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.”
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.
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
The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.