Tax or Penalty? The New Law on Origin of Property and Special Tax

09
Mar 2020

Contact: Jelena Jeremić

novi zakon o poreklu imovine

Everyone has been waiting for years and now it is finally here – the new Law on Determining the Origin of Property and Special Tax (hereinafter: the Law) was adopted by the Parliament on February 29, 2020. The Law came into force on the eighth day after its publication in the Official Gazette, and we will wait a little less than a year for its implementation to begin.

The new Law will be a favorite piece of literature for tax administration inspectors, who, given the seriousness of the task, will be selected among the greatest experts. When inspecting the property of the citizens of the Republic of Serbia, their duty will be to find and tax hidden part of the property. The entire network of government bodies will assist with the task, with confidential information up their sleeves, while respecting the principle of the proportionality of processing the personal data.

What Are the Novelties in the Law?

The new Law lays down the requirements, methods and a special procedure through which the Tax Administration analyzes the property and seeks the increase of the property whose legality of acquisition individuals cannot prove. If they find it – here comes special tax.

Therefore, the purpose of the new Law is obvious: to stand in the way of the illegally acquired property, which is defined by the Law as: “the difference between an increase in property and reported income”.

In order to better understand this definition, we will introduce you with the basic concepts:

What is the Procedure in the new Law on Origin of Property?

The Tax Administration initiates and conducts the procedure ex officio in two phases:

  • preliminary procedure and
  • the control procedure and determination of the special tax.

The preliminary procedure is conducted in accordance with the annual guidelines, which are not publicly available. However, it may also be initiated based on the application of another authority or a natural or legal person.

Therefore, the competent Tax Administration Unit should determine that it is probable that there is a difference between the increase of the property and the reported income of the individual in order to move to the next stage – the control procedure.

The inspector will, by applying the special tax technique foreseen by both the new and the Law on Tax Procedure and Tax Administration, the so-called cross-check of property, indicate the discovered secret to the person so it will have to justify the acquisition of its property.

If, during this mission, the inspector discovers facts indicating that there are grounds for suspecting a criminal offense, the inspector will inform the police, the public prosecutor’s office and other competent authorities, who would then join them in the struggle to provide an efficient tax system in Serbia.

If a material gain by the criminal offense is determined by a final judgment in the criminal proceeding, and the person has previously paid a special tax under this Law, the court will include the special tax paid for the material gain obtained criminally, which is a mitigating circumstance. This is also applied in proceedings for the forfeiture of property arising from a criminal offense.

What Encompasses Your Property?

advokat za nekretnine advokati za imovinsko pravne odnose advokat za imovinsko pravne odnose

When determining the value of your property, the Tax Administration will take into account everything it encompasses and, in particular:

1)   immovable property (apartments, houses, office buildings and premises, garages, lands, etc.);
2)   financial instruments;
3)   shares in a company;
4)   equipment for performing independent activities;
5)   motor vehicles, vessels, and aircraft;
6)   savings deposits and cash;
7)   other property rights.

Just when you think you won’t be struck by the high tax rate, the new Law adds “other rights” to this list, which means that the Tax Administration will take into account everything you own.

If this procedure is initiated against you, be aware that you have the right to participate in the control process and bring evidence to prove the lawfulness of the acquisition of the property. However, if you choose not to participate in the control process, this will not delay further proceedings. Upon completing the control procedure, the Tax Administration Unit will issue a Decision on a special tax if it determines the existence of illegally acquired property.

You can still avoid paying the special tax by appealing against the decision. The appeal is filed to the Ministry responsible for finance and it postpones the execution of the decision.

After the Ministry issues a decision, it is final, which means that you can hire a lawyer to bring an administrative lawsuit.

Burden of Proof

Both the Tax Administration and the person whose property is being inspected hold the burden of proof. Thus, the Tax Administration will need to prove the increase of the property, while on the other hand, the natural person will need to prove that it has lawfully acquired the property, which makes the job much easier for the inspector.

Cooperation of Tax Administration with Other Authorities

Be careful, though. The tax inspector is assisted throughout the procedure by:

  • state authorities and organizations,
  • autonomous province authorities,
  • bodies of the local self-government unit,
  • holders of public authority,
  • natural and legal persons.

The Tax Administration also has access to all types of records and data kept by the competent authorities and other persons on:

  • immovable and movable property,
  • business entities,
  • financial instruments,
  • savings deposits and accounts with commercial banks,
  • other records and data from which the property of an individual can be determined, as well as
  • business books and documentation of companies and other persons.

If others reach the information, they are obliged to keep it as confidential information.

So, if your property seems suspicious to the tax inspector, an entire team of professionals will investigate every detail about it.

The Law provides for another form of cooperation between the Tax Administration and other state authorities in order to achieve the financial goals of the state more effectively.

Hence:

  • the Ministry of Interior,
  • the National Bank of Serbia,
  • the Administration for the Prevention of Money Laundering,
  • the Anti-Corruption Agency,
  • the Republic Geodetic Authority,
  • the Business Registers Agency and
  • Central Securities, Depository and Clearing House

are all obliged to appoint one or more liaison employees, in order to cooperate and provide the information to the Tax Administration Unit more effectively, so they could conduct the procedure. If necessary, these employees may be temporarily reassigned or assigned to the Tax Administration Unit.

What Is the Tax Rate?

The special tax base is determined by the value of the illegally acquired property, which is the sum of the revalued value of the illegally acquired property for each calendar year which was the subject of control. The value of the illegally acquired property is revalued by the Consumer Price Index of the last day of the calendar year for which the illegally acquired property was determined until the day of issuing the special tax decision.

For those who cannot prove the origin of their property, the following part is a favorite of the tax inspection’s literature – the tax rate! Sit down, have a glass of wine, and take the time to think about whether it’s worth hiding when declaring income, because now we’re going to show you what to expect if you decide to do it: a tax rate of 75%!

Yes, you read that right. As tax rates are otherwise drastically lower, it seems that there’s another goal of the new Law – punishment. Penal provisions are usually found at the end of each law. However, this one hid under Article 16.

If you had concerns before, take a deep breath, as more requirements must be met. The Tax Administration initiates the control procedure, if it is probable that for a maximum of three consecutive calendar years in which you have an increase in assets, there is a difference between the increase of assets and your reported income above EUR 150,000.00 in RSD equivalent at the middle exchange rate of the National Bank of Serbia at the last the day of the calendar year of the verification period.

Who Exactly Will Conduct the Procedure?

The new Law provides that a special organizational unit will be established within the Tax Administration, perform tasks specified in this Law. As we said, a real team of specialists.

The duty to attend on-going training is prescribed for all employees of the Tax Administration unit, as well as for employees of the Ministry responsible for finance, which is especially important given the prescribed tax rate if professionals find irregularities when investigating your property.

Also, the judges of the Administrative Court who will judge the lawsuits against final decisions on the special tax will have to complete the training for acquiring special knowledge on the determination of illegally acquired property and special tax. This also speaks in favor of the fact that the utmost expertise must be applied in procedures important for improving the efficiency of the tax system and preventing its abuse.

Who Will Go Through Control First?

What’s interesting is that the employees of the Tax Administration Unit are obliged to submit to the Agency for the Prevention of Corruption, in writing, complete and accurate data on their property, which will be put in records and checked. Therefore, the first citizens of Serbia whose property will be subjected to control will be the ones who will be doing the control in the future. This will prove their impartiality and professional qualities.

At the written request of the Director of the Tax Administration, security checks of the employees of the Tax Administration Unit are also done prior to their hiring, during their employment and one year after the end of employment, without their knowledge.

Security checks will be carried out by the Ministry of the Interior and the Security Information Agency. Security checks of the Ministry of the Interior will be carried out to determine the existence of interference in terms of protection of the public order, and the Security Information Agency’s checks will be done to determine the existence of interference in terms of security of Serbia.

Misdemeanors

In addition to the misdemeanors prescribed for trade secret infringement, a misdemeanor also constitutes the non-disclosure of data by state bodies and organizations, holders of public authorizations, natural and legal persons.

In the Meantime…

At the end of our blog, we observe that there is about a year left to prepare a team of specialists to implement this Law. If you choose to keep secrets, the inspectors will have their hands full. The 75% rate is a much bigger penalty than the tax rate. Having in mind how high the tax rate is, consider whether your property is that valuable, in order for you to hand over almost all of its value to the state budget, after the discovery of illegality.

Latest Post

STAY TUNED

Stay in the loop with the most important updates

CONTACT

CONTACT