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GFD Instruction D-59 from corporate income tax perspective

GFD Instruction D-59 replacing existing Instruction D-22 mainly brings clarifications resulting from the conclusions of available case law and coordination committees from recent years. Pertaining to corporate income tax, however, the instruction has not undergone any revolutionary changes compared to the previous version.

Below we summarise the most significant changes:


  • Exemption from withholding tax on royalties and interest. To claim the exemption, a decision on granting an exemption has to have been issued by the tax administrator. You can also apply for the exemption retrospectively (for periods for which the deadline for assessing tax has not yet expired).
  • Donations. When assessing the minimum value of a donation (i.e., CZK 2,000), the contractual agreement between the partners is crucial. Where a legal entity undertakes to donate CZK 2,400 per year to a non-profit organisation and pay in monthly instalments of CZK 200, this donation can be considered an item deductible from the tax base. On the other hand, where a legal entity donates CZK 200 every month, the minimum value condition is not met, and the individual donations cannot be considered deductible items.
  • Relocation of assets without change of ownership. The new instruction responds to the implementation of EU Council Directive 2016/1164 laying down rules against tax avoidance practices (ATAD). Specifically, it contains the methodology for Section 23g of the ITA regulating the taxation of the relocation of assets without a change of ownership.
  • Meal vouchers for employees. The cost of a meal is not determined by the value of a meal voucher but by the employer's internal guideline. Therefore, employers can provide several meal vouchers for one meal (e.g., three meal vouchers worth CZK 30).
  • Depreciation. The conditions for the commencement of tangible asset depreciation can also be met by a structure whose trial operation has been permitted or ordered by the building authority (if the structure has been completed according to the project documentation and the trial operation only tests the functionality and properties of the completed structure before permitting its permanent use).
  • Depreciation of technical improvements by a person other than the lessee. The instruction responds to the provisions of the ITA allowing for the depreciation of technical improvements of the assets let to be used by a person who is neither the lessee nor the user. The instruction provides for examples of such persons (sublessees, borrowers, or users under innominate contracts).
  • Tax loss carry back. With the possibility of utilising tax losses in two previous taxable periods, the tax administrator's methodology has been extended to cover this issue. The instruction also clarifies the period during which tax can still be assessed when reporting tax losses. The commentary is in line with current case law and states that it is decisive whether it was possible to utilise a tax loss and not its actual utilisation.

Although GFD instructions headed by the letter D are not legally binding, we expect the tax administrators will nevertheless proceed accordingly when interpreting corporate income tax. We therefore recommend studying the instruction’s wording and reflecting the changes/interpretations in internal processes.