Research and development – an entry deductible from the tax base – how to apply the new rules correctly
This January, we informed you about an amendment of the stipulations of the Income Tax Act, which govern the rules for application of an entry deductible from the tax base for research and development. The most significant change this amendment has brought was the stipulation about the rules relating to determination of the beginning of monitoring costs spent on research and development. According to a newly established obligation, the taxpayer must announce to the tax administrator that he intends to subtract deduction for support of research and development from the tax base in connection with R&D realisation. In the announcement, it is necessary to state the name of the R&D project expressing its general orientation and the basic identification data of the taxpayer (business name, address, VAT number). The costs that can be subtracted from the tax base are costs that the taxpayer expended from the day of submitting the announcement of the intention to subtract deduction for support of research and development.
With regard to the fact that the amendment came into force and took effect as of 1 April 2019, the General Financial Directorate has issued information specifying the interpretation of a transitional provision for this amendment. According to a transitional provision, the “old version” of the act will apply to projects, the solution of which began before the amendment took effect. For projects, the solution of which began in the taxable period or in a period, for which tax declaration is being submitted, which are not completed as of the date when this act takes effect, the “new version” of the act can be applied. If the taxpayer uses such procedure, these stipulations will be applied in all taxable periods or in periods, for which a tax declaration is submitted, in which the research and development project is being solved.
For more precise understanding of this stipulation, we present simplified diagrams here.
Research and development represents a very complicated, complex and demanding area for “tax purposes”, which may bring very interesting tax advantages for the taxpayer in case of correct application. If your company decides to perform activities that may be classified as research and development activities, we therefore recommend timely evaluation and fulfilment of statutory requirements for application of an entry deductible from the tax base. Our company is prepared to provide professional help in this area to you. If you are interested, please do not hesitate to contact us.
Marie Rudolfová & Petra Vaněčková