Until now, many taxpayers have believed that in compliance with the Income Taxes Act and under the internal methodology of the tax administrator, it is possible to retroactively change the decision on the suspension/utilisation of tax depreciation, either in an additional tax return or, as the case may be, also as part of a tax audit. In accordance with our practice, it was possible to retroactively utilise depreciation once suspended and, on the contrary, to retroactively suspend the depreciation utilised.

Judgment of the Regional Court

However, in May 2021, the Regional Court in Hradec Králové issued judgment ref. no. 31 Af 37/2019-67 dealing with the issue of the additional utilisation of suspended tax depreciation as part of an additional tax return with a surprising conclusion. The Regional Court has held that the suspension of depreciation is considered to be the application of the taxpayer’s right to not depreciate and thus it cannot be changed retroactively.

The Regional Court sees the reasoning mainly in the necessity to observe the continuity of asset depreciation. In the Court’s opinion, the retroactive changes of depreciation would be reflected in changes of the net book value of assets and thus also in additional changes of the transactions associated with the depreciated assets, which would breach the continuity requirement embedded in the Income Taxes Act. The Regional Court also reasoned that an additional tax return serves the taxpayer as a means of remedy if the tax is not assessed correctly. However, pursuant to the judgment of the Regional Court, an additional finding that the application of depreciation for a certain taxation period would be more favourable for the taxpayer under certain circumstances, cannot be considered an error in itself. Based on this reasoning, the Court has dismissed the action.

Accordingly, the above-mentioned shows that the judgment of the Regional Court is not in compliance with the tax administrator’s methodology to date and thus it remains to be seen whether tax authorities will change their approach in this matter. In conclusion, let us add that an appeal in cassation to the Supreme Administrative Court of the Czech Republic was not filed and thus it will be interesting to see how the administrative practice in this area will develop.

Eliška Zemánková

elzemankova@deloittece.com