Czech Republic: Updated Q&As regarding changes to tax depreciation rules

Updated information concerning retroactive effects of changes to the tax depreciation rules

Updated information concerning retroactive effects of changes to tax depreciation rules

The tax administration has updated information—in a “question and answer” (Q&A) format—concerning retroactive effects of changes to the tax depreciation rules.

  • The new information concerns the tax implications of the retroactive application of the change in the cost limit (threshold) for tangible assets from CZK 40,000 to CZK 80,000. In this context, the question arises whether it is possible to claim the acquisition cost of assets costing between CZK 40,000 and CZK 80,000 on a one-off basis, even though the taxpayer under its accounting policy would capitalise all assets costing over CZK 40,000.
    According to the updated Q&As, recognition of acquired assets in the taxpayer's accounting books is of key importance. From that, it is to be derived whether the accounting depreciation of the asset or its cost upon consumption is to be claimed as the tax-deductible expense. The Q&As point out that a change in the threshold determining tangible assets is solely a tax matter, and is not generally a reason to increase the threshold as set in the accounting policies. Furthermore, the accounting treatment cannot be changed retroactively, as this would lead to a change in the accounting method and that would be contrary to the requirement to apply only the accounting methods applicable at the accounting period’s beginning. Thus, for many taxpayers that choose to apply the increased threshold, it may be necessary to classify tangible fixed assets costing from CZK 40,000 to CZK 80,000 into a (new) category of low-value assets, when the accounting depreciation will be the tax-deductible expense. Alternatively, other options may be used, such as extraordinary depreciation.
  • The updated Q&As also address the implications of the increased threshold for improvements to tangible assets. A one-off claim of the costs of an improvement is not dependent on the accounting recognition. However, the different capitalisation thresholds for technical improvements for tax and for accounting purposes would have to be reflected in the input price of assets, which would increase related recordkeeping demands.
  • Two Q&As address intangible assets and confirm the tax administration’s position that amendment does not regulate the amount of the cost of improvements to intangible assets that would have to be capitalised. However, as noted, taxpayers may need to set a threshold for the capitalisation of the cost of intangible assets and their improvements so as to observe the materiality principle.

Read a June 2021 report prepared by the KPMG member firm in the Czech Republic

 

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