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Bulgaria: the act on the economic and financial relations with companies registered in preferential tax regime jurisdictions

Alessandro PasutBULGARIA

The act on the economic and financial relations with companies registered in preferential tax regime jurisdictions, the persons related to them and their beneficial owners entered into force on 1 January 2014. Its main goal is to prevent tax avoidance and not to permit the acquiring of public funds and management of financial resources by companies, which are registered in preferential tax regime jurisdictions.

The Act imposes a prohibition for companies, registered in preferential tax regime jurisdictions, and the persons related to them, to be directly or indirectly involved in certain activities. Following the entry into force of the Act, companies registered in preferential tax regime jurisdictions will no longer be able to be shareholders in companies that carry out licensing activity, to participate in privatization, concession or public procurement, to acquire lands and forests from the state forest funds, etc.

The prohibition is applicable to any person related to the companies registered in preferential tax regime jurisdictions as well, i.e. companies that have direct or indirect control over such legal entities, as well as their subsidiaries.

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Austria: Group taxation

According to the Austrian group taxation regime tax losses of group members may be offset against tax profits of other group members. The main condition for this procedure is that there is a participation of more than 50% of the share capital and the majority of voting rights during the whole fiscal year.

If a tax group should be established or if an already existing tax group should be extended for the tax year 2009, the group application forms have to be signed by December 31 at the latest. This rule applies to companies with balance sheet date 31 December 2009. The signed group application forms have to be filed with the Austrian tax administration within one month after signing.

If foreign subsidiaries are currently incurring losses and if under the foreign tax law loss carry forwards are subject to time limits, it could be convenient to consider the inclusion of the foreign subsidiaries into an Austrian tax group.

A depreciation of participations in group members to the lower fair market value is tax-neutral for the parent company. In the event the establishment of a new tax group should be considered in 2010, potential depreciations of future group members should be taken into account when compiling the financial statements for 2009.

The cancellation of an existing tax group in 2009 can be considered if participations in group members have to be depreciated in the financial statements 2009. If a group members suffers high losses in 2009, which cannot be offset against taxable profits of another group member, it might be indicated to – partly – cancel the existing tax group. A new tax group could then be established as soon as the companies have achieved a return in the profit zone.

Group members can completely offset their taxable income against the pre-group tax loss carry forwards. In this case the 75% limitation does not apply. However, a tax group must exist for at least three entire fiscal years before it is cancelled or else corporate income tax will be reassessed as if the group never existed. When establishing a new group, a new three year period will start.


Belgium: Additional municipal taxes

On 1 July 2010 the European Court of Justice (ECJ) issued a judgment related to the compatibility of the application of additional municipal taxes on foreign-source interest and dividends with the free movement of capital principle stating that it is contrary to the free movement of capital.

Individuals who are resident in Belgium for taxation purposes are subject to a flat rate of personal income tax on dividend and interest income at 25% and 15% respectively. Dividends and interest income paid by a Belgian company or collected through a Belgian intermediary (e.g. a Belgian bank) is subject to Belgian withholding tax at source. In this case, the individual has no obligations to further report the dividend and interest income in their personal income tax return. The withholding tax in this case is a final tax.

However, in cases where the dividend or interest payment derives from another European source and is not collected through a Belgian intermediary, no Belgian withholding tax is deducted and the income must be reported on the individual’s income tax return. In this case, the income is subject to personal income tax of 25% and 15% respectively and supplementary municipal taxes between 0% and 9.5%, calculated on the amount of personal income tax.

The ECJ ruled that the imposition of supplementary municipal taxes on income arising from foreign investments, as opposed to income arising from Belgian investments, constitutes unfavorable tax treatment which is inconsistent with the free movement of capital. The ECJ rejects the Belgian government’s argument that the legislation is justified by reasons relating to the coherence and specific nature of the Belgian tax system and the need to guarantee the effectiveness of fiscal supervision.

Based on this decision, individuals who are Belgian tax resident may request a refund in respect of municipal taxes paid on foreign sourced dividend and interest income.


Austria: Responsibility of tax offices

In the future the tax office covering the area where the taxpayer is residing will be responsible for levying income tax, value added tax and all charges linked to wages and salaries.

Starting from 1 July the tax office of the place where the taxpayer is residing will be territorially responsible also in the event that one or more business establishments of the taxpayer’s company are situated in the area covered by other tax offices. Previously the responsibility was with the tax office of the place where the business establishment was situated.

For good cause the entrepreneur can, however, file a request in order to maintain the responsibility of the current tax office. A good cause is, for example, a great distance between the place of residence and the business establishment.

As of 1 July a proper tax office for companies exists only for corporations (and particularly for limited liability companies) and for partnerships. For the purpose of responsibility in these cases the place where the central management is residing is relevant. The new responsibilities of tax offices apply, however, only to natural persons.

In the case of filing a corrected return following fiscal evasion or errors committed in the original tax return it is of particular importance to know which tax office is responsible. When the corrected return is filed to the wrong office, this office informs the responsible office of the corrected return so that the underlying fact is considered “revealed” and is no more exempt from punishment.

VAT. In a decision regarding incorrect invoices the European Court of Justice states that deduction of input VAT may not be withheld by the authorities if before the issuance of the tax assessment note a corrected invoice has been presented. In the opinion of the Court in these cases input tax has to be deducted not only up to the moment of the issuance of the corrected invoice but with retroactive effect.

This circumstance is contemplated also at the margin of the Austrian VAT directives but is not considered in proceedings before the independent tax tribunals and the Administrative Court. It is therefore necessary to draw the attention of the respective authorities to the retroactive effect confirmed by European legislation.


Romania: Tax relief on reinvested profits

A Law regarding the reorganization of some public authorities, the efficiency of public expenses, support for the business environment and compliance with the general agreement with the European Commission and the International Monetary Fund introduces a new article into the Fiscal Code regarding a tax exemption for certain reinvested profits.
This incentive is available from 1 October 2009 until 31 December 2010 and applies to reinvested profits used for the production and/or acquisition of new technological equipment used in the business. The amount for which the incentive is applied is deducted from the fiscal value of the equipment produced/acquired. Therefore the tax deduction for depreciating the equipment will be reduced in the future.
The reinvested profit is allocated for the creation of a reserve but the release of such reserve in the future might have unintended tax consequences. If, as a result of the application of the exemption, the income tax due falls below the minimum tax, the minimum tax will be have to be paid.
The assets created/acquired in relation to the incentive must be kept for at least half their normal useful life, otherwise profit tax is recalculated and delay penalties are due from the date the exemption was granted.
Taxpayers who have to pay quarterly profit tax may deduct any profit reinvested in a previous quarter from the cumulated annual profit tax calculated since the start of the year. For those taxpayers who have previously paid income tax (i.e. micro-enterprises) and have subsequently become corporate taxpayers, the corporate tax relief is calculated by taking into consideration the accumulated accounting profit invested in the above mentioned fixed assets starting with the quarter in which they became corporate taxpayers.
In this case also, for 2009 the accounting profit considered for the application of the tax relief will be the profit earned since 1 October 2009. Moreover, taxpayers benefiting from the facilities offered by this Law cannot benefit from the provisions regarding the stimulation of the setting-up and development of Small and Medium Enterprises.


Hungary: Changes to the local business tax

For the business years starting in 2010, taxpayers will have to submit their local business tax returns and make the payments to the state Tax Authority. However, since the competent local tax authority is responsible for matters related to local business tax for 2009, in accordance with the relevant transitional provisions, the local business tax return for 2009 must be filed with this authority.
Another transitional provision is that the first local business tax advance for 2010 will have to be paid to the competent local tax authority. Taxpayers using a non-calendar business year must pay all their tax obligations for the business year starting in 2009 to the competent local tax authority. Regarding the tax periods before 1 January 2010, the right to establish tax will cease on 31 December 2011, and thus there will be only two years to carry out audits and self-revisions.
The procedural rules on taxpayers with more than one permanent establishment will also change. From next year, they will have to file a single tax return, including local business tax, divided into the single permanent establishments. Taxpayers will have to make payments to the account for local business tax held by the state Tax Authority.
Reconciliation of taxpayers’ tax accounts at the end of 2009 will be of special importance, because the local business tax balance recorded at the competent local tax authorities as of 1 January 2010 will be the opening balance for this tax type at the state Tax Authority. Any further reconciliation at a later stage might be difficult as the local business tax functions of the local municipalities will gradually be terminated.
Although the task of auditing local business tax will also be transferred to the state Tax Authority, the competent local tax authorities will continue to conduct on-site audits for the purposes of data collection at taxpayers pursuing business activities on a temporary (occasional) basis and will provide the state Tax Authority with the data from such audits by the last day of each month.