On 11 November 2021, the General Financial Directorate issued information on the application of a special provision of article 38zh of the Income Tax Act concerning the application of a tax loss as an entry deductible from the tax base.

Legislation and its purpose

With effect from 1 July 2020, article 38zh of the Income Tax Act (“ITA”) has been incorporated as a special provision on the claiming of tax loss, which introduces a statutory fiction of the date of filing an additional tax return if certain conditions are met. 

This provision is aimed primarily at situations, where the taxpayer files a supplementary tax return for the tax year, in which he wishes to immediately claim the tax loss (e.g. retrospectively for 2020), at the same time as the regular tax return, for which he has incurred tax loss (e.g. for 2021). Thanks to the fiction, the additional tax return will only be regarded as filed when the tax loss has been finally established (thus fulfilling the substantive condition for its application). Without this provision, the taxpayer would have to wait for a final determination of the tax loss before filing a supplemental tax return, where he could claim it. The provision can be applied to losses for taxable periods ending on or after 30 June 2020. 
 
However, taxpayers do not need to make use of the fiction in the aforementioned provision of article 38zh and they can claim the loss only after it has been finally determined.

The information also breaks down the cases in which the loss is not admissible. However, these are relatively specific situations (e.g. further adjustments of tax liabilities before final assessment), which we recommend to assess on an individual basis.

The complete text of the GFD information on the provisions of article 38zh of the ITA can be found HERE.

Author: Václav Štefan