Decision and resolution of the Constitutional Court
Tax Alert, October 2013
Following the Decision and resolution of the Constitutional Court issued on 18 September 2013 on abolishment of the Article 16, paragraph 3 of the Act on amendments of the Personal Income Tax Act (Official gazette 22/12), which prescribes that withholding of tax prepayments on capital income is applied on “all dividend and shares in profit receipts which are paid from the date this Act was enforced with exception to dividends and shares in profit received based on capital shares realized until 31 December 2000 regardless of payout date”, Croatian Parliament published Act on amendments of Personal Income Tax Act at the session held on 27 September 2013 which will enter into force 8 days from being published in the Official Gazette.
Final proposal of the Act on amendments of the Personal Income Tax Act, available on www.sabor.hr, does not contain provision that would correspond to the provision form the abolished Article 16 of the Act (Official Gazette 22/12), however, Article 6 prescribes that provisions of the new Act are applied with respect to tax prepayments on income derived from dividends or shares in profit based on capital share on all payments of dividends and shares in profit made after the Act entered into force, according to the cash-based principle.
Croatian Government submitted two amendments on the final proposal of the Act on amendments of the Personal Income Tax Act (available on www.sabor.hr ) considering the Decision of the Constitutional Court. Respective amendments are included in the Act on amendments of Personal Income Tax Act, voted out by Parliament on 27 September 2013, which should be published shortly in the Official Gazette.
Respective amendments of the Final proposal, removed the wording „from profit realized after 31 December 2000“ from Article 6 and the amended Article 8 reads as follows:
"Irrespective of the Article 6 of this Act and Article 51 paragraph 4 of the Personal Income Tax Act if the decision on payout of dividend and shares in profit based on capital share is made in accordance with specific regulations, before this Act entered into force, and such dividends and shares in profit are not paid out by the date this Act enters into force, the regulations which were in force at the day when the decision was made will apply to payments of dividends and shares in profit, which the payer will evidence using trustworthy documentation."
Together with an explanation of proposed amendments, the Government refers to the reasoning provided in respective Constitutional Court Decision under which the right of any legal entity (tax payer) is to be fully familiarized, at the moment when the business decision on such payment (dividend or share in profit payment) has been made, with the way the public government will treat such income i.e. that such treatment has to be prescribed at that respective moment in terms of existence of respective tax and in terms of determination of its amount.
Decision of the Constitutional court on abolishment of the Article in the Act on amendments of Personal Income Tax Act regarding taxation of dividends and shares in profit