Slowly but surely, the standard deadline for submitting corporate income tax return with the taxable period of a calendar year has been approaching. Due to the government restrictions in 2020 and the general weakening of the economy, among other things, many entrepreneurs may have ended in red numbers for the year 2020, not only in terms of their accounting profit/loss, but also from the tax perspective. But what to do with the incurred tax loss?

Procedure for retroactive application of tax loss

• Tax loss incurred in the taxable period ending from 30 June 2020 (for clients with a calendar year it is thus for the year 2020) can be used retroactively for the first time.
• The taxpayer may use the tax loss for the year 2020 in two preceding taxable periods using an additional tax declaration.
• It is possible to apply tax loss totalling a maximum of CZK 30,000,000 assessed for the given period retroactively (i.e. for every period, in which loss is assessed, a maximum of CZK 30,000,000 can be used retroactively).
• Same as in case of the 5year period in the future, retroactively, too, only taxable periods are counted (i.e. if a period precedes, for which tax return is submitted but it is not a taxable period, the loss can also be applied).

Waiver of the right to applying tax loss in future and shortening of the preclusive period

The amendment of the Income Tax Act has enabled taxpayers not only to apply tax loss retroactively, but also to waive its future application.

You may ask: why should I give up future use of tax loss, and thus lose this tax advantage. As you surely know, every tax has its preclusive period. This is a period of time, when tax can be assessed, or after the expiration of which tax can no longer be assessed, that is the tax administrator generally cannot assess additional tax after this period.

In general, tax loss from previous years can be used in future in the subsequent 5 taxable periods. In this case, the preclusive period of the taxable period, in which tax loss incurred, ends after the preclusive period of the fifth taxable period following the period of assessing tax loss has passed.  In the given case, it is also irrelevant, if you use up the incurred tax loss in the immediately following taxable period already.

Example

For better understanding of the situation, let us give an illustrative example:

• tax loss reaching CZK 10m incurred for the year 2020 for a company subject to audit (i.e. with the deadline of 1 July for submitting tax return),
• the company fully used the tax loss in the taxable period of 2021,
• if tax loss had not incurred in the year 2020, the preclusive period would have ended on 1 July 2024,
• but because tax loss did incur in 2020, the preclusive period ends only on 1 July 2029, meaning that until this time the tax administrator can come for an audit.

If in the above-mentioned example the company waived the option of future application of tax loss, the preclusive period for the year 2020 would have ended in the standard way on 1 July 2024.

On the other hand, it is necessary to take into account that application of tax loss can only be waived for the future within the deadline for submitting the regular tax return for the period, for which tax loss incurred, and this decision cannot be changed (taken back). In case of tax losses for the calendar year 2020 it is thus generally necessary to waive this right by 1 July 2021 (for companies with audit or submitting tax return via a tax consultant).

By waiving the right, the taxpayer waiver the option of using not only tax loss assessed based on the regular income tax application, but also future application of any additional loss assessed for this period in future (for example based on an additional tax declaration).

The waiver of the right is not part of the form of the tax declaration. It is a separate written document, which needs to be delivered to the tax administrator.

The issue of waiving the right to application of tax losses in the future was discussed in detail within the coordinating committee between the Chamber of Tax Consultants of CR and the General Financial Directorate (contribution 574/24.03.21).

It is clear from the above that for a taxpayer, who uses tax loss retroactively, it may be very beneficial to waive the option of applying tax loss in future and thereby shorten the preclusive period.

Nevertheless, all circumstances need to be taken into account always, i.e. the tax situation of the company, outlook on the future, the existence of previous tax losses, the existence of other deductible entries or tax credits (for example on grounds of investment incentives) etc. The issue of applying tax losses (retroactively as well as in the future) may therefore in itself be more complicated and it is also often connected to other tax influences. If you are considering retroactive use of tax loss, we recommend consulting this with tax specialists, to make sure your decision is based on a solid foundation.