Tax benefits related to the corporate income tax

For business associations, the Corporate Income Tax Act provides opportunities for the use of various tax benefits that allow your company to reduce the tax calculated at the end of the year.

The Corporate Income Tax Act offers a number of tax benefits, such as energy efficiency investment or development tax relief, however, the use of these is subject to various conditions. We recommend reviewing these. 

Tax benefits, such as the development tax benefit, tax allowance for investments serving energy efficiency purposes, the tax allowance after the sponsoring of spectator and team sports, etc. are subject to complex and diverse usage terms that may call for an in-depth review on the company’s behalf. If one fails to fully comply with the conditions set out by law, the tax authority may challenge the reduction of the tax in the given way, and in addition to a tax fine, this may also subject the company to a tax burden payable going back to several years. Should you have any doubts regarding tax benefits, you are recommended to consult a tax expert before using them.

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Tax allowance for energy efficiency investments, development tax benefit

In the following, we will describe the most common mistakes related mainly to energy efficiency investments and the development tax benefit. We will also review issues that taxpayers tend to neglect the most, while they are sought intensively by the tax authority, in our experience.

1. Tax benefits subject to mandatory tax audit within 3 years
   When willing to use these tax benefits, it is important to know that a mandatory tax audit – legal compliance check – is set out by the Corporate Income Tax Act by the end of the 3rd year after the start of use.
   However, we found that many businesses still tend to overlook this requirement. They do not expect the audit, and therefore they are often not sufficiently prepared. As a result, the tax audit may reveal incomplete certificates or records, or the unavailability of the full documentation required for the use.
2. Certificates and documentation related to tax benefits are important
   In addition to obtaining the required certificates, it is also important to observe timeliness. We have seen the withdrawal of the tax benefit for the unavailability of certificates on time. This happened, for example, when a company using tax allowance for energy efficiency investments did not have the certificates supporting energy efficiency, as required by law, or the pre-or post-audit documents by the time they filed the tax returns. 
3. Accurate supporting calculations are required for a tax benefit
   When using these two tax benefits, taxpayers often make mistakes in the supporting calculations related to the available benefit. These may include a miscalculation of the present value or even the complete unavailability of the analytical records supporting the use. To avoid these mistakes, it is also recommended to request a preliminary tax expert review, so that any mistakes or deficiencies can be corrected before the tax audit.
4. The cornerstone of allowances for solar energy applications is the correct categorization of costs
   As regards tax allowances related to energy efficiency investments, based on the audit experience of the tax authority, most cases of tax assessment and unlawful use occur in connection with the implementation of solar systems For the costs, although taxpayers are aware of the main rules, they often misunderstand or miscategorize accountable and unaccountable costs.

   For solar systems, if the solar panel, being a renewable energy source, is a device capable of and suitable for the generation of electricity, then the cost of the solar system cannot be taken into account for the purposes of a tax benefit, as it cannot be accounted as costs, i.e. it does not create eligibility for tax relief.

   Note that this will not change, even if the taxpayer does not use the electricity produced for business purposes, but for their own activities only. On the other hand, it will not create eligibility for the taxpayer to claim the relief either, if they have an energy savings certificate issued by an energy auditor.

If your company is contemplating using tax benefits, or has already been using some, but is still before the tax audit, feel free to contact us with the review or preparation of your documents.