We have previously dealt with the topic e.g. in the From the practice of the Supreme Administrative Court: R&D tax relief article.

The methodical instruction not only reacts to the issue of holidays that were the subject of the above judgments; it also comments on other types of wage compensation, such as public holidays, blood donation or parental leave. The instruction contains the possible method of calculation for these types of compensation but also admits that the taxpayer can choose to proceed in a different way. The certain declared fact is that the tax relief may only include wage compensation for work, which the employer is obliged to pay in accordance with the relevant provisions of the Labour Code. The instruction hereby delimits the range of compensation that employers provide “voluntarily” (e.g. the popular sick days). In its next section, it gives an example of the possible calculation of holiday recognition. It should be noted that the calculation presented in the instruction raises a number of doubts and questions, and we therefore believe that this calculation method will not be required in practice and that that this part of the instruction will be significantly modified. In the following sections, the instruction defines other types of wage compensation in the form of work impediments, both on the part of the employer and employee. Certain statements lead to a not very uniform conclusion in defining that certain types of compensation can, and certain cannot be recognised, stating that the tax administrator should assess the specific conditions individually.

The question of how the specific tax administrators will approach the individual types of wage compensation within the scope of their supervisory activity remains open. For the sake of completeness, we would like to include the conclusions of our calculations, which show that the holiday and public holiday compensation constitute over 10% of the personal cost deduction increase and thus represent a significant additional taxpayer saving. Conversely, the experience of the authors of this article has shown that other types of compensation constitute, in the best-case scenario, low percentage units of staff costs, being a marginal item in the state budget and their detailed analysis may result in inefficient additional administrative work. Moreover, it creates an obligation for companies in the investment incentives mode to deal with this issue as the law clearly defines that the “incentive recipients” must, among other things, maximise the research and development deductions (including individual expense items, i.e. also wage compensation).

Considering the state administration approach, the best option would be to recognise staff costs in gross salary and in the related health insurance and social security, which the employer pays to their employees for the work performed. This procedure would certainly simplify the administrative process for both the taxpayer and the tax administrators.

Whether you are preparing the tax relief individually or in cooperation with external advisors, we recommend not to underestimate the wage compensation and to properly analyse this issue. As the opinion of the Supreme Administrative Court is clear, it would definitely be a shame to exclude all types of wage compensation from the tax relief.