession in 2004, the Czech Republic has strived to ensure the compatibility of its income tax system with EC law. Although several potentially discriminatory or restrictive Income Tax Act provisions were abolished or amended as part of a 2008 reform, it is argued that the extension, from 1 January 2008, of the scope of the participation exemption to include capital gains is likely to be incompatible with EC law. The last section of the article assesses the effect of the relevant tax treaty provisions and the domestic legislation of other member states (Estonia, Finland, France, Germany, Ireland, Latvia, Lithuania, Malta, and Sweden) to determine whether or not the restrictive effects of the Czech legislation may potentially be neutralized under the relevant tax treaties.