Serbian National Assembly adopted on 19th April 2018 amendments of, amongst other, the Law on Value Added Tax (“VAT Law”) and the Law on Tax Procedure and Tax Administration (the “LTPTA”).
Amended VAT Law extends number of cases in which foreign taxpayers can claim VAT refund, so this is now possible also when they carry-out in Serbian territory supply of goods and/or services for which customer is obliged to charge VAT (reverse charge mechanism).
LTPTA norms are harmonized with criminal legislation concerning mandatory defense of prosecuted persons. Therefore, if defendant did not appoint attorney of his choice, the Tax Administration is now obliged to ex officio assign to him defense attorney at first hearing before the Tax Police on grounds of suspicion that defendant committed criminal offense for which he can be sentenced to imprisonment of eight (8) or more years. Reason for this change is that the Tax Police has same powers and authority in pre-investigation proceedings as state police force, except to restrict movement of persons, and therefore it was necessary to secure appropriate rights to defendants before the Tax Police as well, such as the right to mandatory defense.
On the other hand, we consider as rather problematic the fact that the legislator did not revoke, but it rather expanded provision of the LTPTA which prohibits the Serbian Business Registers’ Agency (“SBRA”), to delete business entity from the registry, to register mergers or acquisitions, changes regarding shareholders, legal address, amount of capital stake or company’s legal form, in the period as of the moment when SBRA receives notification from the Tax Administration that certain entity will be subject to tax audit, including actions of the Tax Police aimed to discover tax crimes, up until the moment when SBRA receives notification on completion of tax audit or actions of the Tax Police. In our opinion, this represents illegal restriction of freedom of entrepreneurship guaranteed by the Constitution, which results with principles of doing business defined by the Company Law to become worthless, such as rights to free transfer of shares in the company, to merge two business entities, to change business name, legal address, amount of capital stake and legal form, or to discontinue business operations. Mere fact of initiating tax audit and/or actions conducted by the Tax Police, with uncertain duration and outcome, can prevent fully legitimate transactions (e.g. transfer of share, increase of share capital etc.), irrespective of the outcome of tax audit or pre-investigation proceedings. Even if the tax authorities do not discover any kind of irregularities in business operations, uncertainty regarding duration and outcome of said proceedings, can lead buyer of shares to pull-out from the transaction, leaving owner of shares exposed to damages. Also, due to inability to increase share capital, company can be exposed to risk of illiquidity etc. Furthermore, this legal mechanism potentially can serve as instrument of misuse, by which certain transactions can be prevented, or certain business entities and their operations aggravated, especially having in mind that it is left to discretion of the Tax Administration and the Tax Police to selectively decide in which cases they will notify SBRA on initiation of tax audit or pre-investigation actions, and when they will not do so. Also, the way how Tax Administration will interpret when tax audit is completed (e.g. does an appeal suspends completion of audit) will contribute to legal uncertainty, as well as (in)efficiency in delivering notifications to SBRA on cessation of reasons that prevent registration of data. Registering of said data with the SBRA, and the fact of conducting tax audit and/or actions by the Tax Police, are not in any way related, formally or logically, and therefore described legal mechanism does not have any justification. In addition to this, this mechanism implies assumption that tax payers are non-compliant, i.e. the assumption that each business which is subject to tax audit, is business with inherent risk. In our opinion, such approach represents breach of Constitutional rights, and expresses mistrust of the state towards business entities. Also, absence of logic in this mechanism is confirmed by the fact that relevant moment is mere completion of tax audit, irrespective of outcome thereof, and in this way tax payers who are fully compliant in paying their taxes are equalized with those tax payers who avoid fulfillment of their tax obligations, i.e. it does not make any difference whether irregularities were discovered in the tax audit or not. If intention of the legislator was to prevent abuse of regulations by unscrupulous business entities or their owners, then wrong way is chosen to achieve this, since existing mechanism in the LTPTA could prevent or unnecessarily postpone realization of completely legitimate transactions and business changes that are aimed to increase turnover between market participants and improve environment for doing business. As many times until now, compliant businesses and their owners will mostly suffer from negative consequences of legal solutions, while those who are non-compliant will, as usual, find ways how to evade their legal obligations.