The law has been amended with effect from 1 August 1995 to allow a certain measure of tax relief for receivables which remain unpaid for a period of time and are likely to be to some extent irrecoverable.

According to the amendments, taxpayers are entitled to create various tax deductible provisions and adjustments, with first effect from the calendar year 1995. In general, relief is only available for debts of a trading nature, and the amount of relief available differs depending on the length of time the debt has been outstanding and the position of the debtor.

A 100% tax deductible adjustment can be created with respect to a receivable in the case of the debtor being in bankruptcy where the petition was filed in Court. Also, receivables which are uncollectible due to the specific reasons stated in the law can be 100% expensed.

For receivables which were due before 1 January 1995 not falling within the rules for 100% expensing it is possible to write off 10% of their value every year which results in the full relief over 10 years. For bad debts with due date after 31 December 1994, which cannot be 100% expensed it is possible to create adjustments in stages up to the amount of 100% of their value, if the conditions stated in the law are met.

In comparison with the past situation, these new provisions will significantly improve the availability for claiming tax deductions in respect of potentially irrecoverable debts. Businesses will be required to analyse their debt portfolio for accounting and tax purposes for the first time at the end of 1995 in order to assess the relief available. There are likely to be opportunities for tax planning in this area as the provisions are very broad.

The content of this article is intended to provide general information on the subject matter. It is therefore not a substitute for specialist advice.

For further information contact Paul Antrobus or Richard Fletcher, Arthur Andersen Prague, tel: +42-2-2440 1300, or enter text search "Arthur Andersen" and "Business Monitor".