Due to the COVID-19 pandemic, the Czech Ministry of Finance has introduced an amendment to the Income Tax Act with effect from 1 July 2020, introducing, amongst others, an option to carry back tax losses up to two years preceding the tax period in which the tax loss has been assessed, up to the total amount of CZK 30 million (approx. EUR 1.2 million) for both periods.
The amendment is intended to help companies with their cash-flow position in the COVID-19 pandemic tax year, but is not scheduled to be cancelled after the pandemic passes. Currently, the tax loss carried forward remains at the level of five subsequent tax periods. For example, a tax loss assessed in 2020 may be utilised in any tax period until 2025, and in 2018 and 2019 by filing additional tax returns (tax overpayment is paid back).
Taxpayers can use the estimated tax loss for 2020 (or, more precisely, for the tax period ending after 30 July 2020) and utilise it against the tax liability in the previous tax period (2019), even before the tax return for 2020 is filed and the tax loss is officially assessed. After the close of the 2020 tax period, the taxpayer must compare the estimated and actual tax loss. If a lower actual tax loss than estimated is incurred, the taxpayer must file another additional tax return for the tax period 2019 and pay the difference, including late payment interest. If the actual tax loss is higher than estimated, no additional filing is required, but is an option.
In general, tax may not be assessed or additionally assessed three years after the date when the tax obligation or obligation to file a tax return arose. The limitation period is extended by another five years if the taxpayer incurs a tax loss, regardless of whether the tax loss was utilised or not. If the tax loss was utilised retrospectively, the limitation period will also be extended by another five years. If the taxpayer decides not to utilise the tax loss retrospectively, the limitation period will stay the same (i.e. three years).
A new waiver mechanism of the right to utilise the tax loss for the future was also added to the Czech Income Tax Act. A taxpayer can decide to waive their right to utilise the tax loss in subsequent tax periods completely, which would ensure that the tax period where the tax loss was incurred will not be open for a tax audit for a further five years.
Michala Mrazíková
michala.mrazikova@bdo.cz
Monika Lodrová
monika.lodrova@bdo.cz