Rozhodnuti krajskeho soudu o dotacich a nahradach od pojistovny

Regional court decision on subsidies and compensation from the insurance company

In a recent judgment 63 Af 11/2022-141, the Regional Court dealt with a case in which the tax administrator disputed, inter alia, a situation where the tax entity had incorrectly taken into account a subsidy received and incorrectly reduced the income from an insurance claim from an insurance company.

Summary of the situation:

Subsidy reducing input price:

• A company acquired property for which it received an investment subsidy. The asset was destroyed by fire.
  
• The value of the subsidy was not deducted from the cost of the destroyed asset, nor was the subsidy received recognised in the taxpayer's income.
• According to the company's argument, the subsidy was granted for fixed, active and operational assets, not for assets that were destroyed. In order to preserve the subsidy, the company should have used it to purchase new assets and therefore the subsidy received was retained in the asset acquisition balance sheet account.
• The tax authorities questioned this practice.

Insurance claim from an insurance company:

• The company recorded the expected reimbursement from the insurance company as an estimate of the 2012 asset.
• After entering into a settlement agreement with the insurance company that became effective in 2013, the company filed a supplemental tax return for the prior period that reduced the original estimate to the amount of the insurance company's reimbursement.
• The tax authorities also questioned this procedure.

The court's view:

The Regional Court sided with the tax administrator in both cases.

Subsidies reducing input price:

• The subsidy granted to the company was expressly intended for the acquisition of the destroyed property. In its assessment, the court relied on the statements of the Ministry of Finance and the grantor that the subsidy was granted for destroyed assets, not for new assets.
• The correct procedure was to reduce the value of the property by the proceeds of the grant.
• Insurance claim from the insurance company:
• According to GFD Instruction No. D-6 (currently D-59), the time of adjustment of the tax base in the case of a settlement agreement is the effective date of the settlement agreement.
• The unconfirmed claim for the anticipated insurance claim, as an asset, should have been replaced by a new claim arising from the settlement agreement in the year the settlement agreement became effective.
• The substitution of a new claim for the anticipated claim was a "non-adjusting event" within the meaning of Ruling I-24 and should not have affected the tax base for 2012.

For the sake of completeness, we would add that an appeal has been lodged against the judgment. It will be interesting to see whether the Supreme Administrative Court will reach the same conclusion. In any event, caution should be exercised in similar situations and individual cases should be assessed on a case-by-case basis.

If you have any questions, please contact the authors of the article or the EY team you are working with.

Authors:

Ivan Zhurkin

Jana Semrádová