Tax Alert, July 2019

Value Added Tax

The place of supply of services of extraction and analysis of soil samples

Ruling of the Ministry of Finance, no. 011-00-646/2018-04 on March 14^th, 2019.

Conclusion from the Ruling: The place of supply of services related to immovable property, including related brokerage services, is determined in accordance with the place where the immovable property is located. That said, the place of supply of services of extraction and analysis of soil samples followed, as well as the supply of service of ground drilling for the purpose of exploration, is the place where the particular land is located.

The above-mentioned ruling is particularly significant for VAT-payers that, within performance of their business activity, perform extraction and analysis of soil samples.

The tax treatment of the supply of online advertising services for third party goods.

Ruling of the Ministry of Finance, no. 401-00-05138/2018-04 on March 18^th, 2019.

Conclusion from the Ruling: When the VAT-payer advertises the sale of goods of third parties on his website, i.e. portal and organizes the delivery of goods sold to the buyers, that supply is considered to be a supply of services which the VAT-payer performs to the owners of goods, i.e. sellers. The compensation for the supply of goods which has been paid by the buyers to the sellers of goods (the recipients of services of advertising delivery) is not considered to be the compensation for the supply which the VAT-payer performs to the owners of goods - sellers.

The above-mentioned ruling is particularly significant for VAT-payers who perform services of online advertising, as well as for VAT-payers who are being advertised in that way.

VAT zero rate for transportation services related to the importation of goods

Ruling of the Ministry of Finance, no. 430-00-112/2019-04 on April 11^th 2019.

Conclusion from the Ruling: A VAT-payer – transporter of goods subject to VAT upon importation does not have an obligation to attempt to confirm whether the competent customs authority has included in the VAT base the transportation expenses arising until the first destination in the Serbia. Any such confirmation, delivered by the importer, that the competent customs authority did not include the transportation in the VAT base for computing the VAT for import of goods does not have an impact on the tax treatment of these services of transport.

The above-mentioned ruling is particularly significant for VAT-payers - transporters who deal with the transport of goods into Serbia.

The obligations of computing VAT in case of financial bonuses

Ruling of the Ministry of Finance, no. 011-00-38/2019-04 on March 29^th_, 2019.

Conclusion from the Ruling: If a VAT payer – pharmacy receives from the producer funds as an incentive (bonus) upon the purchase of goods manufactured by said producer in a previously determined amount from third parties, while these funds do not represent compensation nor the part of compensation for supply of goods or services of the pharmacy performed, VAT is neither computed and nor paid.

Therefore, a transfer of funds without the recipient’s obligation to perform a reciprocal supply in the sense of the supply of goods or services is not VAT taxable.

The above-mentioned ruling is particularly significant for VAT-payers – sellers who provide financial benefits to buyers and which depend on certain external factor or buyer’s actions which are not directly related to the seller (such as purchasing goods from third parties).

Invoice cancelation and VAT reduction procedure

Ruling of the Ministry of Finance, no. 430-00-170/2018-04 on April 15^th 2019.

Conclusion from the Ruling: If the supplier delivers goods within one tax period and issues an invoice within which he incorrectly displays the higher amount of goods than the amount which is actually delivered, which leads to higher amount of VAT than the amount which is due, the supplier has an obligation pay the amount of VAT displayed in that invoice in the period in which the supply was performed and the invoice issued.

In the tax period within which the mistake is identified, the VAT-payer has a right to issue a new invoice with correct data, where, accordingly, performs also the cancellation of the invoice issued by mistake and reduction of the VAT obligation in current tax period without the obligation to change the tax return. If the recipient of the first invoice has claimed the right to deduct input VAT on the basis of that invoice, it is necessary to submit the amended tax return, considering that this is the invoice which has not been issued in line with the VAT Law.

Ruling of the Ministry of Finance, no. 011-00-124/2019-04 on June 11^th 2019.

Conclusion from the Ruling: When a VAT payer draft an incorrect invoice, records it in its IT system and delivers it to a buyer, the buyer, i.e. VAT-payer, does not have a right to deduct input tax on the basis of that invoice, and VAT-payer who has issued the incorrect invoice has a right to cancel it and to deliver that document to the buyer.

If the incorrect invoice has been recorded in the IT system, and it was not sent to the buyer, the VAT-payer who drafted the invoice has a right to cancel it; however, he has an obligation to keep a record of the incorrect invoices made and documents upon which those invoices are canceled.

However, if a VAT-payer does not perform the cancellation of the incorrect invoice, the VAT displayed in that invoice is due until VAT-payer changes the invoice.

The above-mentioned rulings are particularly significant for VAT-payers who make mistakes while issuing invoices, considering the fact that these rulings regulate for the first time the procedure of cancelation of invoices more precisely.

Determination of a tax debtor for ground works which are performed as a preparation of the terrain

Ruling of the Ministry of Finance, no. 430-00-266/2019-04 on May 27^th 2019.

Conclusion from the Ruling: The goods and services in the field of construction are also considered to be the ground works which are performed as a preparation of terrain for the purpose of construction of a facility, leveling of the terrain, as well as filling the soil with humus, followed by planting. That been said, the tax debtor for that supply is the recipient of works mentioned. That activity is considered to be an activity from the group 43.12 – Preparation of construction site in line with Classification of Activities.

The above-mentioned ruling is particularly significant for VAT-payers who perform the preparation of the terrain within the construction of facilities, as well as for recipients of such services.

VAT treatment of a free of charge supply of specially procured freight vehicles

Ruling of the Ministry of Finance, no. 011-00-00087/2019-04 on May 27^th 2019.

Conclusion from the Ruling: When the VAT-payer purchases freight vehicles intended to be used for the needs of third parties, VAT displayed in the invoice issued by the seller of vehicles could not be deducted as input VAT by the buyer. When after certain period of time the buyer of the vehicles transfer the right of disposal on the vehicles free of charge to the parties that have been using the vehicles, VAT is neither computed, nor paid.

The above-mentioned ruling is particularly significant for VAT-payers who procure certain goods for the needs of third parties which are planned to be transferred free of charge.

Determination of a tax debtor for various transportation services to and from the construction site

Ruling of the Ministry of Finance, no. 430-00-00089/2018-04 on May 24^th 2019.

Conclusion from the Ruling: When a VAT-payer performs ground works to another tax payer – excavation of ground with loading and transport from the construction site, he performs the supply of goods and services in the field of construction where the tax debtor for the supply is the recipient of services.

However, when a VAT-payer performs the transport of ground, ground waste and rocks to and from the construction site, the obligation to compute and pay VAT lies on the VAT-payer who performs the supply.

The above-mentioned ruling is particularly significant for VAT-payers who perform the preparation of the terrain within the construction of facilities, as well as for recipients of such services.

Tax treatment of equipment and space provided to engaged entrepreneurs

Ruling of the Ministry of Finance, no. 430-00-267/2019-04 on May, 24^th, 2019

Conclusion from the Ruling: When a VAT taxpayer provides that entrepreneurs engaged for programming activities, perform these activities without paying a fee for use of the taxpayer’s premises and equipment, such an arrangement is considered to be for the business purposes of the taxpayer, i.e. in order to reduce expenses. That been said, the taxpayer does not have an obligation to compute and pay VAT on that basis.

The above-mentioned ruling is particularly significant for VAT-payers that engage entrepreneurs on their own business premises.

The right to deduct input tax in the case of electricity used by another VAT-payer

Ruling of the Ministry of Finance, no. 413-00-277/2017-04 on May, 27^th, 2019

Conclusion from the Ruling: If within the invoice for the supply of electricity one VAT-payer is stated as a recipient of invoice and electricity is used by another VAT-payer, in that case the VAT computed and displayed within the invoice for the supply of electricity cannot be deducted as the input tax, neither by the VAT-payer who is stated as a recipient of invoice, because electricity is not used for performing his activities, nor VAT-payer - user of electricity, since an invoice of the previous participant in supply chain (supplier of electricity) does not state this VAT-payer as a recipient of invoice.

The above-mentioned ruling is particularly significant for VAT-payers who perform activities on shared premises, owned by other parties.

The determination of the place of supply of service of training of employees

Ruling of the Ministry of Finance, no. 430-00-111/2018-04 on May, 27^th, 2019

Conclusion from the Ruling: When a foreign entity, i.e. person who has neither a seat nor a permanent establishment in Serbia, and under the assumption that the foreign person is not a VAT-payer in Serbia, performs a service of training of employees to a business entity which is registered for performing representation in insurance as its business activity, with seat in Serbia, the place of supply of that service is in Serbia in this particular case. Namely, that is because the place in which the recipient of service has a seat is considered to be place of supply of this service, regardless of whether the training of employees is actually conducted in Serbia or abroad.

The above-mentioned ruling is particularly significant for VAT-payers who send their employees on various types of courses and trainings outside of Serbia, considering that in certain situations the place of supply for these services will not be the place where the service has actually been performed (i.e. where the courses and training have actually taken place).

Tax treatment of costs displayed in certified interim payment certificates

Ruling of the Ministry of Finance, no. 430-00-272/2019-04 on June, 11th, 2019

Conclusion from the Ruling: In case when supplier issues interim payment certificates to an investor within a construction project, the tax liability occurs for the supply in the field of construction on the basis of his certification. The supplier in these certificates displays data about all activities and all costs (expenses) until the certain date of the construction of a facility, in sense of displaying the structure of compensation covered by that certificate.

In addition, the data about values of the particular activities and values of particular expenses, as segments of the supply in the field of construction, are not considered to be the data about the amount of compensations for the individual supplies, considering the fact these are not individual supplies.

The above-mentioned ruling is particularly significant for VAT-payers to whom suppliers of works issue interim payment certificates as to investors within construction projects. The act of certification of such documents represents a tax point for a supply in the field of construction.

For any questions regarding the application of the rulings in the field of Value Added Tax, you can contact Pavle Kutlesic, LL.M., Manager in Tax Department (Indirect Taxes), via email address: pkutlesic@deloittece.com.

Corporate Income Tax

Correction of corporate income tax base for expenses arising due to the difference in compensation that should have been paid to a related party

Ruling of the Ministry of Finance, no. 413-00-16/2018-04 on March, 11th, 2019

Conclusion from the Ruling: A taxpayer can in his financial records, and in line with applicable IAS and IFRS provisions, record expenses (or the reductions of income) regarding the difference in compensation that should have be paid to a related party. In that case, the amount of that compensation is determined in accordance with the "arm's length principle" and a taxpayer is, therefore, not obliged to make a correction of a tax base for corporate income tax in tax balance on that basis.

The above-mentioned ruling is particularly significant for taxpayers who have transactions with related parties, considering the fact it indicates that self-initiated financial adjustments that have been performed in order to achieve compliance with the "arm's length principle" are acceptable for the tax balance purposes.

The payment of a withholding tax on the income generated by the increase of participation in the capital of resident legal person

Ruling of the Ministry of Finance, no. 011-00-962/2018-04 on April, 1th, 2019

Conclusion from the Ruling: When a taxpayer, as a licensee, does not have an obligation to pay for royalties to a non-resident legal person – licensor, who, on that basis, in the amount of that royalty, increases his participation in the capital of a taxpayer, licensor has generated an income, on which basis a withholding tax should be computed and paid.

The above-mentioned ruling is particularly significant for taxpayers who are licensees supplied by a non-resident legal person.

Withholding tax on data storing services

Ruling of the Ministry of Finance, no. 430-00-64/2019-04 on May, 24th, 2019

Conclusion from the Ruling: The compensation which a resident legal person pays to a non-resident legal person for data storing on the servers of a non-resident legal person abroad, while this data is being transmitted to the designated (electronic) addresses, is considered to be a royalty subject to withholding tax.

The above-mentioned ruling is particularly significant for taxpayers who pay compensations for the data storing services.

Withholding tax on compliance check services

Ruling of the Ministry of Finance, no. 430-00-203/2019-04 on April, 25th, 2019

Conclusion from the Ruling: The compensation which has been paid by a resident legal person to a non-resident legal person on the basis of the compliance check service of “Chinese GMP certificate of the production of a certain raw material with European GMP certificate” is not considered to be a compensation from the services on the basis of which a non-resident legal person generates an income taxable by the withholding tax.

The above-mentioned ruling is particularly significant for taxpayers who are obliged to perform certain compliance checks within their business activity.

For any questions regarding the application of rulings in the field of Withholding Tax, you can contact Slobodanka Kolundzija, LL.M, Manager in Tax Department (International Taxation) via e-mail address: skolundzija@deloittece.com.

Personal Income Tax

The taxation of a capital gain in case when the final price is not known at the moment of sale

Ruling of the Ministry of Finance, no. 413-00-4/2019-04 on March, 11th, 2019

Conclusion from the Ruling: While determining the tax on capital gain the circumstance that the final price for the contribution in capital is not known at the moment of sale will not be relevant. As such, the tax liability could be determined on the basis of data about capital gain generated which the competent tax authority determines based on all available evidence.

The above-mentioned ruling is particularly significant for capital gain taxpayers when the final price for the contribution in capital is not known at the moment of sale.

For any questions regarding the application of rulings in the field of Personal Income Tax, you can contact Aleksandra Anokic, LL.M, Senior Consultant in Tax Department (Taxation of Individuals) via e-mail address: aanokic@deloittece.com.