The new legislation clearly increases the level of tax support, but neither the conditions of Act No. 586/1992 Coll., on Income Taxes (the “Act”), nor the required level of specification of R&D projects are fundamentally changed. The amended wording of the Act removes the requirements for stating the employment relationship of R&D project personnel and their qualifications, however, it does not, in substance, regulate the qualitative parameters of the documentation required by law, which have evolved through judicial practice for a long time. It is in this area that the most uncertainties arise. The high number of disputes with the tax authority and case law show that the application of the R&D deduction remains complex and unclear for many taxpayers. Below we summarize the conclusions of the most recent judgments.

Judgment of the Supreme Administrative Court dated 12.11.2025, No. 4 Afs 189/2024-43

Method of control and evaluation of the R&D project

The SAC confirmed the tax authority’s conclusion that the project documentation must specifically define the method of monitoring and evaluation of the R&D project, i.e. determine the criteria and methodology according to which individual activities will be evaluated, the control mechanisms to be applied, who will carry out the control (not a specific individual, but e.g. a job position), the frequency of such controls, and the records to be kept. Although the Act contains only an exhaustive list of requirements without further specification, the SAC concluded that their reflection in the project documentation must be sufficiently specific to allow the tax authority to verify that the control was carried out in accordance with the predefined plan and how the results were subsequently handled.

Separate cost records

The SAC also addressed the issue of the application of wage costs calculated on the basis of an annual average. Although neither the Act nor the related methodological guideline provides specific instructions on how to calculate wage costs for the purposes of the R&D deduction, the SAC concluded that the cost determined on the basis of the annual average may not correspond to the recorded personnel costs and cannot be sufficiently proven to have actually been incurred. If it is not possible to unambiguously link the individual accounting documents with the recorded costs and verify these costs accurately and demonstrably without distortion, they cannot be recognized for the purposes of the R&D deduction, according to the court’s conclusions.

Judgment of the Supreme Administrative Court dated 21.11.2025, No. 3 Afs 115/2024-65

Separate cost records

In another ruling, the SAC further addressed the issue of keeping separate cost records in connection with R&D projects, focusing in particular on the admissibility of records based on the proportional allocation of individual employees’ involvement in an R&D project. According to the SAC’s conclusions, this method of keeping records is permissible, however, each cost calculated in this way must be supported by specific time records relating to work performed on the R&D project, a description of the work activities and the related wage costs. The burden of proof lies with the taxpayer, who must be able to prove that these are costs actually incurred and not merely qualified estimates, even in the case of employees remunerated by a fixed monthly salary.

The Act explicitly imposes only the obligation to keep separate cost records, not the obligation to keep timesheets. However, the SAC emphasized that even if this legal obligation is fulfilled, the taxpayer continues to bear the burden of proof regarding the actual incurrence of costs in connection with the R&D project. It follows from the case law that without a sufficiently specific link between the time spent working on an R&D project and its outputs, these costs cannot be regarded as sufficiently substantiated, which in practice often represents a significant administrative burden for taxpayers.

Summary

In its decisions, the SAC has repeatedly confirmed the fact that the application of the R&D deduction is associated with significantly stricter requirements than those formally set out in the Act. The Act requires only general requirements of project documentation and the keeping of separate cost records, however, it does not regulate the specific method of cost calculation, the details of the R&D project control or the quality of the recorded data. The courts interpret these requirements very strictly and place emphasis not only on the formal fulfilment of the documentation, but also on its quality and specificity.

In practice, taxpayers are therefore required to expend considerable administrative effort – from preparing the necessary documentation, through continuous monitoring of relevant case law to implementing judicial interpretations into internal processes. Although the amendment does not define specific procedures or clearly reflect the requirements arising from case law, nor does it provide greater certainty in long-disputed areas, the increased deduction of 150% of eligible costs, when supported by properly designed internal processes and comprehensive supporting documentation, may nevertheless serve as an effective tool for tax support of R&D activities.