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Lithuania: Amendments to the Corporate Income Tax Law

On 1 January 2012, several amendments Corporate Income Tax Law have become effective.

Incentives for small businesses. The threshold of the maximum annual income for small companies, i.e. companies with not more than 10 employees, allowing them to qualify for a reduced corporate income tax rate of 5%, is increased from LTL500,000 to LTL1,000,000.

Incentives for investment projects. The scope of application of the incentive for investment projects is widened. Originally, Lithuanian companies carrying out investment projects could, in addition to standard depreciation, for corporate income tax purposes, deduct expenses incurred for specific types of long-term assets acquired in relation to the investment project and used by the entity for at least three years.

For the purposes of calculating taxable income for 2011 and subsequent tax years, companies may now enjoy the deduction of costs on acquisition of long-term assets, even if the assets were used for a period shorter than three years because the assets were transferred to another company as a result of reorganization, and the transferee continues to use the assets until the three year period requirement is satisfied.

Free economic zones. The list of activities to which the incentive for companies established in the free economic zones is applicable was extended. Companies established in a free economic zone, satisfying the €1,000,000 capital investment requirement and carrying out one of the mentioned activities, are exempt from corporate income tax for the first 6 years from the start of their activity in the free economic zone and may enjoy a 50% reduction of corporate income tax for the next 10 years.

VAT. The VAT registration threshold was increased to LTL 155,000. Only transactions performed in Lithuania will be taken into account for the calculation of this threshold. When the above mentioned threshold over the last 12 months is exceeded, VAT payable should be calculated not on the income exceeding the threshold but on the income of the transaction the value of which exceeded the threshold.



Croatia: Electronic Submission of tax returns

As of 1 January 2012, the following taxpayers are obliged to file their tax returns and other reports electronically: medium and large sized entrepreneurs (according to the definition provided by the Accounting Law) and VAT taxpayers whose annual taxable deliveries of goods and services exceed of HRK 800,000 (domestic taxable deliveries and exports).

Employers or payers of salaries and pensions that have more than 100 employees, retirees and other persons to whom receipts are paid in accordance with the Personal Income Tax Law, are only obliged to electronically file monthly income declaration forms if not otherwise specified. Taxpayers not otherwise required to submit tax returns and other reports electronically may voluntarily register and use the electronic taxation service „ePorezna“, which brings a number of benefits.

Currently, electronic submission of the following tax returns and other reports are allowed: monthly and annual VAT returns; monthly reports on salaries and other income; annual corporate income tax return; annual calculation of the monument fee; annual calculation of the tourist fee; and insight into the Croatian Tax Administration’s records of the taxpayer.

The following tax returns and reports must be physically submitted on electronic media: annual information on salaries or pensions; annual report on allowances disbursed and the advance payments of withholding tax on other income, income from property rights, income from capital and income from insurance and annual information on personal income tax deductible insurance premiums and voluntary health insurance premiums.

As of 1 January 2012 the submission of the Annual Financial Statements to the Financial Agency (FINA) is no longer free of charge.  However, if Annual Financial Statements are submitted electronically, the service continues to be free of charge.

In order to use ePorezna services a digital certificate with information proving the identity of the legal entity, including an electronic signature must be obtained.  The authorized issuer of digital certificates is FINA and the certificate is issued on a FINA e-card that also allows users access to certain other services.

The General Tax Law prescribes penalties for both legal entities and individuals who do not electronically submit tax returns and other reports ranging from HRK 5,000 to HRK 500,000 and for the responsible person ranging from HRK 2,000 to HRK 100,000.


Austria: Reporting obligations for certain payments

Companies and bodies, including associations, foundations and public bodies, have the obligation to notify certain payments made to a foreign country for services delivered in Austria after 30 December 2010 if the amount exceeds 100,000 euro.

The obligation to notify services delivered in Austria under article 22 of the Income Tax Law is applied for example to salaries and compensation paid to managing directors with a shareholding of more than 25%, private foundation management board members and liberal professions. The obligation extends also to agency services rendered by taxpayers subject to unlimited tax liability and to commercial or technical advisory services.

A reporting is not necessary if the fees paid to a service provider within one calendar year do not exceed EUR 100,000. The requirement to report payments is also not applied if – in the case of a taxpayer subjected to limited tax liability – the client retains withholding tax for certain services or if the payment is made to a foreign corporation that is subject to a tax rate of at least 15% in its home country.

The reporting must contain the name (company name), the home or the business address of the service provider as well as the international country code of the respective country and, if available, the VAT number and social security number. In case of a corporation or a partnership without legal personality acting as service provider, the individual responsible for the services in Austria has additionally to be declared.

The reporting of the payments to foreign countries has to be made electronically and submitted to the VAT tax office after the end of the calendar year and by the end of February of the following year. If the electronic filing cannot be expected of the taxpayer, the respective form can be sent to the tax offices by the end of January of the following year.

The deliberate violation of the obligation to report payments made to foreign countries represents a breach of the tax code and can imply fines up to 10% of the amount that should have been reported and of maximal EUR 20,000.


Lithuania: Corporate income tax

Corporate income tax. In December an amendment to the corporate income tax law became effective which, among others, raised the threshold of income for the application of the 5% rate for companies having not more than 10 employees to LTL 1 million. This amendment will be applied starting from the tax year 2012.

Tax relief for investment projects may be applied also when a long-term asset has been used for less than 3 years if in the case of restructuring or transfer of the company such an asset is passed to the acquiring company on condition that this company will use it until the end of the 3 year period. This amendment is applied to the tax period of 2011 and later years.

VAT registration/deregistration. According to an amendment to the regulation on registration/deregistration for VAT purposes, as of 1 January 2012, both Lithuanian and foreign entities have to submit the VAT registration form 3 business days before the day in which they wish to be registered or the date when the obligation to register for VAT purposes arises.

Time limits of the procedures related to VAT registration were shortened. Thus the Tax Authorities have to decide on registration of taxable persons within 3 business days after the application form was submitted. The requirement to submit an application form to be registered with the taxpayers’ register when registering for VAT purposes is abolished.

Input VAT. Following a ruling of the European Court of Justice, an amendment to the VAT law was approved which states that a purchaser, who acquires goods or services taxed with VAT by an entity that is not registered for VAT purposes, is entitled to deduct VAT calculated if the goods or services acquired are used in VAT taxable activities. In this case the purchaser registered for VAT purposes must have the invoice or another document for goods or services acquired containing the identification code of the supplier.


News: Czech Republic

Transformation Act. The Czech Parliament approved an amendment to the Transformation Act which will bring in particular greater flexibility regarding the determination of the effective date of a transformation and more opportunities for cross-border transformations within the EU.

The new rules eliminate transformation in case the accumulated losses of the successor company reach half of its capital. In this case, the effective date must not precede the date of registration of the transformation in the commercial register and the court must be presented with a report that the transformation will not cause the bankruptcy of the successor company.

The approved amendment of the Transformation Act also regulates the deadlines for submitting the income tax return. Tax losses, provisions, reserves and other deductible items of the company being dissolved can now also be taken over if these assets and liabilities are part of the foreign fixed establishment of the succession company. This legal regulation aims at supporting the inflow of foreign investment into the Czech Republic when a company establishes its seat in the country and maintains branches in other EU member states.

Social Security. In 2012 the annual maximum assessment base for social security will be reduced to 48 times the average wage. The ceiling for the payment of social security will thus drop from CZK 1,781,280 in 2011 to CZK 1,206,576 in 2012. The maximum assessment base for health insurance remains at 72 times the average wage and will amount to CZK 1,809,864 in 2012.

Amendment of Commercial Code. The amendment of the Commercial Code effective from 1 January 2012 has been approved. The main changes are that there must be a legal reason for the use of the registered seat, for example a rent contract, during the whole period this seat is registered in the Commercial register. It will be possible to entrust a person who works for the company in an employment relationship with the management of the company.



Austria: Situation of private foundations

A survey recently conducted by the Association of Austrian private foundations has shown that in spite of the economic and financial crisis in 2008 private foundations have succeeded in raising their assets.

Compared to a similar survey in 2005, the assets of the 467 foundations examined have risen by 38.2% from 19.2 billion to 26.5 billion euro. If this result is used as the basis for a projection regarding the economic development of the 3400 foundations existing in total in Austria, the assets of the foundations in 2005 of 60 billion euro have risen to 65-70 billion euro.

Investments that the foundations participating in the survey made in holdings in companies have increased by approximately 4% to 62.36% of the assets, while investments in securities and in investment funds have decreased respectively from 5.17% to 2.75% and from 7.94% to 5.97%. The real estate sector has experienced a growth of 1.4% to 23.5%.

In absolute terms, however, investments in securities, treasury bonds, investment funds and liquidity have risen while in terms of shares on the total capital sum, investments have fallen by 5%. Hence a transfer of capital towards holdings in companies and real estate has taken place.

As of 2010, the number of newly established private foundations has been declining. Compared to 2009 the number of new foundations has halved.

According to the Association of private foundations, this development is caused on the one hand by the fact that from the entry into force of the law on foundations, 14 amendments have been introduced and, on the other, by the fact that the interest of people and companies in this legal form has reached a point of saturation.

Two rulings pronounced by the Supreme Court in 2010 have resulted in the introduction of more strict rules aiming at curtailing the possibility of intervention on the part of founders and beneficiaries and restricting the choice of consultants and their appointment to the board of directors.

Until now, however, the much feared withdrawal of the foundations’ assets has not occurred, also because in the event of the dissolution a capitals gain tax at the rate of 25% is due.


Belgium: Deduction of hypotax for residents

In a recent circular letter, Belgium’s tax authorities have clarified their position regarding the question of the hypothetical (“hypo”) tax and tax equalization arrangements on Belgian income tax returns.

Employees seconded abroad are often paid on a tax equalized basis which implies that a hypothetical tax (“hypotax”) is withheld in order to reach the level of tax the employees would have paid if they were fully taxable in Belgium. Tax equalization also implies that the spendable income of the assignee is not (positively or negatively) influenced by the difference in taxation between the home and host countries.

The tax treatment of the hypo tax has been a point of discussion with the Belgian tax authorities. Currently there are opinions claiming that the professional income can be reduced with the “hypotax” withheld because the employee cannot dispose of the income. While many local tax offices did accept this approach, other tax offices have refused the deduction.

In the circular letter published in September, Belgian tax authorities do now confirm that hypo taxes are deductible from taxable income in the year of payment/withholding. Hypotax therefore should be fully deducted from the foreign source income and cannot be partially attributed to the Belgian source income.

The foreign income taxes paid by the employer on behalf of the employee in principle are to be considered a taxable benefit-in-kind. Since foreign income taxes paid in a given income year can be deducted to determine the net foreign income, the taxable benefit-in-kind for foreign income taxes paid by the employer can thus be offset against the deduction of the foreign income taxes paid (tax neutral).

In principle, the amount reported as salary should be the amount resulting after deduction of social security contributions and hypotax. In practice, however, the amount reported as salary on salary sheet 281 is usually before the hypotax’s deduction. The reported salary can however be deducted through the tax return. In principle, the amount of foreign tax liability paid by the employer should also be reported on salary sheet 281. However, taking into account that only the net foreign income should be reported, this will not result in an additional amount to be reported.


Austria: Taxes regarding assessment periods subject to prescription

In the past it was not possible to correct tax assessments notes referred to tax assessment periods subject to prescription even in the event the underlying facts were having consequences on the tax assessment periods not yet subject to prescription. This circumstance was generally known as the principle of “prohibition of subsequent recognition”.

Pursuant to the legal practice followed by the Administrative court, errors incurred during the process of determination of the income subject to taxation – as far as errors concern more than one tax assessment period – must be traced back to their origin (taxation in accordance with the accruals concept). On the basis of the prohibition of subsequent recognition any correction not respecting this concept is unacceptable.

The correction for tax purposes of an error in the year in which the error originated can be made only in the framework of existing procedural options. If procedural law does not allow for a correction of the inaccurate tax assessment note, corrections remain without effect on the result. Consequently expenditure and earning may be computed or not, or computed twice, with a positive or a negative result for the taxpayer.

Following the tax amendment law 2011, as of 1 September a procedural possibility has been introduced in order to make it possible to correct errors incurred in the tax return dating from tax assessment periods already subject to prescription but having an impact on more than one tax assessment period, also referred to tax assessment periods already subject to prescription.

The new rule applies only to errors referred to more than one tax assessment period which otherwise would be protected by prescription for tax purposes. Thus the correction may be made only for periods included in the absolute prescription time frame of ten years. According to this rule, errors incurred from 2001 on may be corrected.



Czech Republic: VAT issues

VAT refund from other EU member states. A deadline for VAT payers to apply for a refund of VAT paid in another EU member state where they are not registered for VAT expires on 30 September 2011. In practice, this mostly involves VAT related to business trips (accommodation, training), purchase of goods that remain located in such a member state, purchase of goods with installation in the given state, and some services.

It is possible to apply for the refund through an electronic portal operated by the Czech Ministry of Finance. Taxpayers will be granted access to the portal by the relevant tax authority based on an electronic application filed with an electronic signature.

VAT treatment supplier/customer. The Supreme Administrative Court addressed in a ruling the issue of whether one and the same transaction must be treated identically in terms of VAT on the part of the supplier and on the part of the customer.

The case in question involved a supplier who cancelled invoices issued for domestic taxable supplies only because the tax office had denied the recipient of the supply the right to VAT deduction in a tax inspection on grounds of the recipient’s failure to prove that the taxable supply had taken place. Following the cancellation of the invoices, the supplier filed an additional VAT return, reporting a reduction in taxable supplies, which resulted in excessive deduction.

The Tax Authority, the City Court, and subsequently also the Supreme Administrative Court disagreed with the procedure pursued by the supplier, and did not accept the excessive deduction.

They justified their decision arguing that, as far as the same tax is concerned, the determination of the tax liability of one party does not directly determine the tax liability of the other party. Furthermore evidence provided by the supplier suggested that the taxable supply in question had indeed taken place, while the supplier had proven that the supply had not taken place by referring only to the result of the tax inspection. The fact that the customer failed to carry the burden of proof in providing evidence that the taxable supplies had taken place does not mean that the supplier’s duty to pay output VAT would cease to exist.

The recent Supreme Administrative Court ruling implies that, in respect of proving, the situation may be different for individual parties to the same transaction. The tax office then may judge the transaction differently on the part of the customer and on the part of the supplier.


Austria: Capital gains tax

As known, the Austrian Constitutional Court had requested a six month postponement of the introduction of the new taxation of capital gains from securities, while it found nothing to object to the fact that banks have to withhold this tax.

The duty to withheld capital gains tax related to the increase of the value of assets and income realized from derivatives will therefore come into force on 1 April 2012. Thus, the banks in charge of withholding the tax will have time to make the necessary adjustments.

Despite the postponement of the duty of banks to withhold the tax, all securities and holdings in investment funds purchased after 1 January 2011 will be subject to the new tax. This rule applies also to securities purchased between 1 January 2011 and 31 March 2011 which are sold after 12 months and thus after the deadline for the taxation of speculation gains which will temporarily remain in force. The speculation period is therefore increased from 12 to 15 months.

Donations. The reliefs applied from 2009 to donations made to charity organizations and institutions engaged in development aid, which allow for the deduction of a total of donations of 10% of the previous year’s profits/income, will be further extended in 2012 and will include also organizations active in the field of environment, nature and animal protection, as well as voluntary fire brigades.

The 10% ceiling of the previous year’s profits/income applies in a standardized way to all donations subject to reliefs. The precondition of electronically sending information regarding the donor in order to qualify for the relief will be abolished. It will be sufficient to present documentation proving the payment and confirmations issued by the beneficiary organizations.

Tax Code. The Government presented also an amendment to the tax code. If in the case of an appeal against a tax note the amount of the tax due is at first paid but subsequently the appeal is accepted, the tax previously paid was accredited without the application of interest. As of 2012, interests will be calculated on the tax amounts accredited in favour of the taxpayer.