SAC confirmed it is possible to claim higher tax credit from investment incentives in supplementary tax return

Current Case

In this particular case, a taxpayer who was granted an investment incentive in the form of a corporate income tax credit under § 35b of the Income Tax Act claimed the tax credit in the regular tax returns for the years 2014 and 2015 in such amounts that the resulting tax was always zero. Later, the taxpayer decided to file supplementary tax returns for the mentioned periods. In these returns, a lower deduction for research and development was claimed, thereby increasing the tax base. At the same time, the taxpayer claimed a higher amount of tax credit under § 35b of the Income Tax Act so that the resulting tax was again zero. However, the Specialized Tax Authority, which was the relevant tax authority, did not accept the additional increase in the tax credit and assessed the tax from the increased tax base accepting the tax credit only in the amount claimed in the regular tax return.

Limitation of Increasing the Tax Credit Additionally

Section 35b par. 1 of the Income Tax Act states that the value “S1”, from which the tax credit is calculated, does not increase if a higher tax obligation is subsequently assessed. Similarly, according to Section 35a paragraph 1 of the Income Tax Act, the amount of the tax credit does not change if a higher tax obligation is subsequently determined.

The Specialized Tax Authority and subsequently the Appellate Financial Directorate interpreted this provision to mean that the claimed tax credit cannot be increased in the supplementary tax return whereby the tax base is increased. According to these authorities, it was not the intended purpose of the law to allow the claiming of an additional higher tax credit from the investment incentives, even though this intention was not expressed in the law precisely.

The SAC did not accept the arguments of the financial administration. The court stated that from the grammatical interpretation of the law, it is clear that the limitation of increasing the tax credit additionally applies only if a higher amount of tax is assessed. This can occur if a taxpayer is assessed a higher tax amount based on a tax audit or through a supplementary tax return, and the taxpayer subsequently wants to eliminate the assessed higher tax amount by claiming a higher tax credit in the supplementary tax return.

The SAC also noted that the possibility of claiming a higher tax credit in the supplementary return was established in the past by the opinion of the Coordination Committee of the Chamber of Tax Advisors from 2007 and in commentary literature. According to the SAC, these interpretations align with the purpose of the institute of the supplementary tax return itself. The possibility of claiming a higher tax credit in the supplementary tax return puts the recipient of the investment incentives in the same position as if they had used correct data in the regular tax return.

Ruling: 2 Afs 118/2022

Author:

Pavla Vítková, Tax Manager