Abstract
The difference between the technical provisions recorded in the accounts and the technical provisions created on the basis of the Solvency II Directive has become subject to a one-off taxation to be implemented over two taxation periods, namely during 2020 and 2021. The taxation of the technical provisions is set up in such a way that half of the decrease between the new (solvency) and the accounting provisions created is added to the economic result for 2020, and the same is done in relation to 2021.
Until the entry into force of the amending Act No 364/2019 Coll., the technical provisions were tax deductible in the amount recognised in the accounting. However, from 2020 onwards, only technical provisions created on the basis of the Solvency II Directive are tax deductible, while accounting provisions, although still retained in the accounts, are no longer relevant from a tax perspective, which means that they must be dissolved and taxed.
Insurance companies calculate their technical provisions in accordance with the Directive for reporting purposes to the supervisory authorities. As regards their level, the provisions under the Solvency II rules are significantly lower than the accounting technical provisions, the level of which is determined by the insurance undertakings themselves on the basis of an assessment of the insurance risks.
The applicability and constitutionality of the abovementioned amending law has been in serious doubt from the outset, which led to a constitutional complaint against it by a group of Members of Parliament. The Constitutional Court, however, did not deal with the substance of technical provisions in the insurance sector and rather focused on the legality of the legislative process and the possible choking effect on insurance companies.
However, the related arguments were rather complementary in nature. The Constitutional Court rejected the complaint, inter alia, on the grounds that negative effects that could be perceived as unconstitutional could only be perceived in an individual case.
At the same time, the law has retroactive effects, which, however, the Constitutional Court found to be permissible false retroactivity. The discriminatory nature and ambiguity of this legislation can best be demonstrated in the case of branches of foreign insurance companies on the one hand, and foreign branches of domestic insurance companies on the other.
One of the traditional principles of tax law is in dubio mitius, i.e. that in the event of an ambiguous interpretation of a norm, an interpretation in favour of the tax subject should be applied.