Tax & Legal Updates

SUMMARY

NEWS

• Changes in the Value Added Tax Act in relation to tax-exempt transactions
• Obligation to disclose information about the beneficiary owner of the company

PRACTICAL and USEFUL

• Auditor gives 5 important steps on how to prepare for audit
• Tax authority calls or writes an e-mail? How to proceed?
• The store owner's pledge - what is it and what do you need to know?
• Protection of trade secrets regulated more uniformly in the EU level

Guidelines given by authorities and court cases

• Tax authority releases guidelines on how to remunerate owner, board member(s) and employee(s) and how to tax              the remuneration
• Supreme Court: Tax and Customs Board must pay interest on offsetting without legal basis
• Supreme Court: The tax liability can not be determined on the basis of an indefinable expense statement.
• Supreme Court: the importance of the purpose of the acquisition of immovable property
• Circuit Court: The deposit interest rate can be used as comparable rate for the remuneration of financial transactions between related parties

PLANNED LEGISLATION

• Planned amendments to Taxation Act
• Planned amendments to Value Added Tax Act regarding vouchers, electronic services and simplified import procedures
• Planned amendments to Income Tax Act to include several anti-avoidance measures

NEWS

As of 1.05.2018, there are changes in the Value Added Tax Act regarding tax-exempt transactions.

• Additional five services were added to the list of tax-exempt social services.
• The transfer of a unit of greenhouse gas emissions and transactions related to such securities are taxed at a rate of 20% VAT.
• Some products that have not been subject to tax fraud have been excluded from the list of domestic reverse-charge metals.
• Claims for invoices submitted for a national reverse charge transaction.

Obligation to disclose information about the beneficiary owner of the company

As of 1.09.2018 there will be an obligation to disclose the information of the beneficial owner of the company to the commercial register. The data of the beneficial owner must be submitted together with the application for entry in the commercial register. In case of changes in the submitted data, new data must be submitted within 30 days. If the data of the beneficial owner has not changed, the accuracy of the data is confirmed upon submission of the annual report.

More information: Liisu Lell, Deloitte Advisory, Leading Tax Advisor, llell@deloittece.com

PRACTICAL and USEFUL

• Auditor gives 5 important steps on how to prepare for audit

Financial audit is mandatory for many companies and, with some companies, it is voluntarily carried out at the request of the owners. In any case, this could be a process that is efficiently planned for both parties, both the company's financial manager / accountant and the auditor, to manage the workload optimally. Monika Peetson, on the basis of her practice, provides some keywords and suggestion on how to prepare for the audit. The suggestions are briefly as follows:

• Concluded contract between the audited company and the auditor stating the rights and obligations of the parties
• Establishing direct contacts for better communication
• Preparing a plan for better cooperation
• Setting up agreements on how to exchange financial data
• Issuing pre-authorization list for documents needed for financial audit

Article: http://www.raamatupidaja.ee/uudised/2018/04/06/5-olulist-sammu-auditiks-valmistumisel (in Estonian)

More information: Merli Oago, Deloitte Audit, Auditor, moago@deloittece.com

Tax authority calls or writes an e-mail? How to proceed?

The existing Taxation Act does not regulate the tax authority’s contact without starting the tax audit and therefore the related rights and obligations for both parties. It is therefore reasonable to consult with a tax advisor or lawyer at the time being. In addition to consulting with an expert, it is good to keep in mind some suggestions for communication with the tax authorities.

• Right of security of depositary - what is it and what you need to know?

Right of security of depositary - first, it looks distant and boring, right? At least that's what I thought. However, within the recent experience from legal advising, it can be said that the practicing the right of security of depositary may become unexpectedly passionate and tense.

• Protection of trade secrets regulated more uniformly in the EU level

In 2016, a new directive (EL) 2016/943 for the protection of trade secrets against their unlawful acquisition, use and disclosure has been adopted in EU level. Baker & McKenzie research (2013) made on the preparation of the directive indicated, that member states protect trade secrets on different levels either through competition law, intellectual property rights, employment law or through other legal frameworks.

Under Estonian laws, trade secrets are not protected as intellectual property rights. The prohibition of unfair competition enacts also misuse of confidential information, but the protection of rights of the owner of knowledge is not protected efficiently though this concept.

For defining the meaning of the trade secrets, Estonian National Court has referred to the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement), which concept of the trade secret has been taken over to the new directive. Under the directive, the trade secrets are treated as valuable know-how and business knowledge, which is not published and which is aimed to be kept as confidential. The directive describes the situations where the acquisition of trade secrets is lawful (including the reverse engineering) or illegitimate. In addition to the compensation of damages, at the request of the trade secret holder, the competent authorities may take provisional and precautionary measures against the alleged infringer, which includes also the prohibition of the production, offering or use of infringing goods for those purposes.

The article further analyses the criminal offence for the unjustified disclosure and use of business secrets under Penal Code, depending if the trade secrets are treated as a confidential information or the ownership.

More Information: Kristiina Stokkeby, Deloitte Advisory, Tax Advisor, kstokkeby@deloittece.com

FULL ARTICLE IS AVILABLE HERE

GUIDLINES GIVEN BY AUTHOROTIES AND COURT CASES

• Tax authority releases guidelines on how to remunerate owner, board member(s) and employee(s) and tax the remuneration.

The guidelines can be found: https://www.emta.ee/et/ariklient/tulu-kulu-kaive-kasum/muudatused/kuidas-osauhingu-osaniku-juhatuse-liikme-ja-tootaja

• Supreme Court: MTA undertakes to pay interest on offsetting without legal basis

The Supreme Court confirms the obligation to pay interest to the taxpayer for compensating for the damage that a taxpayer may incur if the tax authority’s decision required taxpayer to pay a higher tax amount than was stated in the tax law.

• Supreme Court: The tax liability can not be determined on the basis of an indefinable expense statement.

The Supreme Court decided that tax authority cannot assume that the costs incurred are non-business expenses just because the original document is unreadable.

• Supreme Court: the importance of the purpose of the acquisition of immovable property

The Supreme Court stated that the lawful use of the apartments in the building could not always lead to the correct outcome in the context of the Value Added Tax Act in distinguishing between residential and non-residential premises. The taxpayer must be given the opportunity to clarify and present evidence to show that the apartment was acquired for use in economic activities.

• Circuit Court: depositing funds into group account is comparable to depositing money (at bank) rather than granting a loan

The Circuit Court was in a position that the transactions would correspond not to the ordinary loan, but to the money deposited on the deposit account at commercial bank.

More information: Eeva Pajuviidik & Marta Mägi, Law Firm Deloitte Legal, Lawyers, epajuviidik@deloittece.com & mmagi@deloittece.com

PLANNED LEGISLATION

 Planned amendments to Taxation Act

• To clarify the concept of tax debt and expand the composition of public data.
• The regulation will be changed so that in certain cases the tax interest can be considered as a business expense.
• Differentiation between tax audit and individual case audit will be eliminated. There will be one  type of tax control.
• Possibility of collecting tax arrears from a person who actually leads a company.
• Submission of additional data in the register of employment
• Changes in the procedure for collecting the tax liability by the agreement.
• In the area of cross-border exchange of information, the anti-infringement regulation will be strengthened.
• Planned amendments to Value Added Tax Act regarding vouchers, electronic services and simplified import procedures

The taxation of voucher's has not been harmonized at the level of the European Union (EU) yet, it would be important to regulate this area in order to avoid double taxation or non-taxation.

The requirement that at least 50% of the taxpayers turnover has to be taxable with 0% of VAT is abolished. Instead, an requirement for impeccable business reputation is added.

It is planned to simplify the procedure for taxing the turnover of electronic communications services and electronic services. For this purpose, a threshold of EUR 10 000 for services rendered for cross-border services is established, from which the place of supply of services is deemed to be the consumer's country of residence. Until the limit is reached, the company has the right to comply with the rules of its Member State of incorporation.

• Planned amendments to Income Tax Act to include several anti-avoidance measures

Main amendments come from the EU Anti-Tax Avoidance Directive and include rephrasing and broadening the scope of general anti-avoidance clause, thin capitalization rules, exit taxation and controlled foreign company rules.

More information: Liisu Lell, Deloitte Advisory, Tax Advisor, llell@deloittece.com