Related to the coronavirus pandemics, the government has approved certain extraordinary measures aimed at helping taxable entities.
One of the measures provides an option to claim a tax loss retroactively, which is very pertinent right now since it is tax season and everybody is preparing their tax returns for the 2020 tax period.
Claiming a tax loss retroactively
Taxpayers continue to be given an option to claim their tax losses retroactively as items deductible from their tax base. Specifically, a taxpayer may now claim a tax loss even in two tax periods immediately preceding the tax period in which the tax loss was incurred. In practice, it means that taxpayers may now reduce their tax bases by losses generated in 2020 by filing additional tax returns for the tax periods of 2018 and 2019 and apply for a refund of any returnable tax overpayments. A tax loss may be claimed retroactively up to the limit of CZK 30,000,000.00 (as a sum for the two preceding tax periods: 2018 and 2019).
Waiver of the right to claim a tax loss
Reporting a tax loss is generally associated with the extension of the prescription period for tax assessment. The period is generally 8 years from the year when the tax loss was incurred. This means that the tax authority may initiate a tax inspection in that period. The amendment to the Income Taxes Act now provides an option to waive the right to claim a tax loss for the tax period as an item deductible from the tax base in next five tax periods following the period when the tax loss was determined.
A notice of waiver must be given to a tax administrator no later than by the end of the period for filing tax returns for the tax period for which the tax loss was determined, i.e. by 1st April 2021 or 1st July 2021, as the case may be.
A notice of waiver may not be withdrawn. No standardised form is available, so it can be filed in a freely drawn-up form, together with the tax return for the tax period of 2020.
If a taxpayer does not waive the right to claim a tax loss for the tax period of 2020 in the future, the prescription period provided by the Income Taxes Act will apply. In other words, the period will expire together with the period for determination of tax for the last tax period from which the full or part of the tax loss for the tax period of 2020 can be claimed (i.e. by 1st April 2029 or 1st July 2029, as the case may be).
If a taxpayer waives the right to claim a tax loss for the tax period of 2020 in the future, the taxpayer will be able to claim the tax loss only retroactively in the tax period of 2018 or 2019. At the same time, the period for determination of tax for the tax period of 2020 will be shortened, or, where applicable, the prescription period will not be extended. Therefore, if a taxpayer claims the full tax loss created in 2020 by filing additional tax returns for 2018 and 2019, and at the same time, waives the right to claim the tax loss in the future, the prescription period for all three tax periods, 2018, 2019 and 2020, will expire by 1st April 2024 or 1st July 2024, as the case may be, depending on whether the taxpayer is an audited company or a company represented by a tax advisor.
The above-mentioned changes may be applied to tax losses determined for a tax period ending on 30th June 2020 or later.
Estimated tax loss which may be claimed retroactively
For an immediate improvement in a taxpayer’s financial situation, an estimated tax loss for 2020 can be claimed in the immediately preceding tax period by filing an additional tax return. When an actual tax loss is reported for 2020, the taxpayer may file an additional tax return for 2018, provided that they were in black figures in 2018. If a tax loss actually reported in a properly filed tax return for 2020 is lower that the estimated tax loss, the taxpayer must file another additional tax return and pay the resulting corporate income tax in arrears and the associated late payment interest.
By claiming a tax loss retroactively, tax paid in the past will lead to an income tax overpayment, the refund of which the taxpayer can apply. This will improve the taxpayer’s cash-flow and credit worthiness.
If you are interested, we will be happy to help you with claiming your tax loss retroactively and with preparing your application for refund of any resulting overpayment.