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Czech Republic: Tax loss carryback, carryforward proposals (COVID-19)

Czech Republic: Tax loss carryback, carryforward

The Chamber of Deputies (lower house) passed an anti-crisis tax package that, among other things, introduces the option to carry back tax losses—relief being proposed in response to the coronavirus (COVID-19) pandemic.

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As originally proposed, the relief measure has been further extended and would, for instance, allow a taxpayer to claim a 2020 loss (as estimated by the taxpayer) in the 2019 tax return.

The legislative package is pending consideration by the upper house.


Summary

The proposed legislation would allow taxpayers to deduct tax losses as a carryback for two years or carried forward for five future tax years.

Under the bill’s transitional provisions, taxpayers could deduct an estimated tax loss, solely in the period immediately preceding the tax period for which the loss may be first carried back. This means that taxpayers with a calendar-year tax period could deduct the expected loss for 2020 in their tax return or additional tax return for 2019. Once the tax loss is actually determined upon filing the tax return for 2020, the standard procedure would be followed so that the tax base for two preceding tax periods would be reduced by the tax loss actually assessed. Deducting the tax loss before it has been assessed is therefore a one-off relief measure in response to the coronavirus crisis.

Using this option also involves a certain risk—if the taxpayer overestimates the tax loss, the taxpayer would have to file an additional tax return, settle the tax underpayment, and pay related default interest. If the taxpayer underestimates the loss, the taxpayer could still file an additional tax return and claim the difference as a tax overpayment.

Another change from the originally proposed bill limits the amount that may be carried back to CZK 30 million—the same limit would also apply to the first tax period in which an estimated tax loss may be used. Tax losses that are carried forward, on the other hand, remain unlimited.

The bill also introduces the possibility to waive the loss carryforward. The purpose of the waiver is to limit the deadline for assessing tax. Because the tax loss could no longer be deducted from the tax base, the deadline for assessing tax for the period when the tax loss was assessed or for subsequent periods would not be extended.

The new language of the proposed amendment no longer includes a special transitional provision to allow taxpayers with a six-month deadline for filing the tax return to reduce the deadline to three months, thereby allowing quicker access to refundable overpayments for the previous period. The transitional period was intended to only apply to tax periods ended from 30 June 2020 to 29 June 2021.

Read a June 2020 report prepared by the KPMG member firm in the Czech Republic

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