Negative effects of COVID-19 on income tax payers, options for their moderation
Following the current spreading of the COVID-19 virus and the related business limitations, taxpayers may get into problems in the upcoming months due to income shortfall not only with their current cash flow, but a longer-term income shortfall may even lead to tax loss. Below, we would like to state some options for moderating the related negative effects.
Cash flow problems
As of 15 June 2020, the income tax prepayment will be due for most taxpayers, and paying this tax may cause cash flow problems to some taxpayers due to the current situation. A possible solution is to submit a request for determining the prepayment differently.
Determining the prepayment differently
According to the stipulation of article 174 paragraph 5 of act no. 280/2009 Coll., Code of Tax Procedure as amended (hereinafter the “CTP”), in justified cases the tax administrator will determine prepayments differently, or will permit an exemption from the obligation of providing tax prepayments.
The tax administrator may set prepayments differently or permit an exemption from the obligation of providing tax prepayments only upon request from the taxpayer, it cannot be done automatically. The request is not subject to an administrative fee, but must be duly justified, i.e. it must contain an explanation and description of the reasons, why it can be expected that the tax obligation will be lower in the current taxable period than that, based on which the amount and periodicity of prepayments was determined.
The reasons must be substantiated with respective evidence, which can be for example:
- income statement for the part of the taxable period that has passed so far;
- preliminary estimate of the development of income/revenues of the taxpayer in the given taxable period;
- preliminary calculation of the income tax etc.
In case you are interested, we would be pleased to be of assistance in preparing such a request.
In case the current situation lasts for a longer period of time, it may happen that taxpayers will post tax loss.
A negative effect in the case of posting tax loss (in addition to a number of negative economic effects) is a significant prolongation of the preclusive period for the option of performing tax audit on the part of the tax administrator, up to eight years instead of the current three, in case of posting a positive tax base (counted from the day, on which the deadline for submitting a regular tax declaration ended). At the same time, the preclusive deadline for all taxable periods, in which tax loss can be applied, will also be prolonged (not only for those, in which the loss was actually applied).
In case the taxpayer would like to prevent the above-mentioned negative effect, usually the easiest solution may be the interruption of tax depreciation.
Interruption of tax depreciation
The option of interrupting tax depreciations is stated in the stipulation of article 26 paragraph 8 of act no. 586/1992 Coll., on income taxes as amended (hereinafter the “ITA”). With further depreciation, it is necessary to continue in the way, as if depreciation had never been interrupted.
The option of interrupting tax depreciations cannot be used with intangible assets, though (according to the stipulation of article 32a paragraph 4 if ITA), and for accounting depreciation, which is considered a tax expenditure according to the stipulation of article 24 paragraph 2 letter v) of ITA.
There are other options, too, for preventing tax loss and thus prolonging the preclusive deadline for the option of additional tax assessment. The individual options need to be assessed in terms of the specific situation of the given taxpayer.
It is to be expected that the government will come up with other proposals for relief, in terms of taxes and public service insurance as well. We will inform you about all changes.