New guideline D-59 on the Income Tax Act

A new Income Tax Act guideline (D-59) replaced the original D-22 guideline as of January 2023. The new guideline mainly contains clarifications from recent case law and coordination committee decisions. In practice, however, there are no significant changes from the former version of the guideline.

In general, the D-series guidelines are not legally binding, but taxpayers and tax authorities should follow the guidelines when interpreting the corporate part of the Income Tax Act. It is therefore practical to become thoroughly familiar with the guideline. What are the main changes:

• Exemption from withholding tax on royalties and interest: the exemption can be claimed retrospectively for periods in respect of which the tax assessment period has not yet expired. In order to claim the exemption, it is necessary for the Tax Authority to first issue a decision granting the exemption.

• Gifts: when assessing the minimum value of a gift (i.e. CZK 2,000), it is important how precisely the value of the gift in question is described in the contract. For example, if a legal entity agrees on a donation to a non-profit organisation in the amount of CZK 2,400 per year with monthly payments of CZK 200 per month, this donation may be considered to be deductible from the tax base. On the other hand, if a legal entity donates CZK 200 each month, the minimum-value threshold will not be reached because the donations will be treated individually and it will not be possible for them to be considered as items that can be deducted from the tax base.

• Meal vouchers for employees: the value of the meal is not determined by the value of the meal voucher but is determined by the employer's internal directive. Therefore, an employer may provide more than one meal voucher per meal (e.g. three meal vouchers worth CZK 30).

• Depreciation: the conditions for commencing the depreciation of tangible assets can also be applied to a building in trial operation (if the building is completed according to the project documentation and permission is subsequently granted for its permanent use).

• Depreciation of technical appreciation by a person other than the lessee: the guideline specifies that this may be, for example, a subtenant, a borrower, or a user under an unspecified contract.

• Claiming a tax loss retrospectively: the new guideline specifies that a tax loss can be claimed in respect of two preceding tax years. Also, the guideline indicates when tax can still be assessed in respect of periods during which a tax loss is created. According to the guideline, the decisive point is whether a tax loss could be claimed, not whether it was actually claimed.