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Advance income tax payments and tax losses: A practical…

Advance income tax payments and tax losses: A practical overview of the existing COVID rules

Silvia Hallová | 16.6.2020 | News

The table below was elaborated by experts from Grant Thornton and provides practical advice on how to correctly determine and pay advance tax payments and in which situations there arises a case for reconciliation of advance payments. In the case of tax losses, we wish to point out to the existing possibilities as well as unclarities that remain yet to be settled and where we are waiting for the statement from the financial administration.

Advance payments in 2020	Advance payments paid until filing of the corporate income tax return for 2019 pursuant to MRTL[1] for the year	Advance payments paid after filing of the corporate income tax return for 2019 during the pandemic pursuant to MRTL for the year	Settlement of overpayment on the advances		Settlement of overpayment on the advances
Determining the amount of advance payments			Application for refund submitted before 30.4.2020	Application for refund submitted after 30.4.2020	Settlement of overpayment on the advances
Corporate income tax return filed before 31.3.2020
The most recent known tax liability for the year 2018 is higher than the most recent known tax liability for the year 2019	Advance payments are paid in the amount calculated based on the corporate income tax return for 2018[2]	Advance payments are paid in the amount calculated based on the corporate income tax return for 2019[3]	Tax administrator will remit the overpayment on the advances to the taxpayer’s account by 31.5.2020[4]	Tax administrator will remit the overpayment on the advances to the taxpayer’s account within 30 days of submitting of the application[5]	-
The most recent known tax liability for the year 2018 is lower than the most recent known tax liability for the year 2019	Advance payments are paid in the amount calculated based on the corporate income tax return for 2018	Advance payments are paid in the amount calculated based on the corporate income tax return for 2018[6]	-	-	The taxpayer is obliged to settle the outstanding advance payment by the end of the second calendar month following the end of the pandemic period.[7]
*Alternatives for payment or non-payment of advance payments in 2020*
Submitting of an application for different determination of advance payments	Based on a decision on determination of advance payments using a different method, the taxpayer will pay advance payments pursuant to the decision of the tax administration[8].		-	-	The taxpayer is not obliged to settle the outstanding advance payments for the months/quarters in question after the end of the pandemic.
Submitting of a statutory declaration on a decline of turnovers by at least 40%	Based on the submitted declaration, the advance income tax payments will not be paid until the end of the pandemic[9]. The above will apply for the first time in May 2020.		-	-	The taxpayer is not obliged to settle the outstanding advance payments for the months/quarters in question after the end of the pandemic.
Corporate income tax return filed during the pandemic
The most recent known tax liability for the year 2018 is higher than the most recent known tax liability for the year 2019	Advance payments are paid in the amount calculated based on the corporate income tax return 2018	Advance payments are paid in the amount calculated based on the filed corporate income tax return for 2019	Tax administrator will remit the overpayment on the advances to the taxpayer’s account by 31.5.2020[10]	Tax administrator will remit the overpayment on the advances to the taxpayer’s account within 30 days of submitting of the application[11]	-
The most recent known tax liability for the year 2018 is lower than the most recent known tax liability for the year 2019	Advance payments are paid in the amount calculated based on the corporate income tax return 2018	Advance payments are paid in the amount calculated based on the corporate income tax return 2018	-	-	The taxpayer is obliged to settle the outstanding advance payment by the end of the second calendar month following the end of the pandemic period.
*Alternatives for payment or possibly non-payment of advance payments in 2020*
Submitting of an application for a different method for determination of advance payments	Based on a decision on a different method for determination of advance payments, the taxpayer will pay the advance payments pursuant to the decision of the tax administrator.		-	-	The taxpayer is not obliged to settle the outstanding advance payment for the months/quarters in question after the end of the pandemic.
Submitting of a statutory declaration on a decline of turnovers by at least 40%	Based on the submitted declaration, advance income tax payments will not be paid until the end of the pandemic. The above will apply for the first time in May 2020.		-	-	The taxpayer is not obliged to settle the outstanding advance payment for the months/quarters in question after the end of the pandemic.[12]
Corporate income tax return filed within one month after the end of the pandemic
The most recent known tax liability for the year 2018 is higher than the most recent known tax liability for the year 2019	Advance payments are paid in the amount calculated based on the corporate income tax return for the year 2018		-	Tax administrator will remit the overpayment on the advances to the taxpayer’s account within 30 days of submitting of the application	-
The most recent known tax liability for the year 2018 is lower than the most recent known tax liability for the year 2019	Advance payments are paid in the amount calculated based on the corporate income tax return for the year 2018		-	-	The taxpayer is obliged to settle the outstanding advance payment by the end of the second calendar month following the end of the pandemic period.
*Alternatives for payment or possibly non-payment of advance payments in 2020*
Submitting of an application for a different method for determination of advance payments	Based on a decision on a different method for determination of advance payments, the taxpayer will pay the advance payments pursuant to the decision of the tax administrator.		-	-	The taxpayer is not obliged to settle the outstanding advance payment for the months/quarters in question after the end of the pandemic.

[1]MRTL – most recent tax liability (abbreviated as PZDP in Slovak) calculated according to the submitted tax return.

[2] Section 42(6) of the Act no. 595/2003 Coll. on income tax (“Income Tax Act or ITA”).

[3] Section 1(1) of the Government Decree no. 104/2020 Coll. on the extent and specific terms and conditions of applying measures in the sphere of income tax in connection to the pandemic (“Government Decree“).

[4] Section 24a(5) (b) of the Act no. 67/2020 Coll. on certain extraordinary measures in the financial area in connection to spreading of a dangerous contagious human disease COVID-19 (“Act on extraordinary measures”).

[5] Section 24a(5) (a) of the Act on extraordinary measures.

[6] Section 21(1) of the Act on extraordinary measures.

[7] Section 42(9) of the ITA.

[8] Section 42(10) of the ITA. Based on a submitted application for determination of advance payments using a different method, the tax administrator will decide on the amount of advance payments for the period in question. Any outstanding advance payment does not need to be settled additionally after the end of the pandemic; a potential amount of tax arrears will be settled by way of corporate income tax for the year 2020.

[9] Section 24a(1) of the Act on extraordinary measures. Non-payment of advances will apply based on submitting a statutory declaration on the decline in turnovers by at least 40% when compared against the identical period of the previous calendar year. The taxpayer will submit to the respective tax administrator a declaration on the decline in turnovers not later than 15 days before expiration of the deadline for payment of income tax advances, whereas the remission for missing of a deadline pursuant to Section 4 will not apply to the deadline for submitting of this declaration. Such method of payment of advance income tax payments will be applied for the first time on the advance income tax payments payable in May 2020. Declaration for the month of May will be submitted by 15.5.2020 at the latest. (nemalo by to byt 15.6. ak je to za maj?)

[10] Section 24a(5)(b) of the Act no. 67/2020 Coll. on certain extraordinary measures in the financial area in connection to spreading of a dangerous contagious human disease COVID-19 (“Act on extraordinary measures“).

[11] Section 24a(5)(a) of the Act on extraordinary measures.

[12] Income tax advance payments that the taxpayer did not pay during the pandemic as laid down in Section 24a(1) of the Act on extraordinary measures will not be paid after the end of the pandemic. These advance tax payments will not be subject to reconciliation pursuant to Section 42(9) of the ITA; the taxpayer will settle its tax liability only upon filing of the tax return for the tax period 2020, or possibly the respective economic year or another tax period.

The Act on extraordinary measures enables taxpayers to deduct from the income tax base any tax loss carried forward from tax periods 2015 - 2018 (starting with the earliest reported tax loss) not exceeding the aggregate amount of €1 million. The above special deduction can be applied only in the tax return with the statutory term (not the extended term) expiring between 1.1.2020 and 31.12.2020.

Tax losses

The table below offers an overview of caveats when it comes to deduction of tax losses:

Example no.1:
The company reported tax base amounting to €200 000 for the tax period of 2019. In the preceding tax periods, the company reported the following tax losses:
	2015	2016	2017	2018	2019	Pursuant to COVID rules, the taxpayer is entitled to tax loss deduction in the amount of the tax loss part that has not been applied yet (has not expired) in the previous tax periods.
Tax base	-	100 000	-	-	200 000
The amount of tax loss	50 000	-	20 000	15 000	-
1/4 of the reported loss	12 500	-	5 000	3 750	-
Entitlement for tax loss deduction	-	12 500	-	-	42 500
The amount of tax loss carried forward	-	12 500	-	-	42 500
The remaining amount of tax loss allocated for set-off	50 000	37 500	45 000	42 500	-
Total expired loss	-	-	12 500	17 500	-
With respect to the fact that the company failed to achieve positive tax base in some of the previous periods, one part of the tax losses could not be deducted pursuant to the ITA; therefore these tax losses cannot be deducted for the year 2019 either. The total amount of loss that the company can carry forward for deduction in 2019 is EUR 42 500. The amount of expired tax loss that the company could not deduct is EUR 17 500.
THE COMBINATION OF TAX LOSS DEDUCTION PURSUANT TO SECTION 30 OF THE ITA AND SECTION 24b OF LEX KORONA
Combination of both methods of carrying forward tax loss within a single tax period is not possible. This means that taxpayers need to decide for one alternative that will be more advantageous for them with regards to the amount of loss they can apply in deduction pursuant to the respective acts.
In cases where the taxpayer decides to apply for deduction pursuant to Section 24b of Lex Korona, tax loss deduction will not be reported in table D of the corporate income tax return but it will be reported in special records in the structuring as indicated in the information issued by the Financial Directorate of the Slovak Republic.[1]
APPLYING OF TAX LOSS DEDUCTION PURSUANT TO SECTION 24b OF LEX KORONA
Example no. 2:
The company reports tax loss for the tax period 2018 amounting to EUR 700 000. In the tax period 2019, it decided to apply the procedure pursuant to Section 24b of Lex Korona, as this alternative is more advantageous for the company. In the tax period 2019, the company has a tax base of EUR 600 000. The company may therefore carry forward tax loss of EUR 100 000 for deduction in the upcoming periods.
However, based on the available information, it has not been clarified whether the remaining amount of tax loss will be available for deduction in the later tax periods and if it is, than how exactly is this going to be treated. At the moment, we are waiting for the Slovak financial administration to publish official statement.

[1] After the pandemic ends, the taxpayer will not be obliged to pay the advance income tax payments that the taxpayer failed to pay during the pandemics pursuant to Section 24a (1) of the Act on extraordinary measures. The said advance tax payments will not be subject to reconciliation pursuant to Section 42 (9) of the ITA, the taxpayer will settle its tax liability only upon filing of the tax return for tax period 2020 or possible for the respective economic year or another tax period.

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Silvia Hallová

PARTNER, TAX

Silvia Hallová

PARTNER, TAX

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Advance income tax payments and tax losses: A practical overview of the existing COVID rules

The most recent known tax liability for the year 2018 is higher than the most recent known tax liability for the year 2019

Advance payments are paid in the amount calculated based on the corporate income tax return for 2018[2]

Advance payments are paid in the amount calculated based on the corporate income tax return for 2019[3]

Tax administrator will remit the overpayment on the advances to the taxpayer’s account by 31.5.2020[4]

Tax administrator will remit the overpayment on the advances to the taxpayer’s account within 30 days of submitting of the application[5]

-

The most recent known tax liability for the year 2018 is lower than the most recent known tax liability for the year 2019

Advance payments are paid in the amount calculated based on the corporate income tax return for 2018

Advance payments are paid in the amount calculated based on the corporate income tax return for 2018[6]

-

-

The taxpayer is obliged to settle the outstanding advance payment by the end of the second calendar month following the end of the pandemic period.[7]

Submitting of an application for different determination of advance payments

Based on a decision on determination of advance payments using a different method, the taxpayer will pay advance payments pursuant to the decision of the tax administration[8].

-

-

The taxpayer is not obliged to settle the outstanding advance payments for the months/quarters in question after the end of the pandemic.

Submitting of a statutory declaration on a decline of turnovers by at least 40%

Based on the submitted declaration, the advance income tax payments will not be paid until the end of the pandemic[9]. The above will apply for the first time in May 2020.

-

-

The taxpayer is not obliged to settle the outstanding advance payments for the months/quarters in question after the end of the pandemic.

The most recent known tax liability for the year 2018 is higher than the most recent known tax liability for the year 2019

Advance payments are paid in the amount calculated based on the corporate income tax return 2018

Advance payments are paid in the amount calculated based on the filed corporate income tax return for 2019

Tax administrator will remit the overpayment on the advances to the taxpayer’s account by 31.5.2020[10]

Tax administrator will remit the overpayment on the advances to the taxpayer’s account within 30 days of submitting of the application[11]

-

The most recent known tax liability for the year 2018 is lower than the most recent known tax liability for the year 2019

Advance payments are paid in the amount calculated based on the corporate income tax return 2018

Advance payments are paid in the amount calculated based on the corporate income tax return 2018

-

-

The taxpayer is obliged to settle the outstanding advance payment by the end of the second calendar month following the end of the pandemic period.

Submitting of an application for a different method for determination of advance payments

Based on a decision on a different method for determination of advance payments, the taxpayer will pay the advance payments pursuant to the decision of the tax administrator.

-

-

The taxpayer is not obliged to settle the outstanding advance payment for the months/quarters in question after the end of the pandemic.

Submitting of a statutory declaration on a decline of turnovers by at least 40%

Based on the submitted declaration, advance income tax payments will not be paid until the end of the pandemic. The above will apply for the first time in May 2020.

-

-

The taxpayer is not obliged to settle the outstanding advance payment for the months/quarters in question after the end of the pandemic.[12]

The most recent known tax liability for the year 2018 is higher than the most recent known tax liability for the year 2019

Advance payments are paid in the amount calculated based on the corporate income tax return for the year 2018

-

Tax administrator will remit the overpayment on the advances to the taxpayer’s account within 30 days of submitting of the application

-

The most recent known tax liability for the year 2018 is lower than the most recent known tax liability for the year 2019

Advance payments are paid in the amount calculated based on the corporate income tax return for the year 2018

-

-

The taxpayer is obliged to settle the outstanding advance payment by the end of the second calendar month following the end of the pandemic period.

Submitting of an application for a different method for determination of advance payments

Based on a decision on a different method for determination of advance payments, the taxpayer will pay the advance payments pursuant to the decision of the tax administrator.

-

-

The taxpayer is not obliged to settle the outstanding advance payment for the months/quarters in question after the end of the pandemic.

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