Pilir 2 vs investicni pobidky

Pillar 2 vs investment incentives

Recipients of investment incentives in the form of tax credits should consider recognising a deferred tax asset as early as in the 2023 financial statements.

As we have informed you on several occasions in the past, on 31 December 2023, Law 416/2023 on top-up taxes came into force, which generally applies to multinational companies with a turnover of at least EUR 750 million. According to this law, the effective taxation under Pillar 2 must be at least 15% (the calculation is very complex and there are a number of rules and exceptions).

Let's imagine a simple scenario: a company utilizes investment incentives in the form of a tax credit and does not account for a deferred tax asset. In such a case, its effective tax rate would probably be lower than 15% due to the tax credit and it might be liable for a top-up tax. In order to avoid the potential negative impact of a balancing tax, the Company could consider recognising a deferred tax asset in respect of the investment incentive tax credit entitlement in its financial statements for the 2023 financial year. Subsequent release of such a deferred tax asset could, under certain circumstances, increase the effective tax rate.

The above recommendation needs to be carefully considered in light of the taxpayer's particular circumstances. Discussion with the auditor will also be necessary. Therefore, given the very complex nature of the Pillar 2 rules, a detailed review is always recommended.

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

Authors:

Ondřej Janeček

Martin Hladký