Vyzkum a vyvoj blyska se na lepsi casy

Research and development - looking forward to better times?

An amendment to the government bill amending certain acts in connection with the development of the financial market and the promotion of old-age security (Parliamentary print 474/0) proposed an amendment to Section 34c(5) of the Income Tax Act, according to which, in the event of doubts on the part of the tax administrator, other means of evidence may be used to prove the content of project documentation.

The popularity of claiming the deductible item for research and development (R&D) among taxpayers has been steadily declining. One of the reasons for this may be, from the taxpayer's point of view, the tax administration's rather strict and very formalistic approach to tax audits, which has been criticised by taxpayers and the professional public on many occasions. However, tax administrators have often been defended in court cases. For example, according to the Supreme Administrative Court (SAC), the tax administrator or the court does not have to examine whether a R&D project actually materially constitutes R&D if it does not meet the formal requirements; in the absence of such requirements, the consequence of formal errors is in all cases only one, i.e. the non-recognition of the deduction (for those interested, see SAC decision No. 3 Afs 304/2016-37 of 28 March 2018).

Given the recent comments by representatives of the financial and tax administration (for example, Minister Stanjura's statement on the X network, formerly Twitter), the above proposed modification can be interpreted as an effort to shift the existing formal approach in R&D tax audits to a material approach. Of course, even if the proposed amendment is approved, the obligation to prepare an R&D project will not disappear. However, according to our extensive practical experience, it may (significantly) help in situations where the tax administrator, for example, does not consider the objectives of the project to be sufficiently certain or the taxpayer refers to additional supporting documentation due to the complexity of the task at hand. Of course, it is always best to prepare the project in such a way that similar discussions with the tax administrator during the tax audit do not occur at all. However, we do not live in an ideal world, and many of you may find the proposed law change, combined with an appropriately chosen strategy for conducting a tax audit, beneficial.

If you are interested in this area, please contact the authors of this article or the EY tax advisory team with whom you regularly work.

Authors:

Radek Matuštík

Martin Hladký