SAC: chaining of tax losses inadmissible
The Supreme Administrative Court (SAC) has dealt with whether it is lawful to repeatedly extend the deadline for assessing tax, which in the event of repeatedly incurred losses, might never end. The SAC held (8 Afs 58/2019-48) that such a ‘chaining’ of tax losses was inadmissible and vacated the judgment of the Regional Court in Pilsen that had approved of this practice.
In the case in question, a company reported tax losses for the taxable periods of 2008 and 2009. In 2014, the tax administrator initiated the tax inspection of these two taxable periods; subsequently, in 2018, they also initiated a tax inspection of the last period in which the 2008 tax loss could be claimed. The tax administrator was of the opinion that the deadline for tax assessment shall be counted from the period to which the later of the tax losses related. The company considered the tax inspection unlawful, as it had been initiated after the expiry of the deadline for assessing tax for the period being inspected.
The issue thus was whether it was possible to further extend the deadline for assessing tax if, within the five years’ deadline for carrying forward the loss, the company reports another tax loss. The court was to decide whether a tax inspection was initiated within the deadline for assessing tax, and whether it is admissible to ‘link’ or ’chain’ tax losses so as to extend such a deadline.
The SAC did not agree with the interpretation applied by the tax administrator and the regional court that had approved of this practice. According to the SAC, such an interpretation is not explicitly supported by law and constitutes a disproportional infringement on the taxpayer’s legal certainty. The SAC also held that any extension of the deadline for tax assessment may only be counted from the taxable period in which a tax loss had originated, not taxable periods concerning other tax losses (the deadline for assessing tax has to be assessed on a separate basis for each taxable period). The SAC also held that a tax loss assessed in any future taxable periods is irrelevant for determining the deadline for assessing tax for the previous years.
Unlike the previous regional court’s judgement, the cited SAC judgement interprets Section 38r(2) of the Income Tax Act in favour of taxpayers as regards the deadline for assessing tax.