Tax alert - December 2014

Amendments to fiscal regulations

The National Assembly of the Republic of Serbia has adopted on December 25^th 2014 a set of laws amending the provisions of the Value Added Tax Law, Excise Duties Law and Corporate Income Tax Law. The said amendments will come into force on January 1^st 2015 and we hereby provide you with the overview of the most significant changes:

Amendments to the Corporate Income Tax Law

• A permanent establishment that does not keep business records in accordance with accounting regulations is now obliged to submit a tax return along with its tax balance.
• A tax deduction can be made for humanitarian aid expenses, i.e. for the recovery of vis major damages, when made to the Republic of Serbia, an autonomous province or local municipality, in a total amount of 5% of total income. The said amendment is applicable for 2014.
• It is defined that for the purposes of a bank’s tax balance, increased impairments of receivables and accrual for loss (for off balance positions) in the amount calculated at the level of the bank, as stated in the bank’s profit and loss account in accordance with the bank’s internal acts and in accordance with regulations prescribed by the National Bank (not any more in accordance with increase of impairments prescribed by National Bank’s regulations).
• A special method of corporate income taxation of taxpayers in bankruptcy proceedings is introduced, as well as a special tax period for the abovementioned taxpayers (the bankruptcy period).
• Amendments further define that the liquidation proceeds, in monetary or nonmonetary form, shall be deemed as a dividend above the value of invested capital by the founders.
• The addition of Article 61b prescribes that, for the purposes of transfer pricing regulations, the Republic of Serbia, autonomous province and local municipality are not considered as legal entities, thus entities will no longer be considered as being related on the basis of ownership by the Republic of Serbia, autonomous province and local municipality. The said amendment is applicable for 2014.

Amendments to the Value Added Tax Law

• Amendments to Article 24 ensure that the supply of goods and services, as well as the importation of goods performed for the purposes of realizing projects financed in accordance with terms prescribed by the EU Instruments of pre-accession assistance (IPA), be fully exempt of VAT.
• According to the provisions currently in force, the supply of goods and services performed through donation agreements can be exempt of VAT only in the part financed through donated funds. Bearing in mind that it is not possible to separate the supply financed by IPA funds from the supply financed through national funds, it was necessary to create a legal basis for the supply of goods and services being performed within these projects to be fully exempt of VAT.  

Amendments to the Excise Duties Law

• The trimonthly excise duties calculation is abolished, whilst an obligation to submit a tax return in the term prescribed for excise duties payment is introduced. In other words, the excise taxpayer submits a tax return on the last day of the month for the amount calculated from the 1^st to the 15^th of the month, i.e. on the 15^th day of the month at the latest for the excise amount calculated from the 16^th of the month until the end of the month.
• The final excise duties calculation at the end of the year is abolished, while providing the conditions for the submission of the electronic tax return is introduced, in accordance with the provisions of the Law on Tax Procedure and Tax Administration.
• The exemption period for excise duties is prolonged until December 31^st, 2015 on certain oil derivatives used as raw materials and sources of energy (e.g. in fractional distillation processes for further polymerization), i.e. only as raw materials (e.g. for the manufacture of liquid petrol gas)

New rulings of the Ministry of Finance and a decision of the Administrative Court

This past period has seen several rulings of the Ministry of Finance and one Administrative Court decision explaining the application of the provisions of the Value Added Tax Law, Law on Property Taxes, Law on Accounting and Corporate Income Tax Law, while the following were selected:

The Tax Administration’s competences during tax proceedings

The Tax Administration is not competent to determine whether and how big of a land plot is necessary for the common use of a building, i.e. to separate the land plot, formed on the basis of an appropriate planning document, from the buildings built legally on the plot, for VAT purposes.

(Administrative Court Decision 3 U. 9935/2012 issued on September 9^th 2014)

The arising of property tax liability for incomplete construction projects

The property tax liability arises on the day the building is first used, regardless of whether the building is used continuously or occasionally, whether it is the taxpayer or another person using it, or whether the construction of the building is completed.

(Ruling of the Ministry of Finance, no. 430-00-00037 / 2014-04 issued on October 8^th 2014)

The VAT treatment of the partial transfer of assets against compensation when the transfer is made under a “framework” agreement

A VAT-able supply did not occur when a VAT-payer performing retail and wholesale activities performs a partial transfer against compensation of assets comprised of equipment used for the performance of said activities, stocks of goods, IP rights and various investments into buildings in which the activities are performed (which are let or sublet to the buyer), while the buyer also receives the seller’s employees. The described supply is not subject to the calculation and payment of VAT, under the condition that the buying company is a VAT-payer, i.e. that it becomes a VAT-payer through this supply and that it continues to perform the same activity as the seller, since the case in question involves a partial transfer of assets representing a single business unit, the transfer of which prevents the seller from performing the activity in the future. 

(Ruling of the Ministry of Finance, no. 011-00-01078 / 2014-04 issued on October 30^th 2014)

Keeping of accounting documents issued electronically

Accounting documents originally issued electronically can only be kept in electronic format. Additionally, the legally prescribed place of safekeeping for this data is a server, situated either locally or abroad, since the law does not prescribe a mandatory location of the server.

The system itself should be such that it allows, amongst other things, access and exportation of data in legible format, suitable for further processing through software used by the competent state authorities for audit purposes. 

(Ruling of the Ministry of Finance, no. 011-00-1077 / 2014 (II)-16 issued on November 7^th 2014)

Electronic signature or identification tag of a responsible person as a mandatory element of electronic accounting documents

An accounting document issued electronically must contain an electronic signature or identification tag of a responsible person, i.e. of a person authorized to issue the accounting document.

The term “identification tag” represents any marking singularly determining or referring to a responsible person or any person authorized to issue an accounting document. Thus, this can be e.g. a signature, facsimile, name and surname, electronic signature, as well as any combination of the aforesaid. 

(Ruling of the Ministry of Finance, no. 011-00-1077 / 2014-16 issued on November 7^th 2014)

The tax treatment of compensation paid by a resident legal entity to a resident of Denmark for the use of drafts and sketches

Compensation paid by a resident to a nonresident taxpayer (resident of Denmark) for the use or the right to use a draft or sketch for the construction of a steam dryer, i.e. the installation of equipment for a steam dryer, including the use or the right to use a patented technological drying procedure (while the construction and installation is performed by the resident buyer) qualifies as a royalty payment and is subject to withholding tax.

(Ruling of the Ministry of Finance, no. 430-00-427 / 2014-04 issued on November 24^th 2014)

The right to deduct input tax for the purchase of sofas for the furnishing of employee’s offices

A VAT-payer is entitled to deduct VAT calculated for the supply of goods – sofas purchased for the furnishing of offices in which employees work, with a goal of creating better working conditions for employees.

(Ruling of the Ministry of Finance, no. 413-00-171 / 2014-04 issued on November 5^th 2014)

The VAT treatment of a supply of goods based on a sales contract stipulating that the seller will grant a discount to the buyer at the moment of supply, along with an obligation to transfer part of the discount

When the seller grants a discount to the buyer at the moment of supply, and the buyer is obligated to transfer part of the granted discount to customers, the difference between the amount discounted to the buyer and the amount discounted to customers does not represent compensation for the supply of a service. This is due to the fact that there is no underlying service rendered by the buyer to the seller in this particular case. 

(Ruling of the Ministry of Finance, no. 413-00-279 / 2014-04 issued on October 23^rd 2014)

The VAT treatment of the supply of centralized accounting support services rendered through software used by both the service provider and recipients, which the VAT-payer performs to foreign related entities

The supply of centralized support services in the field of accounting, including posting and tracking of sales, purchases, fixed assets, project accounting and general ledger recordkeeping, rendered through accounting software used by both the service provider and recipients is taxable in the place of the service recipient. In other words, if the said service is rendered by a resident VAT-payer to foreign related entities, that do not have a registered seat or fixed establishment in Serbia, Serbian VAT should not be levied.

(Ruling of the Ministry of Finance, no. 413-00-308 / 2014-04 issued on November 19^th 2014)