‘Keeping of assets’ for investment incentive purposes – to own, or not to own?
The Supreme Administrative Court (SAC) held that to prove compliance with the condition of ‘keeping the assets’, it should suffice that the investment incentives recipients prove that the assets were kept in the supported region, regardless of the ownership title to such assets. The case in question involved an investment incentives recipient who was demerged by spin-off.
A company was granted investment incentives in 2007 and claimed tax relief in that year and then in 2008 and 2010. Subsequently, in 2012, the company took part in a demerger by spin-off, whereby the demerged company was not dissolved and continued its activity. However, all assets supported by the investment incentive were transferred by operation of law to one of the newly established companies.
The tax administrator concluded that this constituted a breach of the condition of ‘keeping the supported investment’ stipulated by the Investment Incentives Act. Therefore, it disregarded the tax relief claimed by the company, and assessed tax in the full amount plus a penalty.
Contrariwise, the SAC concluded that the term ‘keep the assets’ is not defined by legislation. Grammatically interpreting the relevant provision, the court deduced that while the recipient was obliged to keep the assets in the supported region, nothing implied that this would mean the obligation to also retain the ownership of the assets. As a basis for its decision, the SAC took the wording of Section 6a(2) of Act No. 72/2000 Coll., on Investment Incentives, as amended on 5 September 2019. The court also pointed out that the duty of the investment incentives recipient to use the assets and keep them in their ownership and at the place of the investment project was only stipulated by the amended version of the law effective from 6 September 2019.
In the context of applicable legislation, it is also necessary to keep in mind the EU rules of public support that have a direct effect: they regulate the conditions directly concerning the provision of public support and impose specific requirements for selected types of assets in terms of public support.
However, this obviously ground-breaking judgment dealing with the specific case of demergers by spin-off, entails certain pitfalls. Although according to the SAC it is sufficient to keep the supported investment in the region regardless of the ownership title to the relevant assets, investment incentive recipients still have the duty to prove the existence of the assets in the region – meaning they have to be able to maintain certain control over the assets.
Taxpayers who may be involved in a business transformation should therefore bear in mind the different parameters and specificities of various types of transformation and assess each case on an individual basis – not just because of the differences of opinions between the tax administrator and the SAC in this specific case, but also because of the uncertainty regarding the tax administrators’ approach to similar situations in the future.