CEE Tax Bulletin - Special Edition
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5 Iunie 2010 |
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NOERR FINANCE & TAX S.R.L. |
Adresa
Strada General Constantin Budişteanu, Nr. 28C
Etaj 2
Bucureşti, Sector 1
Telefon
+40-21-312.58.88
Fax
+40-21-312.58.89
Website
www.noerr.com
Main topics
In brief – Top industry alert – Legislative news – Precedents – Cross-border taxation
CZECH REPUBLIC
- Deductibility of interest on loans used for financing dividend distributions
- New protocol to the tax treaty with Belgiumon exchange of information
- VAT on employee benefits
GERMANY
- Publication of the draft Annual Tax Act 2010
- Mitigation of intra-group interesttaxation rules
- Treatment of partnerships for double tax treaty purposes
HUNGARY
- New legislative protection for pension fundmembers
- Different VAT treatment for sale of used residential/commercial property
- Limitation of liability of VAT-invoice recipients
ROMANIA
- New systemof late payment penalties
- New procedure for granting VAT refunds
- Withholding tax exemption on dividends
RUSSIA
- Simplified rules for hiring highly qualified foreign employees
- Tax exemption for distribution of dividends to Russian companies
- Tax authorities granted access to bank secrets
UKRAINE
- Simplified procedures for foreign investments
- VAT owed by the government converted into government bonds
- Tax burden increased
CZECH REPUBLIC
In brief
Elections to the Chamber of Deputies
The latest Czech parliamentary elections took place on 28–29 May 2010. The Social Democrats (CSSD) won the majority of votes; however, the new government will most likely be formed by right-wing parties with the Civic Democrats (ODS) at the helm, since the left failed to gain a majority of seats in the Chamber of Deputies.
Top industry alert
State support for Czech Airlines (CSA)
The government has approved a 3-year recovery plan for CSA, which made a CZK 3.7-billion loss last year. The plan includes disposing of all 18 Boeing planes, cutting load capacity by 30%, selling non-essential assets and halting unprofitable routes. The government also suggested capitalising the CZK 2.5-B loan provided to CSA by the state-owned company Osinek last year. The transaction is now being examined bythe European Commission to determine whether it constituted illegal state aid.
Legislative news
New Specialised Financial Office for companies with turnover exceeding CZK 2B
The Czech Parliament has approved an amendment to the act on regional financial authorities, which introduces a new General Financial Directorate and a new Specialised Financial Office.
The new General Financial Directorate will take over certain functions from the Ministry of Finance, including the preparation of tax legislation and appeal procedures, effective as of 2011. The new Specialised Financial Office, which should be established in Prague in 2012, will be in charge of all companies with a turnover exceeding CZK 2B, banks and branches of foreign banks, and insurance companies.
VAT on employee benefits
A new amendment to the VAT Act changes the current VAT treatment of employee benefits, which was introduced on 1 January 2010. If an employer provides its employees with meals or any other goods or services at a reduced price, VAT will no longer be assessed on the fair market price (as required by the original rules), but on the price actually paid. The new amendment came into force on 29 April 2010 and changes the VAT treatment retroactively to 1 January 2010. If a company has provided its employees with the above benefits and paid VAT on the fair market price, it is entitled to a refund of the VAT already paid.
Precedents
Interest on loans used for financing dividend distributions is deductible
The Supreme Administrative Court has issued a ruling that significantly changes the approach to tax deductibility of interest costs incurred on loans that serve to finance dividend distributions (ruling No. 5 Afs 25/2009-98 of 25 March 2010). The Ministry of Finance has historically considered interest on such loans as tax non-deductible, which practically required that dividend distributions be financed by cash retained by the company.
However, the Supreme Administrative Court confirmed the tax-deductibility of the interest costs in a case brought by a major Czech company, using the following arguments:
- Dividend distributions are a motivating factor for shareholders, who, in turn, through their investment in the company ensure that the company carries out its business activities and obtains taxable income.
- The law does not require a company to keep the cash equivalent of profits made over a certain period of time untilthe shareholders decide on the distribution of such profits. Otherwise, the company would be indirectly prevented from using the profits created (cash) continuously for financing its operational activities, investments etc., and it would practically be necessary to finance such needs by means of loans, thus incurring additional interest costs.
- If a company did not finance the dividend payments with a loan, it might be obliged to sell part of its operating or other assets, which would restrict its business activities and therefore decrease its taxable income. The above ruling is important for any company that is distributing its profits, and in particular for structuring acquisition financing.
Cross-border taxation
Protocol to the double tax treaty between the Czech Republic and Belgium
A protocol to the double tax treaty between the Czech Republic and Belgium was signed by the finance ministers of both countries on 15March 2010. The protocol modifies Article 26 of the treaty, Exchange of Information, and will constitute an integral part of it. Its provisions will be effective with respect to taxable periods starting 1 January of the calendar year following the year in which the protocol enters into force. The protocol is now subject to the standard legislative procedures in both countries.
