Deadlines for assessment of the income tax when the tax loss is carried back

 Tax loss carry back

The possibility to claim tax losses retrospectively is still relatively new, as it was introduced by Act No. 299/2020 Coll., effective from 1 July 2020. The tax period of the calendar year 2021 is therefore the second tax period for which the assessed tax loss can be carried back.

In general, tax losses can be deducted retrospectively from the tax base in two tax periods immediately preceding the period for which they were assessed. The tax loss carried back can be claimed for the two immediately preceding tax periods in the total maximum amount of CZK 30 million and the taxpayer can decide whether to claim the tax loss only in one period, in both and in what proportion.

It is still possible to claim tax losses in the five subsequent tax periods following the period in which they were assessed. 

Deadline for assessment of the income tax

The standard deadline for assessment of the income tax is 3 years from the submission of a regular tax return, whereas if a tax loss is assessed, the deadline for assessment of the tax is extended by 5 subsequent tax periods, i.e., the periods in which the tax loss can be utilized.

To put it very simply, assessment of the tax loss leads to an extension of the deadline to 8 years (we are not considering the maximum possible ten-year period at this time). Such an extended period shall affect both the period in which the tax loss was assessed and the subsequent periods in which the assessed tax loss can be utilized.

When a tax loss is carried back, the deadline for assessment of the tax is identical to the period in which the tax loss was assessed.

Example:

If a tax loss was assessed in the 2021 tax period (while a positive tax base was always reported in all previous periods) and the deadline for submission of the tax return was 1^st April 2022, the deadline for assessment of the tax is 1^st April 2030. 

The same deadline applies for the 2019 tax period if the tax loss assessed in 2021 tax period was carried back and claimed in that period.

The deadline for assessment of the tax of the 2020 tax period is not affected by this act and expires on 1^st April 2024.

The deadline for assessment of the tax for the 2022 to 2026 tax periods, i.e., the periods in which the tax loss of the 2021 tax period may be claimed in the future, will expire in accordance with the deadline for the 2021 tax period, i.e., on 1^st April 2030 (unless new tax losses are assessed in these periods). 

Waiving the right to claim tax losses in the future 

If the taxpayer decides to waive the right to claim the tax loss in the future, the tax authority must be notified of this fact no later than by the deadline for filing a regular tax return for the period in which the tax loss was assessed. The deadline for waiving the right to claim a tax loss in the future cannot be extended, has effects on all future periods in which it would otherwise be possible to claim the tax loss and the tax payer cannot withdraw his/her decision.

The advantage of waiving the right to claim the tax loss in future periods is that there is no extension of the deadline for the assessment of the tax and this deadline is standard 3 years from the submission of a regular tax return. At the same time, the possibility of claiming the tax losses retrospectively remains.

For taxpayers, a combination can often be advantageous, in situation where the tax loss assessed in a given tax period is fully claimed in previous tax periods, while at the same time the taxpayer waives its right to claim the tax loss in the future. In such a case, the deadline for assessment of the tax shall be the same for the previous periods in which the loss is carried back as for the period in which the tax loss was assessed and the taxpayer waived it.

Example:

If a tax loss was assessed in the 2021 tax period (while a positive tax base was always reported in all previous periods), and the deadline for submission of the tax return was 1^st April 2022, and the right to claim this loss in future periods has been waived, and the tax loss was carried back to 2019, the deadline for the assessment of the tax for the 2019 and 2021 tax periods is the same, specifically 1^st April 2025.

The deadline for the assessment of the tax of the 2020 tax period is not affected by this act and expires on 1^st April 2024. 

The deadline for assessment of the tax for the future tax periods will be the standard 3 years from the submission of a regular tax return (if no tax losses are assessed in these periods). 

If you have any related questions, e.g., if tax returns were also submitted for periods that are not considered as tax periods under ITA, please do not hesitate to contact our experts.

Author:

Eliška Košťáková, Tax Senior