In response to the war, the government promptly came up with an act on tax measures in connection with the armed conflict in the territory of Ukraine caused by the invasion of the troops of the Russian federation, setting the conditions for the tax support for charitable activities towards Ukraine and its citizens. In practice, the application of the new law has raised numerous questions regarding the tax deductibility of expenses incurred and proof of the provision of donations. These issues were to be clarified by a paper discussed by the Chamber of Tax Advisors and the representatives of the General Financial Directorate at the Coordination Committee held on 14 September 2022. However, the discussion was concluded without a full agreement, and the financial administration sided against taxpayers on many controversial issues.
Donations made through employers
Numerous employers and professional chambers have been organising fundraisers to which employees may contribute. According to the financial administration, these donations cannot be considered tax exempt income on the part of the employer or the professional chamber and are subject to corporate income tax. However, the financial administration has agreed that in-kind donations subsequently made by the employer/professional chamber are a tax-deductible expense in 2022.
Somewhat controversial is the conclusion that employees cannot deduct the value of the donation made to the employer from their tax base. According to the financial administration, only the employer/professional chamber organising the fundraiser has this right. Employees can only claim the value of their donation as an item deductible from the tax base if they made the donation directly, not through their employer. If the employee proves the tax deduction with a certificate issued by the employer instead of the final recipient, they may face the risk that the tax administrator will challenge the deductibility of the donation.
As regards generally known fundraisers intended for the public whose purpose and bank account number are obvious, it is possible to prove the donation recipient by the bank account number. In this case, the financial administration accepts bank statements as supporting documents, while these nonetheless must still show other essentials required for proving a donation.
In-kind donations provided to Ukrainian employees for humanitarian and charitable purposes
According to the financial administration, it is decisive whether these expenses (costs) were incurred to better the employees’ working, social, or healthcare conditions, or whether they served to provide them with more rest. As for the provision of basic household equipment, clothing, and hygienic supplies for refugees/employees, according to the financial administration, such incurred expenses (costs) do not concern social conditions and therefore cannot be considered tax deductible. However, on the Ukrainian employees’ part, they are considered income not subject to personal income tax.
Wage compensation for Ukrainian employees
The paper also dealt with wage compensation for Ukrainian employees who have received a conscription order and left to fight in Ukraine or for employees volunteering in general. According to the financial administration, for such payroll expenses to be tax deductible by the employer, it is essential that the employee's absence be considered an obstacle to work on the employee’s part and that the right to wage compensation during the absence from work arise from a collective bargaining agreement, the employer's internal regulation, or an employment contract.
Employer's financial contribution to employees for new housing
Given the complexity of the issue, a lot of information useful beyond the situation in Ukraine was presented at the Coordination Committee. For example, the financial administration stated that a contribution provided by an employer to an employee for obtaining new housing (where, e.g., the employee had lost their original dwelling due to a natural disaster) was not, in the financial administration’s opinion, a tax-deductible expense (cost) on the employer’s part, as it was not an employer’s expense (cost) incurred to better their employees’ working and social conditions, healthcare and increased rest time. However, on the employee’s part, it should be possible to apply an exemption from personal income tax.
The concept of humanitarian and charitable purpose in general
The financial administration stated that for income from a donation to be tax exempt due to its humanitarian or charitable purpose, it is not relevant who the recipient of the supply is, but it is essential that the charitable/humanitarian purpose be met for that recipient. This shall be interpreted according to its common meaning: humanitarian aid during a war includes aid aimed at ensuring the necessities for life (food, water, sanitation, medicines, shelter, medical care, etc.) and after a conflict, eliminating the consequences of war and restoring basic infrastructure. Humanitarian aid and charity in general have already been interpreted by the financial administration in connection with the tornadoes in the Břeclav and Hodonín regions: it means aid provided typically in humanitarian crises, such as natural disasters and wars.
Provision of in-kind donations to Ukraine from VAT perspective
The Coordination Committee also dealt with taxpayers purchasing goods in the Czech Republic, exercising the right to deduct input tax, then exporting (transporting) the goods by their own means or through a contracted carrier to Ukraine, and then donating them in Ukraine. In the opinion of the presenters of the relevant paper, from the VAT perspective, these are not exports of goods, as the basic condition for the supply of goods is not met – there is no transfer of the right to dispose of the goods as their owner. The subsequent donation of the goods in Ukraine then constitutes a transaction with the place of supply outside the Czech Republic, where Czech output VAT is not applied. However, the financial administration disagreed with this view: in their opinion, taxpayers are obliged to pay Czech output VAT in such cases.