Tax 

Hidden amendment to the Income Taxes Act brings new relief for ceased enforcement proceedings

As part of the amendment to Act No. 120/2001 Coll., on Licensed Enforcement Agents and Enforcement Proceedings (Enforcement Act), among other things, Act No. 586/1992 Coll., on Income Taxes (ITA) has also been amended by inserting new relief for ceased enforcement proceedings with Act No. 286/2021 Coll. with effect from 1 January 2022. This relief will apply only to strictly defined historical enforcement proceedings and at the same time exclusively to low-value receivables not exceeding CZK 1,500. It is therefore not a long-term instrument, but rather a temporary measure following a change in the Enforcement Act.

Full text of Act No. 286/2021 Coll. is available on the website of the Chamber of Deputies.

With the aforementioned amendment, the Enforcement Act seeks to alleviate the debt traps of individuals with small debts by introducing the possibility of ceasing certain types of enforcement proceedings. However, the legislation only targets low-value receivables not exceeding CZK 1,500 arising, for example, from fines inflicted in the public transport, telecommunications, regulatory fees and licence fees, as well as receivables from penalties, municipal waste collection fees, etc. The reasons for the new legislation are thus rather socially motivated and are driven by an effort to stop, for example, distraints imposed on children.

Compensation for creditors

We therefore see a clear effort to protect the debtor, but it is also necessary to think of the creditors, who, after the enforcement proceedings have ceased, will not be able to collect their claims. The aim of the new legislation is therefore also to compensate the creditors who have so far rightfully sought to recover their claims, invested considerable funds in the recovery and are entitled to payment of the claim. According to the explanatory report, in the event of debt elimination, the creditor would receive approximately 30% of the debt from the debtor. Therefore, the compensation for the creditor, which the state grants in the form of tax relief, is set in the same amount.

Thus, new tax relief for the ceased enforcement proceedings enters the ITA. The text of the relevant provision implies that it concerns a claim recovered in enforcement proceedings with the following parameters:

  • A claim that has been the subject of enforcement proceedings and the value of such a claim does not exceed CZK 1,500.
  • The amount of the relief is determined by the amount of the compensation granted to the creditor when the enforcement proceedings are ceased, which corresponds to 30% of the claim without interest and fees.
  • It has to be an enforcement procedure conducted under the Enforcement Act, which was initiated before 1 January 2019 and for which nothing has been collected in the last three years (i.e. 2019, 2020 and 2021).

A key implication of the above is that this is transitional legislation for the resolution of historical enforcement proceedings, the rules thus do not apply to newly initiated proceedings. This brings us to the transitional provisions and effectiveness of the act, which cannot be read from the ITA and it is therefore necessary to refer to the Enforcement Act.

Procedure according to the Enforcement Act

According to the Enforcement Act, the enforcement agent should, within three months of the law’s effective date, i.e. from 1 January 2022, invite the entitled party, i.e. the creditor, to make an advance on the costs of enforcement. If the creditor does not deposit the costs of enforcement within the prescribed period, the enforcement agent will cease the enforcement proceedings. The enforcement agent will then decide on the compensation or the amount of the relief for the ceased enforcement proceedings in the resolution to cease enforcement proceedings. Most of the relevant enforcement proceedings should therefore be ceased and the relief granted in early 2022. However, there are exceptions to this procedure, for example, for situations where insolvency proceedings are also taking place concerning the debtor’s assets, etc.

Therefore, if your company is engaged in an activity that generates low-value receivables and collects these receivables to no effect within enforcement proceedings, then this relief is an institute that should not escape your attention.

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