As of 1 July 2020, an amendment to the Income Taxes Act regarding the utilisation of tax losses became effective through Act No. 299/2020 Coll. In addition to the newly introduced tax regime where a tax loss can be utilised not only in the following periods but also in the two preceding periods, the amendment has also brought several administrative changes.
In connection with the current epidemic situation, the Ministry of Finance of the Czech Republic issued another decision on remission of taxes and related interest and fees due to an extraordinary event. The Minister of Finance’s decision remits the penalty for late filing and the interest on late payment.
As the new year arrives, the time for the preparation of financial statements and the income tax return for the past taxation period comes. This year, it is necessary to pay increased attention to the time limit for filing the tax return as the amendment to the Tax Code, which took effect on 1 January 2021, significantly rephrased the existing rules. According to the transitional provisions and the information of the Financial Administration of the Czech Republic, the new rules apply already to the 2020 taxation period.
On Monday, October 26, the Ministry of Finance introduced further tax reliefs through the “Decision on remission of the accrued interest and associated fees and tax advance due to an extraordinary event” published in Financial Newsletter No. 25/2020. What measures does it bring?
The Income Taxes Act (ITA), as amended until 30 April 2015 (“the old wording of the ITA”), specified that if the corporate income tax payer increased the tax base by conducting related party transactions in a way that did not comply with the economic principles of ordinary business relations, it would denote a breach of conditions for drawing investment incentives in the form of tax relief, leading to a subsequent loss of investment incentives. This provision was amended with effect from 1 May 2015 (“the new wording of the ITA”): currently, in the case of a breach of the aforementioned conditions, the loss of investment incentives will not be complete and will not affect all periods in which the tax relief was or could have been claimed.
After a legislative process of approximately six months, on 26 September 2020, the Act on the Abolition of Real Estate Transfer Tax (or the repeal of the Senate’s Ordinance No. 340/2013 Coll.) became effective. In short, let us remind you of the definition of real estate, which is no longer subject to the real estate transfer tax, as well as the related amendments to the Income Taxes Act.
We have already informed you in our previous articles about the forthcoming changes, which include so-called implementation package amending several legal regulations due to the implementation of EU tax laws. In terms of taxes, the implementation package of the Ministry of Finance of the Czech Republic slightly amends the Income Taxes Act, brings about a major change in cross-border transactions in the VAT Act and also introduces the long-announced obligation to report cross-border arrangements in the Act on International Cooperation in Tax Administration.
In May, we informed you about a ground-breaking ruling of the Supreme Administrative Court which rejected the tax administration’s practice of extending the statute of limitations by so-called tax loss chaining. In its latest ruling, the Supreme Administrative Court refers to this case law and comments on the rules of the statute of limitations for the taxation period in which the tax loss arose or could have been utilised.
The Ministry of Finance has submitted a proposal for tax amendments for 2021 to the government. These amendments are summarised in Document of the Chamber of Deputies No. 910, which has currently passed its first reading in the Chamber of Deputies and its further discussion is scheduled for September of this year. Therefore, let us summarise in brief the most interesting news that may await us next year.
