On 27 April 2021, the Minister of Finance issued another resolution on waiver of income tax on the grounds of an extraordinary event caused by the coronavirus spread. This time, it relates to the income tax corresponding to the tax liability arising from the breach of the condition of the operational time of assets used for professional education under Section 34g (1) of Act No. 586/1992 Coll., on Income Taxes, as amended (Income Taxes Act).
To what does the waiver relate?
In general, the professional education allowance has two components. First, it is the support for the acquisition of assets for professional education which means that a taxpayer will apply, in addition to common tax depreciation of such assets, a certain percentage from the input price (the acquisition cost of the assets will thus impact the tax base more than once). The amount of this benefit, i.e. the percentage of the applied input price, is then based on the proportion of the use of assets for professional education to the total operation hours of such assets (the total amount is further limited by the number of hours of practical education). The second form of the allowance is the deduction for the support for the expenses incurred per pupil or student, which amounts to a lump-sum of CZK 200 per pupil-hour of the completed training.
The above resolution regarding the waiver of tax relates to the part of the support for the acquisition of assets for professional education. The reason is the fact that the application of this part of the allowance is conditioned on the assets being used for professional education of pupils and students in a certain proportion, in three taxation periods starting in the period in which the assets were acquired. However, given that the classroom education in schools and practical training in the workplaces of future employers were forbidden during the coronavirus epidemic, companies could not meet this required condition for the use of assets for professional education without their fault. When the conditions are breached, the Income Taxes Act requires a refund of the obtained benefit (deduction) in the period when the condition is breached. And it is the tax that taxpayers would pay on this that is waived by the Minister of Finance in her resolution.
What are the conditions of the waiver?
The waiver of the tax in this context relates only to taxation periods starting from 1 April 2019 to 30 April 2021 for payers of the corporate income tax, and to taxation periods of 2020 and 2021 for payers of the personal income tax. If a taxpayer did not meet the condition of the use of assets for professional education in the determined proportion in the specified time period, the tax on the relating increase in the tax base will be waived.
There are two conditions for such waiver, specifically that the taxpayer will report a tax liability for the particular period and concurrently will announce to the tax administrator that it is entitled to such waiver. The announcement must be generally filed by the deadline for the filing of the tax return for the taxation period in which the tax is to be waived. However, when the deadline for the filing of the tax return for the particular taxation period has expired or will expire before 1 July 2021, it is necessary to file the announcement to the tax administrator by 1 July 2021.
The manner of the waiver is as follows: the increase in the tax base due to the breach of the conditions for the use of assets for professional education will not be stated in the tax return at all. It means that if you have already filed the regular tax return, you will have to file an additional tax return for the particular taxation periods and apply the waiver.
Let us show the application on an example of a fiscal year starting for example on 1 April 2019 with the deadline for filing of the tax return on 1 October 2020, assuming that the tax liability was reported in that tax return. We did not meet the condition for the allowance in that taxation period and we increased the tax base in line with the Income Taxes Act. We have to announce our entitlement to the waiver to the tax office by 1 July 2021 to benefit from the resolution of the Minister of Finance in this matter. Concurrently, we have to file an additional tax return for this period for a lower tax liability in which we will not apply the provision on the breach of the conditions for the allowance (resulting in an increase in the tax base).
If we deal with the taxation period determined as the 2020 calendar year, with the deadline for the filing of the tax return as of 1 July 2021, it is necessary to announce the entitlement to the tax administrator by the deadline for filing of the tax return, i.e. 1 July 2021. If we have not filed the tax return for that period yet, we will not include the item increasing the tax base due to the breach of the condition for the use of assets for professional education in the regular tax return for 2020.
In conclusion, we note that the condition of the use of assets for professional education will however need to be met additionally. It means that the selected assets will have to be used in the determined scope in the future taxation periods so that the condition of its use for professional education in total is met in 3 taxation periods.
And how to proceed in the following years?
As stated by the Czech Ministry of Finance, an amendment to the Income Taxes Act is being prepared in this respect, which will bring legal fiction that should make sure that the Income Taxes Act will perceive the condition of the use of assets in the professional education allowance as met in defined taxation periods. The proposed amendment will consequently bring a solution for cases that are not covered by this tax waiver, i.e. cases when the taxpayer does not report any tax liability for the specific period or acquired the assets for the purposes of professional education in the taxation period to which the waiver applies and could not use the allowance for these assets.
As soon as the text of the prepared amendment is available, we will keep you informed.