Amendments to the General Tax Act

Tax Alerts, March 2015

Amendments to the General Tax Act (“Amendments”) were adopted during the Parliament session of 27 February 2015 and published in the Official Gazette no. 26/2015.

The most significant amendments enter into force on 17 March 2015. They include the introduction of binding opinions, supplement to the conditions and deadlines for the correction of tax returns and extension of scope for banning taxpayers from performance of their business activity. The Amendments also introduce the concepts of administrative contract and tax settlement into the Croatian tax system and define the authority of the Independent Sector for Detection of Tax Fraud (a new organizational unit within the Croatian Ministry of Finance).

We enclose an overview of these amendments.

Tax Administration’s binding opinions

The Amendments allow the Tax Administration to issue binding opinions on the tax treatment of future transactions for a fee. Details on the application, methods, deadlines and fees will be prescribed by subsequent regulations.

The Tax Administration’s previous practice was to issue opinions upon a taxpayer’s request. Such opinions were not binding for the Tax Administration or the taxpayer. With the introduction of the binding opinion concept, following good faith principle, an additional level of certainty will be available to the taxpayers.

Correction of tax returns

Correction of tax returns upon request of the Tax Administration is introduced. If the Tax Administration identifies discrepancies during the tax procedure, it may request taxpayers to correct their returns. This approach will allow voluntary settlement of tax liabilities. It the taxpayer does not act upon such a request, the Tax Administration will open a tax audit.

The obligation to correct the return within 15 days from the enforceability of the resolution, when the facts specified therein trigger necessary correction of the return outside of regular deadlines, is also introduced. Regular correction can be made within the 12 months from the deadline for filing of the return.

The Amendments also envisage correction of tax returns due to direct application of the EU legislation. Such corrections can be made within the deadline provided by the statute of limitations prescribed by the relevant EU laws. Direct application of the EU laws will extend the deadlines for correction of the returns used to report data at the EU level (for example the returns holding data relevant for the VIES database). Implementation of this provision will be prescribed by subsequent regulation.  

Banning taxpayers from performance of their business activity

The General Tax Act already prescribes that the Tax Administration may ban a taxpayer from performance of its business activity when: it declines to cooperate during the tax procedure, does not respond to the invitation of the Tax Administration or does not allow a tax audit. The application of this penalty is now extended to the following cases:

  • When the taxpayer does not issue invoices 
  • When it does not declare cash supplies of goods and services through a fiscal cash register or another appropriate medium
  • When it does not keep tax relevant business records

Administrative contract and tax settlement

The Amendments prescribe that the Tax Administration and the taxpayer may contractually settle the outstanding tax liability.
The Tax Administration and taxpayers will also be able to settle the liabilities assessed during a tax audit. The settlement must be agreed before delivery of the tax audit minutes. The prerequisite for the settlement is the taxpayer’s acceptance of the liability and waiver of its right to use legal remedies.

Authority of the Independent Sector for Detection of Tax Fraud

The Independent Sector for Detection of Tax Fraud is responsible for collection, control, analytical processing and exchange of tax relevant information. The Amendments authorize it to carry out activities related to collection and assessment of tax and application of double taxation treaties jointly with the Tax Administration and the Customs Administration.

Other significant amendments

  • Previous provisions on confidential data did not include situations when the Tax Administration exchanges data with its counterparties in other Member States and with the US institutions on the basis of FATCA. They were amended accordingly.
  • The Tax Administration may now, upon taxpayer's request electronically deliver tax documentation.
  • The Amendments align stipulations on the return to the previous state with the wording of the General Administrative Procedure Act. The procedure will be based on a proposal (replacing a request) and will be settled by a resolution (replacing a minutes). 
  • Statistical reports will have to be filed for the purpose of tax fact assessment. More detailed regulations will elaborate on the exact administrative requirements. Taxpayers that do not file such statistical reports to the Tax Administration may be subject to a penalty of HRK 2 – 200 thousand.
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