One example for all. The existing treatment of the deduction for promoting research and development (“R&D”) required that the written project of the R&D in the pipeline be prepared and signed prior to the commencement of its implementation. In relation to this requirement, long disputes were held as to when exactly the implementation of the development project commences and, therefore, when the written document has to be signed. Utilised deductions were contested, for example by stating that the research and development project should have been signed by the business prior to negotiating the contractual terms with the customer or prior to any preparatory activities. Paradoxically, authorities did not examine which projects were of an R&D nature and, as such, should have been supported, but whether the statutory executive did not sign the project a couple of days later.

These disputes were terminated by a case represented by Deloitte Legal’s attorneys-at-law and held before the Supreme Administrative Court. The Court upheld that the project commences as late as when it is duly approved and signed. While court rulings have established the practice in enforcing unclear legal provisions, they have unfortunately not encompassed all those of key importance.

Will the amended act help?

Since as early as 1 April 2019, new rules for utilising R&D tax deductions have been in effect. The amendment to the Income Taxes Act was made in response to the recommendations of the task force set up under the leadership of the Research, Development and Innovations Council in which Deloitte was also involved. One of the objectives of the amendment is to remove the uncertainty experienced by payers utilising the R&D tax deduction. A major development is primarily the fact that it will be newly sufficient to merely inform the tax authority in advance of the intention of utilising the R&D deduction. The full project documentation will need to be prepared before the deadline for filing an ordinary tax return expires.

This method of regulation is a much better reflection of how development projects are carried out by businesses. In fact, businesses generally do not design development projects without carrying them out, but flexibly respond to the present market situation to always be one step ahead. Payers will now not need to worry about preparing formally correct project documentation in advance or otherwise risk losing this tax relief. As a result, businesses will be able to concentrate on the technical implementation of the project so that it has the most certain outcome possible.

Deloitte Legal has succeeded in research and development tax deduction disputes

Deloitte Legal’s tax litigation team has succeeded in all disputes relating to research and development tax deductions. The possibility of deducting the costs of development activities from the tax base constitutes substantial tax support. However, in practice, businesses face ambiguous rules for its utilisation. Deloitte has represented several clients in this regard and led their cases to successful conclusion. As a result, businesses were not only refunded unlawful additionally assessed tax along with interest on the tax administrator’s unlawful actions for court disputes spanning years, but the rules for utilising the deduction in subsequent years have also been clarified. If you would like to know more, contact Jiřina Procházková, an attorney-at-law, at jprochazkova@deloittece.com.

The article is part of dReport – May 2019, Legal news.