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Income tax advances after the supplementary tax return

We would like to follow up on December post regarding corporate income tax advances in specific situations (HERE). In today's post, we would like to remind you that even filing a supplementary tax return for a previous period can affect the amount of future tax advances.

If a supplementary tax return for the directly preceding period is filed (and the tax liability assessed) before the deadline for filing a regular return for the current period, the tax liability shown in the supplementary return is considered to be the last known tax liability. As such, it shall be decisive for the determination of the amount of the advances, starting with the advance due from the day after the deadline for filing that supplementary tax return. The amount of the advances must then be recalculated. In addition, in the case of an initially low tax liability, it must be verified that there has been no change in the frequency of the obligation to pay advance tax. If the last known tax liability is between CZK 30,000 and CZK 150,000, advances are made semi-annually, above CZK 150,000 quarterly.

Example:

A company applies a calendar year and has filed its 2021 tax return properly by 1 July 2022. In January 2023, the company identifies that its tax liability is to be CZK 400,000 higher, resulting in an obligation to file an additional 2021 return by 28 February 2023.

Situation A

In the regular tax return, the company has reported a tax liability of CZK 10,000,000 and advances of CZK 2,500,000 are due on 15 September 2022, 15 December 2022, 15 March 2023 and 15 June 2023. Following the filing of the supplementary tax return, the advances due in March 2023 and June 2023 will be increased to CZK 2,600,000).

Situation B

The original tax liability according to the regular return was CZK 100,000, so the company is obliged to pay two semi-annual advances (due on 15 December 2022 and 15 June 2023) of CZK 40,000. By filing a supplementary tax return, the last known tax liability (CZK 500,000) exceeded CZK 150,000 and the company was obliged to make an additional advance payment due on 15 March 2023 and also the advance payment due on 15 June 2023, both amounting to CZK 125,000.

Similarly, if the additional tax return results in a decrease of tax liability, the advances payable after the assessment are reduced. Should the advances be paid in the original unreduced amount, the difference will be treated as an overpayment on the taxpayer's tax account as of the date the advance is due. As such, it may be used by the Tax Authorities to settle other tax liabilities before the tax liability is assessed based on the regular tax return for the current period.

We would like to emphasise that the above commentary cannot replace a detailed assessment of a particular tax situation. We will be happy to assist you with these and other tax aspects.

If you are unclear or have any other questions, please contact the author of this article or the EY tax team with whom you regularly work.

Author:

Helena Hrabcová