New developments in investment incentives, including recent case law

New developments in investment incentives, including recent case law

After about four years, the amendment to the Investment Incentives Act abolishes the obligation of the Ministry of Industry and Trade to submit each application for an investment incentive to the government for consideration. This needlessly prolonged the process of discussing an investment incentive. The incentives granted in recent years could be counted in units. The government will only approve applications for so-called strategic investment projects. The Ministry of Industry and Trade, in cooperation with other pertinent ministries, will assess compliance with the legal conditions and obligations. Based on this information, it will issue the relevant decisions.

We can only hope that this and other measures will have a positive effect on new investments, which are certainly needed in the Czech Republic. Regrettably, at this point I must mention the newly introduced top-up tax. If Czech companies include income tax payers belonging to a large multinational or national group subject to the top-up tax that also benefit from a tax rebate under investment incentives, then the top-up tax may significantly reduce the potential tax savings.

I would also like to draw your attention to two recent decisions of the Supreme Administrative Court concerning the application of tax rebates on investment incentives. In the first decision, the tax office disagreed with the taxpayer claiming a higher tax credit in a supplementary tax return.
The tax office argued that the tax credit cannot be increased if a higher tax liability is subsequently assessed. The Supreme Administrative Court supported the Regional Court's reasoning, stating
that in the supplementary return, as in the regular return, the taxpayer reported a zero tax liability, despite claiming a higher tax credit. According to the court, it is clear from the judgment that the additional tax liability has not changed. It therefore disagreed with the view of the Specialised Tax Authority. The tax authority's action was all the more surprising as it contradicted the earlier conclusion of the 2007 coordination committee between the Ministry of Finance and the Chamber of Tax Advisors. The tax authority had argued, among other things, in a different judgment of the Regional Court, where the substance of the dispute was somewhat different.

The second judgment of the Supreme Administrative Court concerned the maximum possible rate of depreciation for taxpayers claiming a tax credit for an investment incentive. Specifically, it concerned the use of the so-called increased depreciation rate in the first year of depreciation to maximise the reduction of the tax base.

Here, the Supreme Administrative Court expressed an opinion that is again in the spirit of the earlier coordination committee between the Ministry of Finance and the Chamber of Tax Advisors from 2007. Among other things, it also implies that a taxpayer under the regime can, like other taxpayers, choose the method of depreciation, i.e. straight-line, accelerated or extraordinary depreciation. Nevertheless, if it is a tangible asset for which increased depreciation can be applied in the first year of depreciation, it must use this reduction of the tax base.