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From judicature

Estimated items – employee bonuses

The Supreme Administrative Court (“SAC”) ruled on 31 March 2011, Ref. No. 8 Afs 35/2010-108, that the costs of employees’ annual bonuses shall be applied as tax deductible costs in the taxation period in which the bonus was provided and the legal claim to such bonus arose.

The SAC stated that in case of bonuses representing a non-claimable portion of a wage, it is impossible to account such bonuses as estimated liabilities and thus reduce the tax base in the relevant taxation period, since a claim to a bonus provided to employees has not yet arisen. According to the SAC, a non-claimable portion of a wage exists in the event that the amount and the factual provision thereof depends on the employer’s special decision to give this portion of the wage (such as approval of bonuses by the determined person, etc.). The SAC noted that estimated liabilities could be generally accounted only in a situation when the accounting unit is aware of the existence of costs incurred in connection with performance that has already been rendered, no dispute exists in respect of such performance and the tax costs incurred in connection with such performance and the accounting unit merely does not have a document that would allow accounting for the relevant amount of the liability arising from a tax deductible cost.  If, however, the conditions for creation of an estimated item are not fulfilled, it is possible to create a reserve for payment of bonuses. Such reserve, however, does not constitute a tax deductible cost. (www.nssoud.cz).

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