IFRS EU endorsement process [May 2023]
The European Financial Reporting Advisory Group (EFRAG) updated its report showing the status of endorsement of each IFRS, including standards, interpretations, and amendments, most recently on 5 April 2023.
We entered the new year together with the amendment to the Income Taxes Act approved in December 2020. In addition to a number of changes relating to individual income tax (cancellation of the super-gross wage, progressive taxation, monetary meal allowance, change in the amount of personal tax allowance) that were often discussed in the media, the amendment resulted in changes relating to tax depreciation. We would like to briefly introduce the changes together with their impact on accounting.
With respect to depreciation, the tax package introduces:
When and how the above-specified changes should be applied is specified in transitional provisions of the amendment to the Income Taxes Act. In general, the transitional provisions stipulate that for taxation periods commenced before the effective date of the provisions (i.e. before 1 January 2021), the Income Taxes Act effective before the amendment shall be applied. However, changes relating to tax depreciation of assets have their specific transitional provisions, which indicate that it is irrelevant whether a calendar or fiscal year is applied; the deciding factor is the date of acquisition or, in respect of technical improvement, the date of completion and putting into use.
Tangible assets and their technical improvement acquired…
- …On or before 31 December 2019
The provisions of the Income Taxes Act effective before the amendment came into effect, or effective in the moment of acquisition of the assets, should be applied.
- …Between 1 January 2020 and 31 December 2020
The taxpayer can make a choice between using the new options of the amended Income Taxes Act or proceeding as before, i.e. pursuant to the wording of the Income Taxes Act effective before the amendment.
- …After 1 January 2021
The taxpayer will proceed with respect to tangible assets and their technical improvement pursuant to the amended Income Taxes Act.
The amendment cancelled the definition and amortisation of intangible fixed assets and, similar to tangible assets, the taxpayer can make a choice between applying the new procedure to assets acquired in the period from 1 January 2020, or after 1 January 2021. When implementing the amendment, be it retrospectively or starting from this year, tax expenses will include the values recognised in the accounting books.
Regulation 500/2002 Coll., for businesses, stipulates in Section 6, or 7, that the limit for tangible and intangible asset valuation is determined by the reporting entity. In general, the vast majority of entities have historically determined their limits for fixed asset valuation pursuant to the Income Taxes Act, i.e. selected the method for fixed asset classification.
Section 7 of the Accounting Act stipulates that the structure and designation of items in the balance sheet and the profit or loss account as well as their content and valuation methods used in one accounting period shall not be changed by the entity in the following reporting period. Entities may only change the structure, designation, content and valuation methods in full or in part between individual reporting periods if their principal business or other activities are changed or in order to make their fair view more precise or to increase the information value of their financial statements. Information on any such change including its due justification must be disclosed in the notes to the financial statements.
The above mentioned facts indicate that the change in the limit for tangible fixed asset valuation and the cancellation of the limit for intangible fixed asset valuation for tax purposes as such is not a reason to change the limits for fixed asset valuation in the accounting books.
Accounting is not linked to tax regulations in the area of tangible and intangible fixed assets and their depreciation/amortisation and no changes occur in this respect. When defining the limit for valuation of tangible and intangible assets and their technical improvement, the deciding factor in accounting is to observe the materiality principle and provide a true and fair view. If a company has no reason to change its limit for valuation for accounting purposes (i.e. the cash limit for “asset capitalisation”), starting from 2021 (or 2020 as the case may be) it only expands the group of assets for which the tax depreciation will follow the accounting depreciation as stipulated in Section 24 (2) (v) of the Income Taxes Act and no separate tax depreciation will be calculated.
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