New limit for cash transaction between entrepreneurs

With the January 1, 2017 the changes were introduced in the law on freedom of economic activity and income taxes (both of individuals and legal entities) in Poland. They implement exemption from tax deductible costs of those purchases that have not been dealt with cashless way. The limit for cash transactions between entrepreneurs has been fixed at 15 000 PLN, but the amount is not applicable to a single payment or invoice, but to a transaction, that may consist of multiple payments or invoices. In case of violation of this provision expense paid with violation of the law, i.e. in cash, will not be tax deductible.

Author: Tomasz Wikliñski, THOMAS Sp. z o.o.


Update about Spanish legal regulations

Spain has a provisional government since December of last year, so this financial year of 2016 have not been implemented any reforms yet. There are 2 key dates to explain this situation:

First of all, on December of 2015 Spain held general elections and after 6 months there was no agreement between political parties. Consequently, the past June were held elections again, but if there is not agreement before the end of October Spain will celebrate elections again, for third time in a year.

Meanwhile, in 2016 Spain has continued with the reforms planned for 2015. It should be pointed out that during this period with the provisional government, the acting minister of economy has established a minimum rate of payments of corporation tax in order to get the 8.000 million euros of fiscal adjustment planned for 2016 and 2017 by the current government. This fiscal adjustment is due to a threat of European Commission to Spain for the noncompliance of deficit. They are established a payment of 23% of the accounting result, a 25% for banks and oil companies, and it will be applicable to business that have a turnover of more than 10 million euros. Around 9.000 companies will be affected.

The effect of this measure on the cash flow of companies is significant as soon as the money is no longer in the pocket of the companies and is part of Spanish Tax Agency, so the private sector advances liquidity to the public sector.

Author: Cristina Valenzuela, Ceasa Asesores Fiscales, S.L.


Implementation of the electronic tax inspections in Poland

Last year significant changes were implemented to the Polish Tax Ordinance. One of the changes is implementations of electronic tax inspections. Starting July 2016 the companies will be obliged to provide the data to the tax authorities in electronic form, called unified control file. Its format was published in March on the web site of the Ministry of Finance. In fact the control file will consist of several XML files covering various areas of the company activity:

  • accounting books
  • bank statements
  • stock operations
  • VAT evidence of sales and purchases
  • VAT invoices
  • tax revenue and expense ledger (for simplified evidence in small entities)
  • registry of revenues (for simplified evidence in small entities)

In the beginning the obligation to generate such files will refer to the biggest entities, i.e. employing over 250 people and having net sales exceeding 50 million euro or net assets above 43 million euro. The smaller companies will have more time to prepare – by June 30, 2018.
Full implementation of electronic inspections will shift the inspections to a new level, by making them faster and more efficient. Processing large quantities of data will allow their multidimensional analyses and finding various correlations between the documents and activities. The assumptions are very good – the new system should help in better detection of tax offenses. Whether it will be used this way, we will see in practice.

Author: Tomasz Wikliñski, THOMAS Sp. z o.o.


Electronic record keeping of sales in the Czech Republic

Each Minister of Finance has the task to secure enough income for the state treasury. Andrej Babiš, the new Czech Minister of Finance is no exception. No wonder that after being appointed to the position, he started pushing through many innovations. One of the most controversial issues is his effort to introduce online record keeping of sales (ORKS) that is to be introduced in the Czech Republic as of January 2016. This record keeping is expected to reduce grey economy and make tax collection more efficient. According to Babiš, it should also balance out the lower income from VAT, which is due to the expected decrease of VAT rate for restaurants from 21% to 15%, rectifying the current illogicality when in the case of buying food the VAT rate is 15% and by subsequent sale of processed food the rate increases to 21%. ORKS advocates also believe it will improve the competitiveness of honest traders in comparison with those who do not duly pay taxes. To what extent these objectives may be actually met depends on many various factors.

According to estimates, introducing ORKS should lead to an increase in the number of VAT payers in tens of thousands. It should concern those business entities that generate their income in the following ways: cash, via credit cards, vouchers, cheques, promissory notes or other means representing money. ORKS thus does not concern those who only invoice and receive money on their banking accounts. So far, no amount after which an entity exceeding this limit would be obliged to introduce ORKS, has been established, which means that the obligations concern all entities – at least for the time being. However, some exceptions are being discussed: ORKS should not apply to maverick sales on marketplaces, but it should involve those selling on such marketplaces regularly. This rule is parallel to the current duty to pay tax. Introducing the ORKS system is primarily aimed at those entities who claim they do not reach the VAT registration threshold, which is currently CZK 1 million (approx. EUR 36,300.00).

The system is to follow the Croatian model, introduced at the beginning of 2013. „The Croatian system is simple, it does not excessively burden business entities and thanks to online connection to the tax office, there is no space for subsequent modifications in actually received and documented income,“ Minister Babiš said after a round of consultations. The truth is the Croatians praise this system, however, the same success is not guaranteed in the Czech Republic with regards to the fact that the Croatians had huge problems with tax collection before the ORKS was introduced, its effect was thus very significant.
Babiš´s department has still not made it clear how expensive such a system will be for the state and for the business entities. Experts estimate that costs of introducing the system will be around CZK 2.5 billion (EUR 90 million). The system is not expected to require any costs on the part of business entities, but common cash registers, mobile phones or tablets connected to the internet and printer should be sufficient. When selling goods or services, the seller will enter the transaction into the system, the transaction will be sent to the central registry and return back with a validation code that will be printed on the receipt issued by the seller. The exact technical solution has not been specified yet, the Ministry of Finance presumes the IT market will work in its favour starting to offer tailor-made packages for business entities. Nevertheless, this reaction will be considerably delayed with respect to the fact that no specifications for software via which business entities will communicate, are not known.

The system has many pitfalls, considered by its opponents to be great risks. These include, inter alia, bad internet connection in some localities (e.g. ski centres), the communication with central registry may lead to system failures and the need to enter transactions into records a posteriori. The greatest threat seems to lie in simply getting around the system, when the seller will not print the receipt when the buyer does not require it, or in more complex frauds of issuing receipts with fake codes (in this connection introducing “receipt lottery” is considered, but this lottery did not prove successful in the Slovak Republic).

Author: Tomas Havlik, Kancelář CATO s.r.o., Prague


Update on the Swedish General election

As written in an earlier piece, the Swedish General Election took place in autumn of 2014 and there was a change in government. The centre-right government has resigned and is instead replaced by a government lead by Social Democrats together with the Green Party and supported by the Left Party. However they have not the majority in parliament since the Swedish democratic party (right –wing – xenophobic) with 13 % of the votes has a swing position in the parliament. This position was used when they voted for the resigned centre-rights budget alternative for the budget of 2015 which then passed. So for the year 2015 we have a government of Social Democrats and the Green Party who will lead the country on their predecessor’s budget since their own budget was voted down.

The way the budget from the government was voted down is an unprecedented event in Swedish parliament since the usual practice is that you vote for your own budget and not as the Swedish Democrats did vote for another alternative. This act was done as a protest that their views and politics are ignored by the other parties especially when it comes to their priority questions regarding immigration.

The failure to get their own budget approved forced the Prime Minister Stefan Löven of the Swedish Democrats to threaten to call on new elections. The day before new elections would be called however there was an agreement between all parties except for the Swedish Democrats called the “December agreement” which is an gentlemen’s agreement between the parties that the largest party/coalition (government) will get their budget passed. So except for the fact that the new government will have to cope with the opposition’s budget for 2015 they will get their budgets passed for the upcoming 3 years.

The new government’s budget which wasn’t passed indicates however how the country will be run. Higher income tax for those who earn the most, higher cost for employing younger people paid by the companies as social security contributions.

Author: Jesper Lindvall, Revelino Revision AB


Changes in taxation of the private use of company cars since January 1, 2015

The taxation of private use of company cars by the employees was a subject of many disputes between companies and tax authorities. There were no detailed regulations, so the general principles applied. The companies were in the position to calculate the value of this benefit for their employees by themselves. Whatever the method was it was often questioned by the tax authorities that had his own opinion about the proper solution. Due to the lack of regulations many companies didn’t calculate this benefit at all, what made their situation in relation with the tax officers very weak – in fact they had to accept the position of the tax authorities. It seems over now.
 
On November 27, 2014 the Act of November 7, 2014 on facilitating execution of the economic activity was published in The Journal of Laws. The Act contains a change in the law on income tax from individuals and introduces taxation of private use of company cars. Starting January 1, 2015, employees will pay a flat tax the additional benefit they have got in respect of it in the amount of the 250 PLN per month – for cars with engine capacity up to 1600 cm3 or 400 PLN per month – for cars with engine capacity of over 1600 cm3.
 
This solution creates an issue in corporate income tax – part of the costs of the car related to personal use of the employee is not deductible, because it is neither related to gaining of the revenues nor protecting them.
 
The act shows indirectly a possibility to avoid the problem by making the above amounts payable by the employee that was a solution used my many companies also before and is free from risks described in the preceding paragraph.

 

Author: Tomasz Wiklinski, THOMAS sp. z o.o., Warzawa


Countdown for tax frauds in Germany

More than 30.000 tax frauds reports up to October 2014 – a new record.

Like we assumed and informed you before (see our article “tax fraud reports in Germany” from June 2014), tax fraud reports will be more expensive in the future, because up from the year 2015 there will be stricter laws in Germany.

People doing tax frauds in Germany get more and more scared. The amount of tax fraud reports rose up to a new record in 2014. The record result of the year 2013 (around 24.000 tax fraud reports) is long ago. The reason for such a run is pretty clear. Up from January 2015 the affected people will have to pay much more money to achieve a penalty free tax fraud report. In detail:

  • The limit for a penalty free report sinks from € 50.000 to € 25.000.
  • The penalty fee is 10 %.
  • Up from the amount of € 100.000 the penalty fee is 15 % and up from € 1.000.000 even 20 %.
  • Besides also the interests (6 % per year) has to be paid immediately.

 
Author: Claudia Keidies, Partner at Somann & Scheller, Hamburg


Tax news in Slovakia – October 2014

Below is an outline of tax news in Slovakia, as of October 2014. There are 2 major topics covered in the tax news:

1. The Mini One Stop Shop (MOSS) Scheme
2. Amendment to the Income Tax Act from 1 January 2015 proposed by the government

1. The Mini One Stop Shop (MOSS) – Non-EU Scheme

Even for the taxable persons that are not established within the territory of the European Union (EU), but supplying telecommunication services, television and radio broadcasting services and electronically supplied services to non-taxable persons (legal and natural persons  not engaged in business) the  place of delivery is considered to be the location (the state) where the service recipient (as an end consumer and a non-taxable person), is established, has a permanent address or place where he usually resides. E-services means the provision of websites, hosting the website, intra-maintenance of programs and equipment, supply of software and its update, supply of images, text and information and accessibility of databases, supply of music, films and games, including games of chance to win and gambling games, and of political, cultural, artistic, sporting, scientific and entertainment broadcasts and broadcasts events and distance teaching.

Taxable persons – providers of these services can use MOSS through the simplified procedure of a single contact point via web portal of any Member State, with no necessity to burden each and every individual state where these services will be provided. Thus they can avoid multiple registrations in each Member State of consumption (in a Member State of the customer) and fulfil their obligation to declare and pay tax imposed by a Member State of consumption. Its obligation to declare and pay the tax (which belongs to the Member State of consumption) they fulfil through a single submitted return via the portal of the Member State of identification.

When using MOSS all the communication is processed electronically and there is no signing of papers using electronic signature or conclusion of an agreement with the tax administrator about electronic delivery required.

Registration and deregistration

Providers who are not established within the territory of the EU may choose to register in any Member State. Member States will make the registration available from 1 October 2014 and if the taxable person registers during the 4th quarter of 2014 the registration becomes effective from 1 January2015.

Tax return submission

Provider who uses some of the special scheme is obliged to electronically submit the quarterly MOSS VAT returns  regardless of the fact whether or not he actually provides services, within 20 days of the end of the period to which the tax returns relates and within the same period the provider is also obliged to pay the related tax liability.

The MOSS VAT return includes the information about the services provided to customers in each Member State of consumption. Domestic provider shall include in the tax return all the telecommunications services, radio and television broadcasting and electronic services which he provided to customers within the European Union. The mentioned services provided to the domestic customers shall be included in a regular tax return. The Member State of identification shall divide VAT return according to Member State of consumption and will send the data to the particular Member State of consumption.

Tax liability payment and refund of taxes

Provider pays the due VAT to the Member State of identification. Provider pays the total amount of the submitted return. The Member State of identification shall generate a unique reference number for each MOSS VAT return and notifies this number to the taxpayer.

2. Amendment to the Income Tax Act from 1 January 2015 proposed by the government

Following are the most significant proposed changes in the Income Tax Act that the government plans to have approved by the Parliament with effect from 1 January 2015

A. Depreciation of tangible fixed assets

The government proposes that the tax depreciation classes be extended from the current four to six. The proposed depreciation classes are outlined in the following table:

Depreciation class:  1    Years of tax depreciation:   4
Depreciation class:  2    Years of tax depreciation:   6
Depreciation class:  3    Years of tax depreciation:   8
Depreciation class:  4    Years of tax depreciation:  12
Depreciation class:  5    Years of tax depreciation:  20
Depreciation class:  6    Years of tax depreciation:  40

The most significant changes include the introduction of the new depreciation class 3 with 8 years of tax depreciation, where machinery and production technology such as electrical engines, generators, transformers and their parts will be included; under the current rules, these items are depreciated for tax purposes over 12 years.

Another significant change affecting a major group of businesses is the introduction of the new depreciation class 6 with 40 years of tax depreciation. This depreciation class will be used for buildings used for administrative purposes, accommodation (e.g., hotels), cultural, educational, entertainment and health-care purposes. Under the current rules, these buildings are depreciated for tax purposes over 20 years.

Further, the government proposes that the accelerated method of tax depreciation be limited for depreciation classes 2 and 3 only, where mostly production equipment, machinery and tools are included. For all the other depreciation classes, i.e. 1, 4, 5 and 6, it is proposed that the straight-line method of tax depreciation only be allowed. Under the current rules, enterprises have a freedom of choosing whichever method of depreciation they prefer for all the depreciation classes.

B. Introduction of thin capitalisation rules

The government proposes the introduction of thin capitalisation rules. The new rules limit the maximum amount of interest expenses charged on loans received from related parties. Under the proposed rules the interest expenses may not exceed 25 per cent of profit before depreciation and tax. Under the current rules, there are no such limits in effect.

The changes above are in a form of the government proposal and have not yet been enacted by the parliament. If enacted, the new legislation will be valid in Slovakia as of 1 January 2015.

Author: Rado Dojczak, D.P.F., spol. s r. o., Bratislava

 


Swedish general election 2014

The result of the Swedish general election has led to a very complicated parliamentary situation. The centre-right government has resigned and is instead replaced of a government lead by Social Democrats together with the Greens and supported by the Left Party. But they are not in majority. The Social democrats has after eight years in opposition proclaimed their self winners of the election however the result this election is only 0.5% more of the popular vote than their worst-ever election performance last time 2010. Their coalition partner, the Greens and supporting partner, the Left party, did no better.

Instead most of the changes was on the right, where the xenophobic Sweden Democrats more than doubled their share of the vote at the expense of the Moderate party, the former leading party and the party of former prime minister Fredrik Reinfeldt.

Sweden Democrats has its roots in a neo-Nazi movement. Its policies are incoherent, apart from a steady hostility to immigrants and cosmopolitans. Many candidates are tainted with thuggery and racism. Yet the agreement reached by all the other parties to ignore them in the hope that they will go away has failed. Exclusion from power has merely strengthened the Sweden Democrats’ claim to be the party of the outsiders. They have now got 13 % of the votes.

The Sweden Democrats are part of a wider wave of romantic and nostalgic nativism around the world. They have much in common with the successful xenophobic and populist parties in Denmark and Norway and something in common with Ukip in the UK. All these are movements against the elites, motivated in part by an anger against establishment snobbery even if most of their rage is directed at foreigners and immigrants.

The difficulty for the new minority government, led by former union leader Social democrat Stefan Löfven, is to bring their politics through a parliament with the centre-right side and the Sweden Democrats in majority.

The former Prime Minister, Fredrik Reinfeldt leaves the national political scene, disappointed. The former government could claim success in navigating the crash of 2008 better than almost any other country.

However, we have now seen the first step of the new government. Last week they produced their first budget. More money spend on reducing unemployment, combined with higher income taxes for those who earn most. Higher social security contributions taxes paid by companies for hiring employees might effect decisions whether companies will increase or reduce their workforce.

Will the government survive 4 years? It is in the hand of the Sweden Democrats.

Authors: Jesper Lindvall and Lennart Nilsson, Revelino Revision AB, Trelleborg


New tax measures aimed to encourage investment in Spanish real estate

Since the beginning of the financial crisis in 2007, the decrease of real estate prices has reached 50% in many areas of Spain. For this reason, investing in real estate can certainly be an attractive alternative for both national and international investors.

In connection with the downfall of prices, it is interesting mentioning that the Spanish Government and Parliament have adopted
numerous tax measures aimed to stimulate this sort of investment in order to revitalize the sector, deeply affected by the crisis.

1. Tax on the tenure of real estate property by non-resident

Among these measures we can mention the suppression of the Tax on the tenure of real estate property by non-resident entities. This tax is calculated by applying 3% on the so called “cadastral value” of the property (and administrative value well below market value) and taxed the real estate owned by non-resident entities. After the reform, the tax only remains for those entities being resident in tax heaven territories.

2. Improvement of the requirements for companies leasing real estate

Other major amendment refers to the special concept of entities leasing residential real estate. This sort of entities are granted a
85% bonus in their Corporate Income Tax (CIT) due, provided certain formal requirements are met (i.e. the lease of residential real estate must be the corporate object; a communication must be filed to the Tax Authorities, etc.). However, apart from these formal conditions, the fulfillment of other substantial requirements related to the leases must be met. In order to make this business more attractive, such requirements have been smoothed: the number of apartments/houses leased or offered to lease must be 8 instead of 10, as required before; the apartments/houses must be leased for a minimum period of at least 3 years instead of 7, as required before. Also the condition the apartment/house cannot exceed a minimum surface has been removed. Additionally, it must be noted that these companies are also allowed to carry out the activity of developing of real estate, although in such case the leasing income must represent at least 55%of the total income.

3. New regime for certain companies leasing real estate listed in the stock exchange

Another important change refers to the relatively recent concept of a special sort of company leasing real estate, which must be listed in the stock exchange (so called “SOCIMI”, in Spanish). The aim of this sort of entity is channeling the
savings of small investors into the real estate sector. The main amendment in the tax field is the reduction of its CIT rate from 19% down to 0%. The taxation of the profit remains unchangeable, as it is only taxed in the shareholders CIT or personal tax, once they receive the dividends from the company.

It is worthwhile mentioning the legal requirements have been improved: the minimum capital is now € 5 million, instead of € 15 million; the entity is now allowed to be listed in alternative markets, apart from the stock exchange market, as it was the only allowed before; there is no limit to the external financing of the entity (before it could not exceed 70% of the assets); the apartments/houses leased must be for a minimum of 3 years instead of 7; the condition that not a single property can represent more than 40% of the assets has been removed.

4. New CIT deduction for small companies

For those companies with a turnover up to € 10 million, a new deduction in the CIT due has been introduced: the bonus consist of 10% of the capital gain derived from the sale of real estate investments and fixed assets. The conditions are: the amount equivalent to the capital gain must be invested in the same kind of asset in a period ending 2 years since the end of the tax year when the gain arose; the assets must be kept for a period of 5 years; a reserve must be registered, equivalent to the amount of the capital gain.

5. Other changes

New reduced tax rates have been passed for newly incorporated companies: taxable base from 0 up to € 300,000 are taxed at 15%, while the rest of the taxable base is taxed at 20%.

These new rates are applicable in the first and second year the company has profits (i.e., no matter that in first years of existence
the company has had losses).

As it can be seen, all these changes in the tax field together with the existing legislation, combined with the collapse of prices in
the sector make very attractive the opportunity  of investing in real estate in Spain.

Author: Enrique Rebés FORWARD ECONOMICS