Tax Alert

New Ministry of Finance rulings

Several Ministry of Finance rulings have been published in the past period aimed at clarifying and elaborating the implementation of provisions of various tax laws, including the Law on Value Added Tax (hereafter: the VAT Law), Corporate Income Tax Law (hereafter: the CIT Law), Law on Tax Administration and Tax Procedure, and the Personal Income Tax Law. The following have been selected:

VAT treatment of pharmaceutical clinical trials services provided to a foreign entity

When a VAT payer – a contractual research organization, or another entity to which a sponsor (a natural or legal entity undertaking the responsibility for initiating, conducting, or financing clinical research) has transferred responsibilities in connection to clinical trials, provides these services to a foreign entity, the place of supply is deemed to be abroad. Such VAT treatment implies that for the services in question no VAT is to be calculated and paid, while the VAT payer can claim input VAT on that basis.

(Ministry of Finance Ruling, no. 011-00-64/2014-04 from April 23^th, 2015)

Tax treatment of the supply of food and drinks representing a part of the contractor’s (entrepreneurs’) consideration

An expense, which has been reported by the taxpayer in its business records, related to food and drinks, based on a service contract concluded with individuals – entrepreneurs, represents a part of the consideration paid for the work performed and is recognized for tax balance purposes, provided that the taxpayer has reported and documented exact amounts granted to each individual contractor in accordance with appropriate accounting regulations. Moreover, when a VAT payer purchases goods – food and drinks to be provided to individuals – entrepreneurs, who provide services on the basis of a service contract, a VAT-able supply takes place, for which the VAT payer should calculate and pay VAT, while being entitled to claim input VAT.

(Ministry of Finance Ruling, no. 011-00-332/2015-04(I) from May 15^th, 2015)

Requirements for making a supply that is out of scope of VAT in case a part of the assets are transferred as contribution to the capital of a company

When a VAT payer transfers a part of its assets as contribution to the capital of a company, consisting of buildings leased by the VAT payer, VAT is not levied, provided that: the company – recipient of assets is a VAT payer or becomes a VAT payer through this transfer, that it continues to perform the same business activity as the transferor, as well as that at the time of the transaction the transferor is not able to lease other immovable property.

(Ministry of Finance Ruling, no. 430-00-89/2015-04 from May 13^th, 2015)

VAT exemption for the sale of land 

If a VAT payer performs a sale of unconstructed construction land, along with the construction permit granted to the VAT payer in question for the construction of a building on the aforementioned land, the supply is VAT exempt without a right to deduct input VAT.

(Ministry of Finance Ruling, no. 011-00-464/2015-04 from May 4^th, 2015)

The possibility of requesting a repeat of tax proceedings in case when a court makes a binding decision determining that a contract which served as a basis for the determination of a tax liability is null

When a competent court makes a binding decision determining that the contract which served as a legal basis for the determination of a tax liability is null, the taxpayer may submit the request for a repeat of tax proceedings to the competent tax authority in accordance with the General Administrative Proceedings Law. On the basis of submitted request, the competent tax authority will annul the tax assessment decision which also annuls the legal effects of the decision in question.

(Ministry of Finance Ruling, no. 430-00-597/2014-04 from March 30^th, 2015)  

Taxation of the lease fees for equipment paid by a Serbian branch to the nonresident parent company from Austria

When a branch of a non-resident company (which performs its activity in Serbia) pays fees for the lease of equipment to its non-resident parent as a lessor, the non-resident company will be subject to taxation based of a tax assessment decision. Additionally, considering that the Double Taxation Agreement is signed between Serbia and Austria, based on which income derived from the lease of equipment is to be treated as a royalty payment which may be taxed in the source state (in this case Serbia), tax should be levied on the realized income of a non-resident legal entity based on a tax assessment decision, applying a rate of 10% on the gross amount of royalties paid.

(Ministry of Finance Ruling, no. 413-00-9/2015-04 of May 21^th, 2015)

Conditions for claiming input VAT stated in an out-of-court settlement on the unauthorized use of electricity

When a VAT payer uses electricity without authorization and subsequently concludes an out-of-court settlement with the system operator, which includes a calculation of the unauthorized usage as an integral part of the settlement, a VAT payer may claim input VAT if the electricity was used for activities eligible for input VAT deduction and the settlement contains data stated in Article 42 of the VAT Law.

(Ministry of Finance Ruling, no. 430-00-00273/2015-04 from June 22^th, 2015)

Tax treatment of the reimbursement of costs to individuals engaged in film making

When a legal entity, which has engaged a film crew – directors, actors, screenwriters, technical staff for filming purposes and has concluded with each individual an engagement contract, bears airplane transportation costs, the reimbursement of transportation costs represents an individual’s income subject to personal income tax as other income.

(Ministry of Finance Ruling, no. 413-00-26/2015-04 from July 8^th, 2015)

Requirements for making a supply that is out of scope of VAT when a VAT payer transfers, without consideration, its entire stock of goods to another VAT payer

When a VAT payer – transferor of assets, performing retail activities, transfers its entire stock of goods during liquidation proceedings, without consideration, VAT is not levied, assuming that, in the moment of supply, the transferor is prevented from performing the activity in question and that the VAT payer – recipient of assets continues to perform the same activity as the transferor.

(Ministry of Finance Ruling, no. 011-00-00625/2013-04 from July 28^th, 2015)

Claiming the tax incentive granted under Article 50a of the CIT Law regarding joint investments with related entities

In order for the taxpayer to be entitled to the tax incentive granted by Article 50a of the CIT Law, it is necessary that more than one billion RSD is invested in the taxpayer’s fixed assets by the taxpayer himself, or by any other single entity. Hence, the fact that the taxpayer and its related entity have jointly invested more than one billion RSD in total into fixed assets does not fulfill the condition for the tax exemption.

(Ministry of Finance Ruling, no. 011-00-0544/2015-04 from June 24^th, 2015)

Disclosing the value of assets obtained through a status change for tax incentive purposes, as provided by Article 50a of the CIT Law

In the sense of the CIT Law, Form SI which contains the ratio of assets obtained through a status change is only submitted for the first tax period in which the asset has been acquired. In the following years, the assets in question are not to be stated and the value of assets obtained through status change is presented only in the field no. 4 of the Form SU, which affects the adjustment of the correction of computed tax in the field no. 5 of the same form.

(Ministry of Finance Ruling, no. 011-00-00260/2015-04 from June 26^th, 2015)

VAT treatment regarding the sale of goods in the free zone

When a VAT payer, as a contractor, performs the supply of goods and services in the field of construction to a VAT payer – free zone user, on a building which is located within the free zone, this supply is zero-rated. However, when a VAT payer performs the supply of goods and services in the field of construction as a subcontractor, VAT is to be calculated and paid.

(Ministry of Finance Ruling, no. 43-00-6/2015-04 from July 1^st, 2015)