Tax Alert, September 2016
New Ministry of Finance Rulings and the Appellate Court Judgement
New Ministry of Finance Rulings and the Appellate Court Judgement
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”), Law on Corporate Income Tax (hereinafter “CIT law”), Law on Personal Income Tax (hereinafter “PIT law”) and Law on Tax Procedure and Tax Administration. Additionally, one Judgement of the Appellate Court was published, aimed at clarifying the implementation of provisions of the Criminal Law.
Value Added Tax
The place of supply for services provided to a Serbian representative office of a foreign entity
When a VAT payer performs the supply of services to a representative office of a foreign entity in Serbia, specifically services for which the place of supply is determined according to the place in which the service recipient performs its activity or has a business unit for which the service is provided, or the place in which the service recipient has its permanent residence, the place of supply for such services is Serbia.
(Ministry of Finance Ruling, no. 011-00-00377/2016-04 as of June 15th 2016)
The obligation to compute VAT when the actual quantity of goods and the quantity of the same goods, determined according to certain standards, differ
Bearing in mind that the quality, i.e. characteristics of certain goods (e.g. wheat) are determined according to certain standards (SRPS) and that the comparison of quality, i.e. characteristics of certain goods with the quality, i.e. characteristics foreseen by the standard may lead to the fact that the actual quantity (so-called net quantity) of goods which are subject to supply and the amount of the same goods according to the standard may differ, that difference in terms of the VAT law does not constitute a surplus or shortage of goods, meaning that no obligation to compute VAT arises based on these differences.
Please note that a VAT payer’s invoice should contain, among other things, information on the actual (net) quantity of goods.
(Ministry of Finance Ruling, no. 011-00-00638/2016-04 as of July 14th 2016)
VAT treatment of sale, subleasing and leasing of a passenger car
If a VAT payer was not entitled, based on the purchase of a passenger car, to deduct the VAT computed and stated in the seller's invoice as input VAT, a VAT payer is not obliged to compute and pay VAT when selling the same passenger car, due to the fact that it is a supply for which a tax exemption is prescribed. Also, if a VAT payer leased the passenger car and on that basis was not entitled to input VAT deduction, subleasing the same passenger car shall be considered a supply for which a tax exemption is prescribed.
However, renting a passenger car is subject to 20% VAT, regardless of whether a VAT payer did or did not have the right to deduct the input VAT in accordance with the VAT law when purchasing the passenger car.
(Ministry of Finance Ruling, no. 413-00-00095/2016-04 as of June 9th 2016)
The obligation to compute VAT when a nonresident entity supplies intermediation services related to payment cards
When a nonresident entity, that has no permanent residence and no permanent business unit in Serbia, performs the supply of intermediation services related to payment cards to a bank, i.e. payment card authorization, clearings and settlements in the payment operations (in Serbia and abroad), VAT should not be computed and paid.
Hence, in this case, regardless of the fact that the place of supply is Serbia, the recipient of the service has no obligation to compute and pay VAT, given that a tax exemption is provided for said service.
(Ministry of Finance Ruling, no. 413-00-00156/2016-04 as of July 28th 2016)
Tax procedure and Tax administration
The right to a refund of overpaid income tax when a branch is removed from the Business Registers Agency
When a branch is removed from the Business Registers Agency, whereby its resident account is also closed, the right to a refund of overpaid taxes (in this particular case corporate income tax) can be obtained by a nonresident legal entity, which initially founded the branch, by submitting a request for reimbursement to the competent tax authority through a tax representative of that nonresident legal entity, after the tax authority has considered all the relevant facts in this regard.
(Ministry of Finance Ruling, no. 430-00-28/2015-04 as of July 1st 2016)
Computing interest in case of non-execution of VAT refund
The VAT law envisages that if the amount of input tax exceeds the amount of tax liability, a taxpayer is entitled to a refund of the remainder. If the tax is not refunded to a VAT payer during the period prescribed by the VAT law, interest shall be computed as of the day following the expiry of the deadline for refund.
A taxpayer is entitled to interest accrued as of the day following the expiration of the deadline, if the refund is not executed within the time limits prescribed.
(Ministry of Finance Ruling, no. 011-00-677/2016-04 as of July 29st 2016)
Personal Income Tax
Tax treatment of reimbursement of transportation, accommodation and food expenses of individuals engaged under professional training contracts
The reimbursement of expenses (in this particular case - reimbursement of transportation expenses from the place of residence to the place where the training is held, reimbursement of accommodation and meal expenses in a hotel, as well as the reimbursement of meal and public transportation expenses in the place where professional trainings are held) to an individual who is not employed by the payer, but is engaged under a professional training contract, represents the other income of the individual which is subject to personal income tax.
(Ministry of Finance Ruling, no. 011-00-606/2016-04 as of June 23th 2016)
Corporate Income Tax
Lender’s obligation to submit a transfer pricing report when a loan agreement stipulates that interest is not calculated and paid
When a loan agreement, concluded between the taxpayer (as a borrower) and its founder – related entity (as a lender), stipulates that interest on the loan is not calculated and paid, only the lender has the obligation to submit transfer pricing documentation in the a form of report.
(Ministry of Finance Ruling, no. 413-00-173/2016-04 as of July 18th 2016)
Tax treatment of claim value adjustments incurred on the basis of fulfillment of obligations according to a guarantee contract
An expense related to adjustments of claim values incurred on the basis of fulfillment of obligations in accordance with a guarantee contract, which the tax payer presented in its financial records, is not recognized as deductible for tax balance purposes, bearing in mind that such an expense was not incurred for the purpose of conducting business activities.
(Ministry of Finance Ruling, no. 011-00-573/2016-04 as of July 18th 2016)
Withholding tax on royalties for the use of information systems
A fee which a resident legal entity (a bank) pays to a nonresident for the use of information systems over which the nonresident legal entity has certain intellectual property rights, is treated as a royalty, which is subject to withholding tax.
Pursuant to the above, if, in this particular case, these are information systems, i.e. data from the market over which the nonresident legal person has certain intellectual property rights, and, according to this, is transferring the right of their use to the bank through the license agreement, therefore, the fee that the bank (on that basis) is paying to the nonresident has the character of the royalties, which is subject to a withholding tax in accordance with Article 40, para 1, item 2) of the CIT Law.
Systemic laws from the field of intellectual property are under the jurisdiction of the Intellectual Property Office as a separate organization within the state administration of Serbia, which, among other things, deals with matters related to providing expert opinions and explanations (in terms of enforcing the law of industrial property and copyright and related rights), which, in this specific case, constitute a preliminary issue for determination of types of nonresident income and, accordingly, the proper tax treatment.
(Ministry of Finance Ruling, no. 413-00-185/2016-04 as of July 21th 2016)
Obligation to submit amended tax returns when income payer subsequently submits the confirmation of residence along with the request for return of overpaid tax
A nonresident legal entity is entitled (through the income payer) to request a refund of overpaid tax. When the income payer subsequently submits a certificate of residence along with the request for refund, there is no obligation to submit amended tax returns by the income payer, given that the initially filed tax return (on the basis of which the tax was paid) does not contain an error or omission.
(Ministry of Finance Ruling, no. 430-00-201/2016-04 as of May 18th 2016)
Expense recognition in the tax payer`s balance incurred on the basis of delineated net effects of computed currency clause and foreign exchange differences
The amount of delineated net effects of computed foreign currency clause and delineated net effect of calculated foreign currency exchange differences, recorded as expenses or revenue in accordance with accounting regulations, and presented in financial reports, are recognized as tax deductible for tax balance purposes.
(Ministry of Finance Ruling, no. 011-00-545/2016-04 as of June 7th 2016)
The criteria that separates the existence of a criminal offense such as tax evasion from tax misdemeanors
The intention of the accused to evade the payment of taxes is an essential criterion for distinguishing a criminal offense from tax misdemeanors and is determined on the basis of time period in which the tax calculation is carried out in an irregular and incomplete manner, consecutiveness of reduced amount presented in the tax return, as well as existence of awareness of the defendant (bearing in mind his education and life experience) regarding such hidden data.
(Judgement of the Appellate Court in Novi Sad, Кz1 372/2012 as of July 21th 2016)