Czech Republic: Non-deductible expenses | KPMG | GLOBAL

Czech Republic: Non-deductible expenses and taxable revenues

Czech Republic: Non-deductible expenses

The Supreme Administrative Court in the Czech Republic addressed measures in effect until the end of 2014 concerning the treatment of non-deductible expenses with “directly related revenue.”

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Summary

The case concerned a write-off of insured receivables, and in particular the question of a direct link between non-deductible expenses arising from the write-off of insured receivables and revenue of an insurance company. The receivables were written-off to expenses upon receipt of a relevant insurance settlement. 

The income tax provision (pre-2015) allowed taxpayers to treat expenses with “directly related revenue” as tax deductible even when such expenses would otherwise be regarded as non-tax deductible. Although worded quite broadly, the statutory language was interpreted restrictively by the tax administration, and as a result, taxpayers often adopted a conservative approach in claiming deductions for expenses.

The high court expressed in its findings, that there was a connection between the payment of the insurance settlement and the write-off of receivables. As a result, expenses arising from the write-off of receivables originally treated as non-deductible could be treated as deductible up to the amount of the received insurance settlement.

KPMG observation

The court’s decision may provide an opportunity to reassess similar circumstances and, when appropriate, file additional returns claiming a reduction in tax liability or additional tax savings. 

 

Read a September 2017 report prepared by the KPMG member firm in the Czech Republic

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