In today’s article, we would like to draw your attention to two interesting recent rulings on the issue of tax deductions for investment incentives.

The judgment 7 Afs 13/2022 – 48 of 29 November 2023 dealt with the necessity of applying the calculation of the increase in tax depreciation in the first year of depreciation in the case of assets acquired starting from the tax period, in which the taxpayer met the general conditions for the use of the tax credit under the investment incentive. The taxpayer did not take advantage of this increase and the tax administrator assessed tax on this account. Subsequently, the case was handled by the Regional Court in Brno, which found in favour of the taxpayer. The tax administrator filed an appeal in cassation, though, and the Supreme Administrative Court (SAC) upheld the opinion of the tax administrator, i.e. it annulled the decision of the Regional Court in Brno.

The judgment in question does not constitute a break in interpretation. The need to use increased depreciation in the first year of depreciation has long been part of administrative practice and is also in line with the conclusions of the coordination committee between the Ministry of Finance and the Chamber of Tax Advisors from 2007.

Judgment 2 Afs 118/2022 – 53 of 21 November 2023 dealt with the possibility of claiming a higher tax credit (claiming a higher S1 amount) in the context of a supplementary tax return. The taxpayer filed additional tax returns, in which the tax base was increased. However, the taxpayer applied a higher tax rebate on account of the investment incentive, so the additional return did not result in an increase in the taxpayer’s tax liability. The tax administrator challenged this and did not grant the taxpayer the increased tax rebate. The taxpayer therefore brought an action before the Regional Court in Prague. The latter agreed with the taxpayer’s procedure and annulled the tax administrator’s decision. The tax administrator subsequently filed an appeal in cassation, but the Supreme Administrative Court dismissed it with the justification that: “The SAC concludes that the limitation under Section 35b(1)(a) of the part of the sentence after the semicolon of the Income Tax Act applies only after the taxpayer has been assessed a higher resulting tax. If the higher resulting tax has not yet been levied, the taxpayer is entitled to increase the value of S1 in an additional tax return and, through it, the tax credit for the investment incentive.”

This judgment reaffirms the current administrative practice, where it is possible to additionally apply a tax credit for investment incentives in the context of a supplementary tax return, provided that the result is not a higher tax liability. With regard to the reasoning of the Supreme Administrative Court, the question then arises if this higher tax discount can also be applied in the case of a tax audit (where the tax administrator should take into account all the circumstances that it finds during the tax audit or the tax subject objects to), if the application of this higher tax discount would not lead to the assessment of a higher tax liability.

If you have any questions about investment incentives, please do not hesitate to contact your Grant Thornton contact person or the authors of this article directly.