Tax Alert, March 2016

New Ministry of Finance rulings

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 the Law on Corporate Income Tax (hereinafter: CIT Law). The following have been selected:

Withholding tax on market research, agency, tax advisory, advertising, consultancy and marketing services

Income realized by a nonresident company from a resident company from services (e.g. market research services, marketing services, agency services, consultancy services, tax advisory services, advertising services) is subject to withholding tax, when the use of the service in question is connected to the resident company’s business activities in Serbia.

However, income realized by a nonresident company from services supplied or used outside of Serbia, such as payment operation services, the use of payment cards outside of Serbia or hotel services provided to individuals employed by a Serbian company during business trips abroad, as well as fees from roaming services, is not subject to withholding tax.

(Ministry of Finance Ruling, no. 011-00-209/2016-04 from March 10^th 2016)

Withholding tax on services supplied by a nonresident bank

The fee received by a nonresident company (cards issuer) from a resident bank for services which are directly connected with the use of the bank’s payment cards abroad or for payments performed abroad (by the bank’s client) are not subject to withholding tax, considering that the services in question are not provided in Serbia. However, when a nonresident company realizes income from a resident company for services that are directly connected to the use of payment cards in Serbia, or for payment made in Serbia, that fee is subject to withholding tax.

Fees received by a nonresident company from a resident bank for services involving the transfer of funds, account management, delivering reports, complaints, etc. as well as fees for providing agency services in trading securities on foreign security markets as well as services involving the clearing and custody of securities, etc. (directly connected with the trading of securities on foreign markets) are not subject to withholding tax considering that the relevant services are not provided or used in Serbia.

(Ministry of Finance Ruling, no. 011-00-239/2016-04 from February 26^th 2016)

Determination of the corporate income tax base when a taxpayer states in its business records income from the reduction of a liability for interest on a related entity loan

In case when a taxpayer states in its business records (in accordance with accounting regulations and the relevant IAS and IFRS) income from the reduction of a liability for interest on a related entity loan, such income is included in the corporate income tax base, since the CIT Law does not prescribe the possibility of reducing the tax base for such income.

(Ministry of Finance Ruling, no. 413-00-250/2015-04 from March 2^nd 2016)

Transfer pricing calculation when a taxpayer purchases fixed assets from abroad through a related entity, which provided importation services

When a taxpayer purchases fixed assets via a one-off related entity transaction, whereby the value of transaction (comprising the purchase price of the fixed asset, determined in accordance with accounting regulations) is not higher than the value of the mandatory VAT registration threshold, the taxpayer is not obliged to determine the arm’s length price of the asset in question (for depreciation purposes).

Additionally, when a taxpayer purchases a fixed asset via a related entity transaction, whereby the sum of all transactions performed during the same tax period with the same related entity does not exceed the value of the mandatory VAT registration threshold, the taxpayer is not obliged to determine the arm’s length price of the asset in question (for depreciation purposes), considering that in this case (as well as in the previous one) conditions are met for the submission of the abbreviated report.

(Ministry of Finance Ruling, no. 430-00-00066/2014-04 from March 2^nd 2016)

Applicability of tax relief for investments in fixed assets in amounts exceeding RSD 1 billion used for activities listed in a company’s articles of association or similar document

The tax relief applies when a taxpayer invests by purchasing agricultural land (registered in taxpayer’s business records as a fixed asset), which, together with other fixed asset investments during the mentioned tax period exceeds RSD 1 billion and which are (exclusively) used for activities listed in the articles of association (e.g. activity code 01.11 growing of cereals (except rice), leguminous crops and oil seeds). If a taxpayers uses only part of the purchased lands for the purposes of its main activity (provided by articles of association), the tax relief is granted for the investment amount corresponding to the aforementioned part of the land.

(Ministry of Finance Ruling, no. 011-00-1304/2015-04 issued from March 3^rd 2016)

VAT treatment when the delivery of each item of the assets being transferred is considered as a separate supply

When a VAT payer transfers a part of its assets to foreign company which is not a Serbian VAT payer, whereby the assets are comprised of moveable goods - technological equipment, the delivery of each item of property being transferred is considered as a separate supply. The VAT treatment of such supplies is determined in accordance with the VAT Law. For these purposes, it is irrelevant whether the foreign company shall subsequently register a branch in Serbia, which will be registered for VAT.

(Ministry of Finance Ruling, no. 011-00-187/2016-04 from February 23^rd 2016)

The reduction of the VAT base based on a contractual out of court settlement

A VAT payer performing the supply of goods and services may reduce the VAT base only based on a final court decision on finalized bankruptcy proceedings or based on a certified transcript of courts record of a court settlement. Therefore, a VAT payer cannot reduce the VAT base based on a contractual out of court settlement.

(Ministry of Finance Ruling, no. 011-00-00329/2015-04 from February 9^th 2016)

VAT liability when a VAT payer provides engineering services to a foreign entity

When VAT payer provides engineering services, i.e. services of technical and mechanical control, testing, analysis and selection of parts (which are afterwards installed in vehicles by a third party) to foreign entity – parts manufacturer without a seat or permanent establishment in Serbia, the place of supply is deemed to be abroad. Accordingly, the service fee is not subject to VAT and the VAT payer is entitled to claim input VAT.

(Ministry of Finance Ruling, no. 430-00-44/2016-04 from February 23^rd 2016)

VAT liability when a VAT payer provides agency services for the supply of goods sent or dispatched from abroad to Serbia.

When a VAT payer provides agency services for the supply of goods sent or dispatched from abroad to Serbia or to another country, the fee for such services (agency fee) is not subject to VAT, since the place of supply of goods and therefore the place of supply of services is not in Serbia. Based on the provision of such services, a VAT payer has the right to claim input tax in accordance with the VAT Law.

(Ministry of Finance Ruling, no. 011-00-74/2016-04 from March 1^st 2016)

The right to claim input VAT computed by a VAT payer whose TIN is temporarily seized

When a VAT payer receives an invoice from a previous supply participant, whose TIN was temporarily seized, during which time the invoice was issued, the VAT payer - recipient of goods or services is not entitled to claim input VAT, since the issued invoice is not in accordance with the VAT law. Information on temporarily seized TINs is available on the official website of the Tax Administration.

However, if notice that the VAT payer’s TIN was temporarily seized was not made public and available to the VAT payer - the recipient of goods or services, it is our opinion that in this case the fact that the invoice was issued by a VAT payer whose TIN was temporarily seized cannot constitute a basis to refuse the right to claim input VAT.

(Ministry of Finance Ruling, no. 413-00-49/2016-04 from March 9^th 2016)

Date of supply for partial deliveries of goods and services in the construction industry, when the presence of a supervisory authority is mandatory

In case of a partial delivery of good and services in the construction industry (for which an interim payment certificate is issued), and when the presence of a supervisory authority is mandatory or when the contractor has, at his own discretion, hired a supervisory authority, the supply of goods and services is considered to be performed when the interim payment certificate is certified by the supervisory authority.

However, when there is no obligation to hire a supervisory authority, and the investor did not, at his own discretion, hire a supervisory authority, the supply of goods and services in the construction industry is considered to be performed on the day the interim payment certificate is issued.

(Ministry of Finance Ruling, no. 011-00-00165/20169-04 from February 9^th 2016)

Reduction of the VAT base when the customer returns certain goods due to poor quality

When a VAT payer, engaged in the manufacture of aluminum, delivers goods to another VAT payer, after which the buyer returns certain goods (due to poor quality), along with a special written report, it is considered that a reduction of the VAT has been performed. In that case, the VAT payer - seller can reduce the amount of calculated VAT if the VAT payer - buyer reduces the amount of claimed input tax and informs the seller in writing.

(Ministry of Finance Ruling, no. 430-00-4/2016-04 from February 5^th 2016)

Contents of an invoice when the supplier is a tax debtor for one part of the supply and the recipient is a tax debtor for the other part of the supply

In case of a supply within which the supplier is a tax debtor for one part of the supply and the recipient is a tax debtor for another part of the supply, the VAT payer performing the supply issues an invoice in which he separately states data for the part of the supply for which that seller is the tax debtor, while separately stating data for the part of the supply for which the recipient is the tax debtor.

(Ministry of Finance Ruling, no. 430-00-522/2015-04 from December 21^st 2015)

The obligation to issue a fee reduction document as per Article 15 of the Rulebook on invoices as a condition for the reduction of the tax base and calculated VAT

Where a supply of goods or services was performed to another VAT payer, who does not have the right to claim input VAT for the supply at hand, or to a person who is not a VAT payer, it is necessary to issue a fee reduction document as per Article 15 of the Rulebook on invoices in order to reduce the tax base and calculated VAT.

(Ministry of Finance Ruling, no. 413-00-254/2015-04 from January 18^th 2016)

The right to claim input VAT based on a newly issued formally correct invoice

When a VAT payer has issued a formally incorrect invoice, based on which another VAT payer has claimed the right to input VAT, which was challenged during a tax audit, after which a new, formally correct invoice was issued, the latter VAT payer may, following the tax audit, claim the right to input VAT based on this newly issued invoice. However, the date of issuance for this new invoice should be date when this new invoice was issued, and not the date when the formally incorrect invoice was issued.

(Ministry of Finance Ruling, no. 011-00-1328/2015-04 from January 15^th 2016)