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Croatia: income tax

Alessandro PasutThe Constitutional Court of the Republic of Croatia has issued a resolution providing for the suspension of the execution of all individual acts and actions of the Croatian Tax Administration and other addressees concerning the collection of income tax from all income taxpayers, who realized their income on the basis of dividends and/or profit shares derived out of equity, achieved by the entry into force of the Law on Amendments to the Law on Personal Income.
The Law on Amendments to the Law on Personal Income regards taxation of all income amounts exceeding the  HRK 12,000 annual threshold paid on the basis of dividends or on the basis of equity participation.
The Croatian Employers’ Association filed an appeal with the Constitutional court because it deems the Law on the amendments to be discriminatory. The appeal of the Employers’ Association further specifies that the disputed provisions violated a number of constitutional principles such as the prohibition of retroactive effect of law, the principle of proportionality, the principle of non-reduction of acquired rights on the basis of capital investment and the principle of equality and fairness of the tax system.
The resolution of the Constitutional Court is an interim measure, thus the disputed provisions will not apply until the final decision of the Court regarding the conformity of the contested rules with the Constitution. The relevant national authorities (tax authorities) will have to refrain from applying the disputed provisions (assessment and collection of tax liabilities arising from the disputed provisions) until the final resolution of this case.
It is important to emphasize that the Constitutional Court’s decision does not in any way prejudge its final decision in this matter, which will be made after the full implementation of the constitutionality review process.

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Croatia: establishment of a special office for large taxpayers

Amendments to the Act on Tax Administration approved by the Croatian Parliament include the establishment of a special office for large taxpayers by the Tax Authorities.

Currently approximately 600 of Croatia’s largest companies generate HRK 400 billion (EUR 54 billion) in revenues, pay 46% of total taxes and contributions, and employ 25% of the total workforce. However, currently 95% of tax audits are performed on small companies that in total generate less than 40% of the tax revenue.

Establishing a special office for large taxpayers should unify and optimize the Tax Authorities’ actions and methods for auditing a small number of very important taxpayers.

The Ministry of Finance will set the criteria for determining the large taxpayers that are subject to monitoring and audit by the office for large taxpayers. The criteria will be based on business activity and revenue.

Currently, based on the General Tax Act, large companies are considered to be those as defined in the Accounting Act that meet at least two of the following criteria: assets worth more than HRK 130 million (EUR 17 million); revenue exceeding HRK 260 million (EUR 35 million) and number of employees exceeding 250.