Tax Alert, August 2016

New Ministry of Finance Rulings and a Decision of the Commercial Appellate Court

Several Ministry of Finance rulings have been published in the past period, aimed at clarifying and elaborating on the implementation of provisions of the Law on Value Added Tax (hereinafter “VAT law”) and Law on Corporate Income Tax. Additionally, one Commercial Appellate Court Decision was published, aimed at clarifying the implementation of provisions of the Law on Tax Administration and Tax Procedure.

Value added tax

Determining the VAT debtor for services of installing temporary electrical systems for festivals

When a VAT payer performs the supply in the field of construction to another VAT payer, referring to installation of electrical systems in all kinds of buildings, the tax debtor for such a supply is the recipient of goods, i.e. services, since these activities are listed in activity code 43.21 – Electrical installations.

However, when it comes to installing temporary electrical systems for festivals, the tax debtor for such a supply is a VAT payer performing the supply.

(Ministry of Finance Ruling, no. 430-00-208/2016-04 as of June 1^st 2016)

Determining the VAT debtor for repairing water supply equipment – water meters and water pumps

When a VAT payer performs the supply in the field of construction to another VAT payer, referring to repairing water supply equipment – water meters and water pumps, provided that these are not minor repairs, the tax debtor for such a supply is the recipient of services, since these activities are listed in activity code 43.22 – Installations of water supply, sewage, heating and air conditioning systems.

However, when it comes to minor repair activities (e.g. replacement of auxiliary parts), the tax debtor is a VAT payer performing the supply.

(Ministry of Finance Ruling, no. 011-00-00075/2016-04 as of June 1^st 2016)

Reducing the VAT tax base and the amount of computed VAT for (a portion of) outstanding compensation

The VAT payer who performed the supply of goods and services which are subject to VAT may change the VAT tax base and the amount of computed VAT for (a portion of) outstanding compensation for delivered goods or provided services, only based on a court decision on concluded bankruptcy proceedings or based on a certified transcript of court minutes following a court settlement.

However, based on the concluded "settlement" in the form of public notary record after ending the civil and enforcement procedure, VAT payer - the creditor cannot reduce the VАТ tax base and amount of computed VAT for (a portion of) outstanding compensation.

 (Ministry of Finance Ruling, no. 413-00-00142/2016-04 as of June 2^nd 2016)

The obligation to pay VAT which was mistakenly computed for VAT exempt supplies 

When a VAT payer mistakenly computes VAT for VAT exempt supplies and states the computed VAT in the invoice which was issued for that supply to another VAT payer, the VAT payer – service provider should pay the stated VAT, until the issuance of the new invoice.

Considering that a VAT payer has no obligation to issue an invoice according to the Article 42 of the VAT law for supplies which are VAT exempt in accordance with Article 25 of the VAT law, but may an issue for that supply invoice in accordance with VAT law, VAT payer which issued an invoice with stated VAT for such supplies, may correct the VAT amount if a new invoice is issued to a VAT payer in accordance with the VAT law (in which a VAT payer should state the provision of VAT law based on which the VAT is not computed)

 (Ministry of Finance Ruling, no. 011-00-525/2016-04 as of June 23^rd 2016)

Determining the VAT debtor for the supply involving delivery and installation of equipment for mini hydropower plants

The delivery with installation, i.e. installing equipment for mini hydropower plant that are integral part of the facility of hydropower plant (equipment incorporated in facility, which means it cannot be moved from place to place without damaging), e.g. turbine and generator, is considered to be supply of goods and services in the field of construction, thus the tax payer for the said supply is VAT payer – recipient of goods and services.

 (Ministry of Finance Ruling, no. 011-00-00521/2016-04 as of June 27^th 2016)

Determining the VAT tax base in case when a subcontractor claims the costs of the loan from a third party investor

When a subcontractor supplies goods and services to the main contractor, whereby the subcontractor does not claim the costs of a bank loan (interest, etc.) from the main contractor, but from the investor with whom the main contractor has concluded construction agreement, the costs in question are considered to be a portion of the remuneration (excluding VAT), i.e. a portion of the tax base, realized by the subcontractor from the investor for the supply performed by the subcontractor to the main contractor.

In this regard, if such costs are claimed after invoice issuance for the supply performed by the subcontractor to the contractor, it is considered as an increase of a tax base.

 (Ministry of Finance Ruling, no. 430-00-127/2016-04 as of June 27^th 2016)

Tax administration and Tax procedure

Interrupting the statute of limitation

The statute of limitation for a tax liability is not interrupted by a notice for the payment of tax, but by issuing a written decision on enforced tax collection.

(Commercial Appellate Court Decision, Pž 1873/2015 as of May 5^th 2016)

Corporate income tax

Withholding tax on royalties received from Serbian branch

When a nonresident legal entity realizes revenue based on royalties from a branch operating in Serbia (regardless of whether it is its own branch or the branch of another nonresident legal entity), such revenue is not subject to withholding tax or to tax by assessment.

(Ministry of Finance Ruling, no. 430-00-116/2016-04 as of June 6^th 2016)

Withholding tax on air transportation service fees in international air traffic

When a nonresident legal entity realizes revenue from a resident legal entity based on the air transportation service fee in international air traffic, such revenue is not subject to withholding tax, since the transportation service was not provided, i.e. used in Serbia.  

(Ministry of Finance Ruling, no. 011-00-320/2016-04 as of June 6^th 2016)

Evidence confirming that the nonresident is a beneficial owner of the income

Regarding the evidence which a nonresident legal entity should submit to the payer of income (a Serbian resident) to confirm that it is a beneficial owner of the income, it is considered that any authentic document may be submitted as evidence (of beneficial ownership of income) based on which (as a rebuttable presumption) it may be determined unequivocally (or with a high degree of probability) that the income is attributed to that entity, i.e. that a nonresident may dispose of the income independently and without any restrictions (e.g. regarding the obligation of forwarding the income to another person) (e.g. copy of the contract, a copy of invoice, an authorized copy of the registration authority, a report on the services performed, etc.).

(Ministry of Finance Ruling, no. 337-00-232/2016-04 as of May 27^th 2016)