How does the utilisation of the tax loss affect the statute of limitations?

The Income Taxes Act makes it possible to deduct a tax loss from the tax base over the course of the five taxation periods immediately following the period for which the tax loss was assessed and newly, since 1 July 2020, also for the two preceding periods. However, the origination of tax loss also extends the statute of limitations, during which it is possible to check and modify the tax amount. The statute of limitations for a loss-making taxation period and the following five taxation periods for which the tax loss or its part can be utilised ends simultaneously, i.e. with the statute of limitations for the last year. The Income Taxes Act thus gives the tax administrator a longer period, of up to five years, to audit an incurred tax loss. When the tax loss is carried back, the lapse period can only be extended if the tax loss for the two immediately preceding taxation periods was actually utilised. The rulings of the Supreme Administration Court analyse the issue of the tax loss utilisation for the upcoming years. However, considering its specifics, the conclusions may be very similar for carry back loss as well.

What does the latest Supreme Administrative Court’s ruling entail?

The Supreme Administrative Court has unequivocally confirmed that the statute of limitations for the taxation period in which the tax loss arose or could have been utilised runs separately for each taxation period. The origination of the tax loss does not affect the statute of limitations for the previous taxation period, i.e. the so-called tax loss chaining does not occur. Crucially, the statute of limitations cannot exceed ten years, not even in the case of the taxation periods in which a tax loss arose or could have been utilised. Therefore, after ten years from the last day for filing the tax return, the statute of limitations cannot be further extended under any circumstances; it has expired and there is no mechanism to renew it. Exceptions to this rule represent cases where a tax offence has been committed or a taxable entity shows remorse, which eliminates the entity’s criminal liability. Only in these cases, it is possible to change the assessed tax after more than 10 years.

What are the consequences of the Supreme Administrative Court’s ruling?

If the tax authority conducts a corporate income tax audit in your company for the taxation period in which the tax loss arose or could have been utilised or if you are a recipient of investment incentives where similar rules apply, we recommend thoroughly reviewing the statute of limitations. Conducting a tax audit after the statute of limitations makes the tax audit unlawful and the audit must be discontinued.

We recommend reviewing the statute of limitations even if the tax audit has already been completed and the corporate income tax additionally assessed, because conducting appellate or court proceedings after the statute of limitations is a reason for cancelling a payment assessment or other decisions.