Full text of Act No. 213 / 1996 Coll.
Act of the Czech National Council on Reserves for the Determination of the Income Tax Basis (full text as shown by later amendments and additions)
Valid
Declared full text
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02.08.1996
213
_
Announces
the full text of the Act of the Czech National Council of 20 November 1992 No 593 Coll., on provisions for determining the income tax base, as follows from the amendments and additions made by the Act of 19 May 1993 No 157 Coll., the Act of 3 December 1993 No 323 Coll., the Act of 8 December 1994 No 244 Coll. and the Act of 21 June 1995 No 132 Coll.
THE LAW
Czech National Council
on provisions for determining the income tax base
The Czech National Council decided on this law:
This law regulates, for the purposes of determining the income tax base, the way in which provisions are created and the amount of provisions and adjustments which are expenditure (costs) incurred to achieve, secure and maintain income (1) for income taxpayers.
(1) Reserves referred to in Article 1 are bank reserves, insurance reserves, provisions for the repair of tangible assets, provisions for cultivation and other provisions to the extent provided for by this law.
(2) The weightings referred to in Article 1 shall be understood as the weightings for claims on debtors in insolvency and settlement proceedings, bank and non-barred claims due after 31 December 1994.
The method of establishing reserves and adjustments for the tax period and their amount must be demonstrable. For inventarization2) the amount and justification of reserves and adjustments are assessed.
(1) The expenditure (costs) for which reserves and adjustments have been created must, as a priority, be paid from those reserves and allowances. the provisions shall be abolished in favour of income (income) during the same tax period where the reasons for which they were created have ceased to exist.
(2) Reserves may not be created for expenditure (costs) on the acquisition of tangible and intangible property. (3)
(3) The adjustment items are used to cover losses arising from the write-off of the claims for which they are created or to cover the difference between the carrying amount of the claim and the price of the claim agreed upon at the disposal of the transferee. 3a) The weightings shall be abolished in favour of the proceeds for the same tax period, where the reasons for which they were created shall be waived; the revenue resulting from their abolition increases the income tax base.
(4) The balance of reserves and adjustments established at the end of the tax period is transferred to the following tax period.
(5) The total amount of the adjustment appropriations for banks, including bank reserves, must not exceed the total amount of claims to which it is generated.
Bank reserves and adjustments
(1) As expenditure (costs) for attaining, securing and maintaining income (1), banks (4) may create:
(a) provisions for standard credit claims up to 1% of the average state of these claims for the tax period;
(b) adjustments to classified credit claims or groups of claims with the same level of risk for the tax period up to
1% for outstanding amounts,
5% for non-standard claims,
10% for doubtful claims,
20% for loss-making claims,
(c) provisions for guarantees granted of 2% of the average state of these obligations for the tax period.
(2) For the purposes of this Act, credit claims shall mean:
(a) the standard where the debtor is in a favourable financial and pension situation and there is no doubt about the timely settlement of the entire claim;
(b) the observed deterioration of the criteria for repayment of principal, interest and charges since the loan was granted but no loss is foreseen at the time of the assessment of the claim;
(c) non-standard where there is a significant degree of risk. The repayment of principal, interest and fees in full is uncertain. Partial repayment of the claim is highly likely,
(d) doubtful where repayment of principal, interest and charges is highly unlikely. Partial repayment of the claim is possible and likely,
(e) loss-making, which has signs of irreversible or is partially recoverable at very low value. The bank shall report the claim as loss-making if the debtor is in bankruptcy or settlement proceedings.
The observed, non-standard, doubtful and loss-making credit claims are classified credit claims.
(3) The total amount of the formation of the weightings referred to in paragraph 1 (b) may not exceed 3% of the average state of outstanding credit claims for the tax period. This limitation does not apply to claims arising from guarantee payments; the adjustments to these claims shall be established in accordance with paragraph 1 (b).
(4) If, on the basis of the data provided by the commercial documents5) and the account6), the bank demonstrates the justification for making adjustments higher than those referred to in paragraph 3, or for making provisions for the guarantees provided under paragraph 1 (c), the Financial Office may recognise the creation of adjustments and provisions at the amount shown.
(5) The corrective item established pursuant to paragraph 1 (b) shall be cancelled if the reasons for its existence have ceased to exist or if the claim for which it was established has been barred.
(6) The provisions established under paragraph 1 (a) and (c) serve to write off or cover losses arising from the assignment of standard and classified credit claims and losses associated with the implementation of the guarantees provided.
Insurance provisions
(8) With the exception of the provision for insurance periods other than insurance periods, 9), for the purposes of determining the income tax base, the creation of provisions that are expenditure (costs) on the achievement, reinsurance and maintenance of income is recognised as:
(a) non-life insurance provisions (10) at an amount not exceeding 60% of the prescribed non-life insurance premiums;
(b) provisions for life insure11) at an amount which may not exceed the amount of liabilities calculated using the methods laid down in the special regulation8) resulting from life insurance due under the insurance contracts concluded.
Provisions for the repair of tangible assets
(1) Provision for the repair of tangible property, 12) which is the expenditure (cost) to achieve, secure and maintain income, 1) whose depreciation period laid down in the Income Tax Act is eight or more years may be made by taxpayers of income taxes who:
(a) they have a right of ownership or right of management to tangible property, unless that reserve is created by the lessee in accordance with (b);
(b) are tenants of tangible assets and are contractually obliged to repair the hired tangible assets.
(2) A technical evaluation under a special law shall not be regarded as corrections under this Act. 13)
(3) The provision referred to in paragraph 1 shall not be created in cases of tangible property,
(a) which is intended for disposal,
(b) in respect of damages or other unforeseen or accidental events;
(c) repairs which are regularly repeated each year.
(4) The amount of the provision for the repair of tangible property is determined on the basis of the individual tangible property to be corrected and the nature of the correction. The amount of the reserve in the tax period shall be equal to the share of the budget of the correction costs and the number of years elapsing from the beginning of the reserve creation until the estimated start of the correction. In the case of movable goods, the provision for the correction of individual tangible assets may consist in relation to the volume of its performance in technical units; in that case, the amount of the reserve in the tax period shall be equal to the product of the share of the correction budget per unit of the estimated volume of output and of actual output for the tax period.
(5) If an income tax payer finds a fact justifying a change in the amount of the reserve, it must make an adjustment to its amount from the tax period in which it becomes aware.
(6) The provision for corrections to individual tangible assets must not consist of only one tax period.
Adjustments to claims on debtors in bankruptcy and settlement proceedings
(1) Corrections to claims on debtors in bankruptcy and settlement proceedings, which are expenditure (cost) on the achievement, securing and maintenance of income, (1) may be made by taxpayers of income taxes charged in the double-accounting system from the time they are called upon, on the basis of a court order on the declaration of bankruptcy or on the authorisation of compensation in order to claim their claims and decide to do so within the prescribed period.
(2) The adjustments referred to in paragraph 1 may be made up to the amount of claims applied for.
(3) Corrections are cancelled in favour of the proceeds following the results of the bankruptcy and settlement proceedings.
(4) In the case of claims for foreign debtors having their registered office in a State in which there is no legal provision corresponding to the bankruptcy and settlement law, and in respect of claims arising after 1 January 1991, the income tax payer charging in the double-entry system may create adjustments up to the amount of such claims, but only if they are claims secured (bank guarantee, documentary collection, credit, etc.), enforced in foreign courts, and the period from their agreed maturity has exceeded one year. In this case, the adjustments shall be cancelled for the benefit of the proceeds up to the amount of the outstanding part of the claims or up to the amount of their write-off according to the result of recovery.
Adjustments to outstanding claims due after 31 December 1994
(1) Recoveries on outstanding claims payable after 31 December 1994, the production of which is expenditure (cost) to achieve, secure and maintain income, (1) may be made by taxpayers on income taxes charged in the double-entry system, unless such claims are subject to adjustments and provisions pursuant to Article 5, and more has elapsed since the end of the agreed maturity period of the claim than
(a) 6 months, up to 20% of the book value of the claim or the acquisition price of the claim (hereinafter "the value of the claim");
(b) 12 months, up to 33% of the value of the claim.
(2) Only those liable to income tax who have filed an application to initiate proceedings against the debtor under the rules on arbitration or in court may make such claims subject to a higher formation of adjustments than those provided for in paragraph 1 and where more than
(a) 18 months, up to 50% of the value of the claim;
(b) 24 months, up to 66% of the value of the claim;
(c) 30 months, up to 80% of the value of the claim;
(d) 36 months, up to 100% of the value of the claim.
(3) The weightings referred to in paragraphs 1 and 2 may not be applied to claims arising from:
(a) as shareholders, shareholders, members of the subscribed equity cooperatives;
(b) between economically linked legal persons where the average of the shares in the capital of the other person or the average of the voting rights shares for the tax period (or part of the tax period) is more than 25%; the average of the shares shall be determined as a proportion of the sum of the stocks on the last day of each month and the number of months in the tax year or part thereof;
(c) between close persons, 13a)
(d) on loans, loans and advances.
(4) The adjustment appropriations established pursuant to paragraphs 1 and 2 shall be cancelled if the reasons for their existence have been waived or if the claim for which the adjustment item was established has been barred or if the reasons for which the amortisation of the claim is considered to be a cost of attaining, securing and maintaining income have occurred in accordance with the provisions of the Income Tax Act.
Provision for cultivation activities
(1) The provision for cultivation activities, which is the expenditure (cost) to achieve, secure and maintain income, (1) may be created by taxpayers who are required under the Special Act (14) to carry out the renewal, protection and education of forest crops.
(2) The reserve for growing activity is created according to the volume of timber harvested in m3. The amount of this reserve shall be determined by the taxpayer himself in the budget of the costs of growing. The reserve shall be drawn up in the course of the work of the growing activity and, if the work is not carried out in a budgeted volume, the reserve shall be cancelled.
Other provisions
For the purposes of determining the income tax base, a reserve of funds for the remediation of land affected by mining, a reserve for mining, 15) and provisions for which a special law indicates that the expenditure (cost) is to be achieved, secured and retained income (1) is further recognised.
(1) The balances of provisions having the character of reserves under this Act as established on 31 December 1992 shall be treated as reserves under this Act and shall be transferred until 1993.
(2) Provisions established in accordance with the applicable accounting rules before 1 January 1993 and transferred to 1993, as well as the years following 1993, shall be used to cover the expenditure (s) for which they were created. If the reasons for which they have been created are omitted, these reserves shall be cancelled in the relevant tax year in favour of the proceeds.
This Law shall take effect on 1 January 1993.
* * *
Act No. 157 / 1993 Coll. entered into force on 1 June 1993, Act No. 323 / 1993 Coll. entered into force on 1 January 1994, Act No. 244 / 1994 Coll. entered into force on 30 December 1994, Act No. 132 / 1995 Coll. entered into force on 1 August 1995.
* * *
Article II of Law No 244 / 1994 Coll. reads:
1. The provisions of this Act shall apply for the first time for the 1995 tax period.
2. The provision on reserves in insurance under § 6 of the Czech National Council Act No. 593 / 1992 Coll., on reserves for the determination of the income tax base, as amended by this Act, applies for the first time for the tax period 1994.
3. For the provision for the repair of tangible property, the creation of which began before 1 January 1995, the method of making the reserve according to § 7 (4) of the Czech National Council Act No. 593 / 1992 Coll., on reserves for the determination of the income tax base, as amended by this Act, applies only to the creation of the remaining part of that reserve after the effective date of the Act.
Article II of Law No 132 / 1995 Coll. reads:
Transitional provisions
1. The provisions established on the effective date of this Act pursuant to Article 5, amounting to 10% of credit claims after the agreed maturity period and 2% of credit claims with an agreed maturity of more than one year, may be used to cover losses arising from the write-down or assignment of classified claims, or to transfer them to the status of adjustment items for specific classified claims, or to groups of claims with the same level of risk on that date. If the bank decides, the reserves created on that date of 2% may be transferred to the standard credit claims for more than one year to the agreed maturity period.
2. Reserves created by the date of application of this Act pursuant to Article 8 on claims on debtors in bankruptcy and settlement proceedings shall be transferred on that date to the status of adjustments to specific claims on debtors in bankruptcy and settlement proceedings.
3. The provisions of this Act shall apply for the first time for the 1995 tax period.
Zeman v. r.
1) § 24 (2) (i) of ČNR Act No. 586 / 1992 Coll., on Income Taxes.
2) § 29 paragraphs 1 and 4 of Act No. 563 / 1991 Coll., on Accounting.
3) § 25 (a) of ČNR Act No. 586 / 1992 Coll.
(3a) § 524 et seq. of the Civil Code, as amended.
4) Act No. 21 / 1992 Coll., on Banks.
5) § 24 paragraph 1 of Act No. 21 / 1992 Coll.
6) § 21 paragraph 1 of Act No. 21 / 1992 Coll.
7) Act No. 185 / 1991 Coll., on Insurance, as amended by Act No. 320 / 1993 Coll.
8) Decree of the Ministry of Finance No. 52 / 1994 Coll., which provides for the creation, use and location of technical provisions of the insurance undertaking.
9) § 2 of Decree No. 52 / 1994 Coll.
10) Paragraph 14 (1) (a) of Act No. 185 / 1991 Coll., as amended by Act No. 320 / 1993 Coll.
11) Paragraph 14 (1) (b) of Act No. 185 / 1991 Coll., as amended by Act No. 320 / 1993 Coll.
12) § 26 paragraph 2 of the ČNR Act No. 586 / 1992 Coll.
13) § 33 of ČNR Act No. 586 / 1992 Coll.
13a) Sections 116 and 117 of the Civil Code, as amended.
14) Act No. 96 / 1977 Coll., on Forestry Management and Government Administration of Forestry.
15) Act No. 44 / 1988 Coll., on the Protection and Use of Mineral Wealth (Upper Law), as amended.
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Regulation Information
| Citation | Full text of Act No. 213 / 1996 Coll., Act of the Czech National Council on Reserves for the Determination of the Income Tax Basis (full text as shown by later amendments and additions) |
|---|---|
| Regulation Type | Declared full text |
| Author | - |
| Collection | Code of Laws |
| Date of Promulgation | 02.08.1996 |
|---|---|
| Effective from | - |
| Effective until | - |
| Status | Valid |
The regulation text is for informational purposes only.
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