Tax Alert, December 2019
Law on amendments to the Law on Corporate Income Tax has been adopted
We hereby wish to inform you that Law on changes and amendments to the Law on Corporate Income Tax (the Law) has been adopted by the National Assembly of the Republic of Serbia on 6 December 2019, and will apply starting from corporate income tax calculation for 2020, or for tax periods commencing in 2020, except for rule referring to deductibility of expenses for banks incurred in line with the legislation on conversion of house loans indexed in CHF, which will be applicable for 2019 corporate income tax calculation.
Changes and amendments will be discussed in more detail in the text below. For any questions regarding the implementation of the changes and amendments to the Law, you can contact Milica Stublincevic, ACCA and Slobodanka Kolundzija, LL.M., Managers in the tax department on the following e-mail addresses: email@example.com and firstname.lastname@example.org
Country by country reporting – compliance with requirements of OECD BEPS Action plan 13
One of the most important novelties in the Law is the introduction into the Serbian tax legislation of country-by-country reporting.
Namely, (only) those resident taxpayers who are considered to be the ultimate parent entities of international groups of related legal entities will be obliged to submit to the relevant tax authority the annual report on controlled transactions of the international group of related legal entities (i.e. country-by-country report), which will contain data (overview of tax jurisdictions in which group members are located, the sum of income per jurisdiction, number of employees, etc.) for the business year for which that entity is obliged to prepare its financial statements. The obligation to prepare the CbC report will come into force from 2020 and the annual reports will be submitted within 12 months of the end of the period for which such report is prepared.
A bylaw is expected to be adopted that will provide additional information on the type of data which the report should contain, as well as the information regarding the format of the CbC report (which is expected to be aligned with the format prepared at the OECD level).
The purpose of the CbC reports is to be exchanged automatically with other tax jurisdictions. Considering that Serbia has not concluded any agreement on automatic exchange of CbC reports, such an exchange is not possible at the moment. However, such agreements are expected to be concluded in the coming period, allowing full implementation of the recommendations of the BEPS Action Plan 13 and alignment with OECD requirements.
An overview of the basic definitions related to country-by-country reporting is found below:
1. An international group of related legal entities is a group of entities that are related by ownership or control in terms of IAS or IFRS, and whose total consolidated revenue, reported in the consolidated financial statements for the period preceding the reporting period, is at least EUR 750 million in RSD equivalent at the middle exchange rate of the National Bank of Serbia at the date of adoption of the consolidated financial statements, and
1) one or more group members are required to prepare, present, submit and disclose consolidated financial statements in accordance with IAS or IFRS, or would be obliged to do so if they were a legal entities whose shares are traded on a regulated market in the Republic or outside the Republic, and
2) in which at least one legal entity is a resident of another tax jurisdiction as compared to other members of the international group, or at least one legal entity is a resident of one tax jurisdiction and is subject to taxation in another tax jurisdiction on the basis of conducting business through a permanent establishment.
2. A resident taxpayer shall be considered to be the ultimate parent entity of an international group if:
1) directly or indirectly has ownership or control over one or more legal entities, members of an international group, that creates an obligation to prepare, present, submit and disclose consolidated financial statements in accordance with the requirements of IAS or IFRS, or, which would have such an obligation when it would be a legal entity whose shares are traded on a regulated market in the Republic or outside the Republic, and,
2) there is no other legal entity within the international group which directly or indirectly owns or controls that entity, and which has the obligation referred to in the preceding paragraph.
Harmonization with the Law on Conversion of Housing Loans indexed in Swiss francs (CHF)
The amendments are as follows:
1. The decrease of receivables toward housing loan beneficiaries is tax deductible at the bank’s level in the amount determined in accordance with the Law on Conversion of Housing Loans.
2. Taxpayer – a bank is entitled to a tax credit in the amount of 2% of the remaining debt determined in accordance with Article 4, paragraph 2 of the Law on Conversion of Housing Loans indexed in Swiss francs (i.e, the debt whose conversion was made). The taxpayer uses the tax credit for two consecutive tax periods, in the amount of 50% of the tax credit calculated, while the unused tax credit amount can be carried forward, but not longer than ten years.
Introduction of tax incentives for investment funds
The amendments are as follows:
1. Revenue of resident taxpayer, established in accordance with the regulations governing investment funds, realized on disposals of assets covered by the capital gains provisions of the Law, shall not be included in the tax base.
2. Taxpayer, established in accordance with the regulations governing investment funds, does not determine capital gain or loss, in accordance with the Law.
Other amendments include:
1. The right to use tax credit related to withholding tax on service fee paid in other country for services performed in that other country.
2. The manner of applying the tax incentive referred in Article 50a of the Law, for fixed assets – taxpayer use tax incentive starting from the tax period in which accounting profit was made, not taxable profit.
3. The provisions regarding tax consolidation are specified, thus it is clearly stated that legal entities that cease to meet the requirements for tax consolidation before the expiry of the five-year period, or have opted to cease applying tax consolidation, need to include in the tax return, which is filed for the tax period in which the conditions for tax consolidation cease to exist, the amount of the incentive used.