Tax Alert, June 2019

Malta

Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (hereinafter referred to as: “Multilateral convention”) has become effective for Malta on 1 April 2019.

Malta has published synthesized text of the Multilateral Convention and the Agreement between Republic of Serbia and Malta for the avoidance of double taxation with respect to income taxes (synthesized text has not still been published on the website of the Serbian Ministry of finance).

The provisions of Multilateral Convention have effect with respect to the Agreement, as follows:

·        In Serbia and Malta, for taxes withheld at source on amounts paid or credited to non-residents, where the event giving rise to such taxes occurs on or after 1 January 2020;

·        With respect to all other taxes levied by Serbia, for taxes levied with respect to taxable periods beginning on or after 1 October 2019; and

·        With respect to all other taxes levied by Malta, for taxes levied with respect to taxable periods beginning on or after 1 January 2020.

Ireland

Ireland has deposited ratification instrument for Multilateral Convention on 29 January 2019, hence, Multilateral Convention has become effective for Ireland on 1 May 2019. Synthesized text of the Multilateral Convention and the Agreement between Republic of Serbia and Ireland for the avoidance of double taxation with respect to income taxes has not still been published.

The provisions of Multilateral Convention have effect with respect to the Agreement, as follows:

·        In Serbia and Ireland, for taxes withheld at source on amounts paid or credited to non-residents, where the event giving rise to such taxes occurs on or after 1 January 2020;

·        With respect to all other taxes levied by Serbia or Ireland, for taxes levied with respect to taxable periods beginning on or after 1 Novmeber 2019;

Finland

Finland has deposited ratification instrument for Multilateral Convention on 25 February 2019, hence, Multilateral Convention has become effective for Finland on 1 June 2019. Synthesized text of the Multilateral Convention and the Agreement between Republic of Serbia and Finland for the avoidance of double taxation with respect to income taxes has not still been published.

The provisions of Multilateral Convention have effect with respect to the Agreement, as follows:

·        In Serbia and Finland, for taxes withheld at source on amounts paid or credited to non-residents, where the event giving rise to such taxes occurs on or after 1 January 2020;

·        With respect to all other taxes levied by Serbia, for taxes levied with respect to taxable periods beginning on or after 1 December 2019; and

·        With respect to all other taxes levied by Finland, for taxes levied with respect to taxable periods beginning on or after 1 January 2020.

Other

It is expected that the Multilateral Convention will come into force for the following states with which Serbia has concluded double tax treaty:

1.   Luxembourg – 1 August 2019

2.   The Netherlands – 1 July 2019

3.   Georgia – 1 July 2019

4.   United Arab Emirates – 1 September 2019.

Guidance for mutual agreement procedure related to international double taxation treaties

On 22 April 2019, Ministry of Finance has issued Guidance for mutual agreement procedure related to international double taxation treaties (hereinafter referred to as: “Guidance”). Mutual agreement procedure (hereinafter referred to as: “Procedure”) ensures equal application of international double taxation treaties (hereinafter referred to as: “DTT”), i.e. it is specific instrument for resolution of international tax disputes.

Procedure itself is regulated by DTTs in force (often by the Article 25 of DTT – Mutual agreement procedure). Procedure is initiated by taxpayer who considers that actions of one or both of the contracting states would result in taxation that is contrary to the provisions of DTT in force; or by competent authority of one contracting state, with the aim to resolve doubts and difficulties which arise in application of DTT, or in order to avoid double taxation, in cases which are not covered by DTT.

In Serbia, request for initiation of such procedure is to be sent directly to the competent authority, on following address:

Ministarstvo finansija

Sektor za fiskalni sistem

Kneza Milosa 20

11000 Beograd

Telefon: +381 11 3642 851

Email: fiskalni.sektor@mfin.gov.rs

www.mfin.gov.rs

Request for initiating of mutual agreement procedure is to be submitted immediately upon the first notification of the action resulting in taxation not in accordance with the provisions of DTT. Deadline for submission is defined by DTT (within article which regulates mutual agreement procedure). Having in mind provisions of domestic legislation related to tax procedure, deadline for submission of request starts to run as follows:

-         From the date when withholding tax is calculated, withheld and paid, if tax liability is calculated in tax return for withholding tax;

-         From the date when tax return has been submitted to the tax authority, if tax liability is calculated in tax return;

-         From the date when tax assessment is delivered to the taxpayer, if tax liability is determined in tax assessment;

In case of legal entities, requests often relate to transfer pricing questions, but also to some other cases (existence of permanent establishment, assignment of income to permanent establishment etc.). In case of individuals, requests often relate to double residency (when each of contracting states treats the individual as its taxpayer), inappropriate use of withholding tax on dividends, interest, royalties etc.

The request is to be submitted in writing, on Serbian language. However, having in mind international nature of the procedure, it is advisable to also submit request in English language.  

Request should contain, among others, following information: data for identification (name, address, tax identification number etc.), affected tax periods, relevant facts, nature and date of measures undertaken, against which the taxpayer initiate such procedure, copies of supporting documents, reference to domestic legislation and international agreements, and similar, as listed in Guidance issued.

Upon submission of request, competent authority checks whether formal conditions for initiating of procedure have been met, whether it is submitted within prescribed deadline, by the person who is entitled to submit such request, and whether the request is complete, having in mind its elements prescribed by the Guidance.

If request is submitted only to Serbian competent authority, who decides that conditions for initiating of procedure have not been met, it informs competent authority of other contracting state accordingly.

Submission of request for procedure initiating does not suspend tax procedure which is in progress, not it postpones the execution of issued tax assessments.   

If conditions for procedure initiating have been met, Serbian competent authority may unilaterally resolve the request, using legal instruments existing in domestic legislation, if it is possible. Otherwise, bilateral phase of the procedure is to be initiated, together with competent authority of other contracting state. Procedure is to be conducted by competent authorities, without participation of taxpayer affected (who might eventually be invited to provide additional information about facts and circumstances of the case). Duration of the procedure depends on the circumstances of each particular case. If competent authorities do not come to an agreement, the taxpayer is to be notified accordingly.

Generally, any agreement reached during the process of mutual negotiation is applicable, irrespective of time constraints which exist in domestic legislations of each contracting state, unless such provision is not included within relevant DTT.

When competent authorities of contracting states reach the agreements, the authority which has initiated mutual agreement procedure notifies the taxpayer about the outcome of the negotiations, usually, in two month period after the agreement has been made.

The text of the Guidance may be found on the following link: https://www.mfin.gov.rs/UserFiles/File/dokumenti/2019/Objasnjenje%20o%20Postupku%20zajednickog%20dogovaranja%20Final.pdf (Please note that the guidance is only available in Serbian language).