Case studies

Law on Amendments of the Income Tax Act

Tax Alert, April 2013

The Resolution of the Constitutional Court of the Republic of Croatia on the temporary suspension of the application of certain provisions of the Law on Amendments of the Income Tax Act (Official Gazette 22/12).

Constitutional Court of the Republic of Croatia ("CCRC") has issued on 3rd April 2013 a resolution suspending the execution of all individual acts and actions of the Croatian Tax Administration and other addressees concerning the collection of income tax from all income taxpayers, who realized their income on the basis of dividends and/or profit shares derived out of equity, achieved by the entry into force of the Law on Amendments to the Law on Personal Income Tax OG 22/12 ("LALPI/12").

LALPI/12 came into force on 01 March 2012, and lays taxation of all incomes amounts exceeding the HRK 12,000 annual threshold, generated after 31 December 2000 and paid on the basis of dividends or on the basis of equity participation.

Croatian Employers' Association ("CEA") filed on 11th September 2012. with the CCRC Motion for a review of the LALPI/12 constitutionality since CEA believes that the LALPI/12 is discriminatory. The Motion of the CEA further specifies that the disputed provisions LALPI/12 violated a number of constitutional principles such as the prohibition of retroactive effect of law, the principle of proportionality, the principle of non-reduction of acquired rights on the basis of capital investment and the principle of equality and fairness of the tax system.

CCRC Resolution is an interim measure i.e. and means that the disputed provisions will not apply until the final decision of the CCRC on LALPI/12 conformity with the Constitution, which means that the relevant national authorities (tax authorities) will need to refrain from applying the disputed LALPI/12 provisions (assessment and collection of tax liabilities arising from the disputed provisions of LALPI/12) until the final resolution of this case. CCRC believes that the disputed provisions and LALPI/12 in general, raise a number of serious issues that require detailed examination of fundamental constitutional values and protected constitutional benefits.

It is important to emphasize that the CCRC decision does not in any way prejudge the final decision of the CCRC in this matter, which will be made after the full implementation of the constitutionality review process.

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