Anti-Crisis Tax Package with special focus on the new institute of tax loss carry back

The Czech Republic is entering into next phase of the fight against the consequences of large-scale measures in connection with the Covid-19 pandemic, which affect many entrepreneurs and companies. To mitigate the negative economic impacts, the so-called Anti-Crisis Tax Package has entered into force on July 1, 2020. In this respect Crowe Czech Republic prepared Webinar summarizing and explaining substantial changes in tax laws with a focus on application of the new institute of tax loss carry back. The Webinar took place on 17. July 2020 and was held in the Czech language. Nevertheless, if you wish to obtain the record of the Webinar please do not hesitate to contact us.

The article below summarizes a substantial part of the Webinar focused on the new institute of the tax loss carry back which can be applied first time for the tax period ending after June 30, 2020. The tax loss carry back is not only one-time measure responsive to the current pandemic situation, however, it is a mechanism for reasons of economic downturns in future. The positive impacts of the tax loss carry back assumes that the tax liability in the past will lead to a tax overpayment after the application of the tax loss. With this respect the taxpayer will have access to funds (in form of refundable tax overpayment) in the period when he needs them.

Tax loss carry back means that the tax loss generated in the tax period can be used as the item decreasing the tax base in the two immediately preceding tax periods up to CZK 30 million. In practice, taxpayers whose tax period is a calendar year and will have tax loss for 2020 can use this tax loss as an item decreasing the tax base for 2019 and 2018 up to the limit of CZK 30 million. Furthermore, it is possible to use the tax loss in the five following tax periods after the tax period when the tax loss is assessed, remains unchanged. With this respect the tax loss for 2020 may be used by the taxpayer as the item decreasing the tax base in tax periods 2018, 2019 (up to 30 million) and in 2021 - 2025.

It is in discretion of the tax taxpayer in which year will be tax loss used as the item decreasing the tax base, nevertheless the taxpayer should consider further consequences such as prolongation of the basic period for tax assessment and using of further items decreasing the tax base and potential tax optimization.

When the institution of the tax loss carry back is used, the basic three-year period for tax assessment is extended. In practice, for example, if the 2020 tax loss is used as the item decreasing the tax base in 2018, the period for tax assessment of 2018 ends at the same date as the period for tax assessment of the tax period in which the tax loss arose. In certain circumstances, the period for tax assessment of 2018  tax period will end in 2029.

In relation with the tax loss the Anti-crisis Tax package comes with the new instrument so-called waiver of the right to use the tax loss in the five following tax periods. The positive impact of this institute is the shortening of the period for tax assessment to the basic three-year period for the year when the tax loss arose and next five tax periods. However, we recommend considering of the use of this new institute very carefully, since after its application the taxpayer will have no possibility to use any tax loss in the next five tax periods as the item decreasing the tax base, even in case of additionally assessed tax loss.

According to the transitory provisions to the Anti-crisis Tax package, estimation of the tax loss is possible for the first tax period ending aftet the date 30 June 2020. Such estimated tax loss may be used as the item decreasing the tax base for the one immediately preceding period up to a maximum of CZK 30 million. For example, for the taxpayers with the tax period of the calendar year, tax loss may be estimated for the 2020. Such estimated tax loss for 2020 may be used as the item decreasing the tax base for 2019. We recommend very cautious approach in estimation of the tax loss since after the end of the 2020 estimated tax loss must be compared with real tax loss. In case the real assessed tax loss is lower than estimated, tax authority will assess sanctions from the difference of the tax liability to the taxpayer.

No methodology is available for tax loss estimation procedure for the unfinished tax period. In our webinar, we presented our suggestions of the methodology with consideration of how to proceed to reflect the estimate of costs, revenues and items affecting the tax base in the unfinished tax period. As mentioned above, if you are interested in the record of Webinar in the Czech language, please do not hesitate to contact us.