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New Income Tax Act: what to expect?

A new Income Tax Act has been the declared priority of the Ministry of Finance for a long time. Based on information behind the scenes, the wording of the new law arranged according to sections is currently under preparation and should be ready for the new minister after the autumn elections.

The ministry revealed its revised summary of solutions to innovate the regulation of taxation and public insurance charges on income. The new document is much more extensive compared to the version presented by the ministry in autumn. Although it again does not contain any specific suggestions, it indicates the direction of the new act. Below, we summarise the most interesting issues.

  • Certain entities might be able to determine their tax base from the result of operations under IFRS. Banks and insurance companies are likely to be the first entities that will be allowed to do so.
  • The introduction of voluntary income tax consolidation is being discussed, currently taking into account three levels of consolidation: from a mere transfer of tax bases to a single entity to consolidation similar to the one we know in accounting. 
  •  A number of suggestions concerning assets included in the previous version remain in the latest document, such as a reduced number of depreciation groups, an option to apply pool depreciation, and the re-definition of technical improvements. The full tax deductibility of expenses for assets as they are incurred is also still under consideration.
  • Radical changes are expected not only in fixed assets but also in receivables. The ministry is considering the option to repeal tax adjustments and define only receivables that can be written off, which, according to the ministry, would significantly simplify the overall administrative procedure. However, high expectations will be placed on a clear definition of the moment a receivable will be allowed to be written off for tax purposes.
  • Banks and other credit providers may finally see a fundamental change in adjustments to receivables from loans. The ministry considers creating tax adjustments based on time tests similar to those relating to receivables that on their origination are accounted for in revenues, without calculating annual adjustment creation limits. The ministry also plans to reassess who will be allowed to create adjustments and to what receivables from loans these adjustments will be established.
  • A revolutionary idea is the option to carry forward tax losses for an unlimited period of time. A less attractive proposition is the extension of the time period for determining tax. However, the ministry may consider a barter: the possibility to give up a prior period tax loss in exchange for the time period for determining tax.
  • For the insurance sector, discussions regarding the tax deductibility of insurance provisions will be critical: the ministry is currently questioning whether the amount of insurance provisions determined under accounting legislation or Solvency II will be decisive for tax purposes.