Amendments of Tax Laws in Connection with the Coronavirus
Especially in reaction to the COVID 19 epidemic, many tax laws are being amended, with the aim of reducing some negative effects caused by the coronavirus. In this article, we would like to point out some of them to you, which are currently being discussed in the legislative process. We will focus on the change in the Income Tax Act (the introduction of a new concept of “Loss carryback”) and in the Value Added Tax Act.
The great amendment of the Code of Tax Procedure, with which we have familiarised you in a separate article that you can find here, is also topical again.
On 29 May 2020, the Chamber of Deputies of the Czech Republic approved a change in some tax laws in connection with the coronavirus, i.e. is measures to reduce negative effects caused by the coronavirus (parliamentary print 874). This amendment is currently waiting to be approved by the Senate of the Czech Republic and to be signed by the president.
Change in the Road Tax Act
The amendment is intended to reduce the annual rates of the tax for trucks, semi-trailers and other vehicles (the rates of the tax for passenger cars are not affected by this amendment). The new annual rates will be applied for tax obligations for taxable periods beginning on 1 January 2020. As the amendment takes effect, a part of the road tax prepayments for the taxable period of the year 2020, due before this amendment has taken effect, corresponding to a positive difference between the prepayments paid and the prepayments calculated using the road tax rates according to the new rules, will be used gradually to cover prepayments in the taxable period of the year 2020 due from the day this amendment and road tax took effect for the taxable period of the year 2020. The amendment is set to take effect on the day following publication in the Collection of Laws.
Change in the Income Tax Act - retroactive use of loss (“Loss carryback”)
The amendment contains a new concept of the so-called “Loss Carryback”, i.e. retroactive use of tax loss, both in terms of the personal and the corporate income tax for the year 2020. In other words, if the taxpayer posted a tax obligation in the year 2018 or 2019 and tax loss in the year 2020, it will be possible to offset this loss against the tax base for the year 2018 and 2019.
With the amendment, the taxpayer should have the option of using the loss for the year 2020 not only in the following 5 taxable periods, as an entry lowering the tax base, but also retroactively - in two taxable periods before the beginning of the taxable period, for which the loss was assessed, that is for the years 2018 and 2019. First it will probably be necessary to reduce the tax base from the year 2019, and if the posted loss is higher than the tax base in the year 2019, the loss will also be offset against the tax base of the year 2018. In case the posted loss is higher than the tax bases from the years 2019 and 2018 combined, there is of course the standard option of using this loss in the five following taxable periods. In this context, we would like to point out to you that in the taxable periods preceding the period, for which tax loss is assessed, this tax loss can be subtracted from the tax base of legal entities only up to a total not exceeding CZK 30,000,000 and for natural persons only up to a total of partial tax bases under article 7 to 10 of act no. 586/1992 Coll., on income taxes as currently applicable (hereinafter the “ITA”).
The new version of the act also introduces a special rule to assess tax loss for the first taxable period of a taxpayer, which will end from 30 June 2020 or later. A sum, which the taxpayer specifies (estimates) as the sum of the expected tax loss, but up to a maximum of CZK 30,000,000, is considered tax loss finally determined for this period, until the tax loss is assessed finally. The taxpayer may use this tax loss in the taxable period immediately preceding the taxable period, for which the taxpayer will assess it. We would like to point out in this context that if the subsequently posted tax loss is lower that the taxpayer's estimate, the taxpayer will be obliged to submit an additional tax declaration for the period, in which he used higher tax loss. In case a tax underpayment arises for the taxpayer after submitting the additional tax declaration, a late-payment interest will also be assessed for the taxpayer.
The amendment also stipulates a right of the taxpayer to waive the right to use tax loss for the taxable periods following the period, for which this tax loss is assessed, by announcing this to the tax administrator within the deadline for submitting tax return for the period, for which tax loss is assessed. The deadline for submitting this announcement cannot be reversed, and the waiver of the right applies to all periods following the period, in which this tax loss is assessed. In case the taxpayer waives the right to use tax loss for the taxable periods following the period, in which the tax loss is assessed, the deadline for assessing tax for the taxable period, which precedes the period, in which the tax loss was assessed, and in which the tax loss was used, will end at the same time as the deadline for assessing tax for the period, in which the tax loss was assessed. Compared to the previous draft, the given legislation is more favourable for taxpayers, because using the concept of waiver of the right does not result in any significant prolongation of the deadline for assessing tax, during which the tax administrator may, for example, begin a tax audit.
The amendment should apply to tax loss assessed finally for the taxable period ending from 30 June 2020 onwards, and this tax loss can also be used in two taxable periods immediately preceding the period, for which this tax loss is assessed. For tax loss assessed finally for a taxable period ending before 30 June 2020, the version of the act before this act took effect will be used. The amendment is set to take effect on the day following publication in the Collection of Laws.
Change in the VAT Act
An amendment of the act proposes extending the option for use of the second reduced tax rate of 10 % to the provision of accommodation services, authorisation to attend sports and cultural events, use of sports facilities, as well as to passenger transport using ski lifts, the provision of which is currently subject to the first reduced 15 % rate of the tax. According to the explanatory memorandum to the amendment, lowering of the value added tax rate represents one of the anti-crisis measures of the state aiming to support these fields following the economic consequences caused by the declaration of the state of emergency.
In compliance with the construction of annexes no. 2 and 2a of the value added tax, these services are defined using the CZ-CPA code for classification of production, as applicable as of 1 January 2008, as follows:
- surface public transport of passengers and their luggage and passenger transport using ski lifts – code CZ-CPA 49,
- accommodation services – code CZ-CPA 55,
- provision of authorisation to visit performances, theatres, circuses, entertainment parks, concerts, museums, zoological gardens, cinemas, exhibitions and similar cultural events or cultural facilities; provision of authorisation to enter botanical gardens, nature reserves and national parks – code CZ-CPA 59.14, 90, 91, 93,
- provision of authorisation to attend sports events; use of indoor as well as outdoor sports facilities for sports activities; services related to the operation of recreational parks and beaches – code CZ-CPA 93.11, 93.12, 93.13, 93.29.11,
- services of Turkish spas, saunas, steam spas and salt caves – code CZ-CPA 96.04.
According to the explanatory memorandum, the proposed amendment will not affect accommodation as a purchased tourism service, which is provided as part of a travel service, for which the provider is obliged to proceed in a special regime under article 89 of the value added tax act (only the margin is the tax base). In compliance with the directive on the common system of value added tax, in such a case the basic VAT rate must always be applied. The same rule also applies for purchased tourism services in the form of authorization to attend cultural or sports events.