As of December 14, 2022, the Tax Administration of the Republic of Serbia started passing temporary tax decisions imposing payment of individual income tax based on agreed remuneration for the copyright and related rights and agreed remuneration for performed work with contributions for mandatory social insurance. These decisions targeted both Serbian and foreign citizens who made a profit abroad and transferred it to bank accounts in the Republic of Serbia during 2017 and 2018. For the first time in the country’s tax practice, tax liability was assessed automatically by passing temporary tax decisions, without conducting tax proceedings.
The temporary tax decisions are aimed at the quick collection of taxes and contributions for mandatory social insurance when there is a risk of the statute of limitations expiring. Since the right of the tax administration to collect tax is limited to a period of five years from the year in which the tax should have been assessed, the tax administration passed in December 2022 the temporary tax decisions for 2017, and in December 2023, the temporary tax decisions for 2018.
A rush action of the tax administration and a lack of tax proceedings made it impossible to fully and rightfully establish the facts. As a result, even non-residents of the Republic of Serbia were found to be liable to pay the taxes mentioned above. The Law on Tax Procedure and Tax Administration and the Law on Administrative Procedure explicitly provide that a party must have an opportunity to participate in tax proceedings and adduce evidence aimed at annulling or reducing their tax liability. The fact that the temporary tax decisions were passed automatically (based on inflows from abroad that are recorded on bank accounts in Serbia) led to a bizarre situation. Tax residents of other countries were obliged to pay taxes even though they had paid taxes and contributions in their countries. Since those individuals did not participate in the tax proceedings, they were not able to adduce evidence proving that they were tax residents of other countries with which Serbia signed double taxation avoidance agreements. Instead, they had to initiate appeal proceedings. An appeal in tax proceedings does not have a suspensive effect, which means that tax interests accrue during these proceedings. Additionally, these individuals cannot get tax certificates on settled tax liability in Serbia, which may prevent them from exercising their other rights. Due to the thousands of appeals filed, second-instance decisions were additionally delayed (even before the tax administration started passing these temporary tax decisions, the average time for delivering second-instance decisions was two to three years). The second instance authority has still not decided upon the appeals filed against first-instance decisions passed in December 2022.
Additionally, many of the individuals who were obliged to pay these taxes were not able to appeal against the decisions because they were precluded from doing so. Namely, the tax decision shall be considered delivered after the expiry of 15 days from the day of its delivery to the post office. Those who do not reside in Serbia have never personally received these decisions. The decisions were automatically sent to the addresses registered with the Ministry of Interior, without anyone checking whether those individuals still lived in Serbia. Those affected become liable for taxes they did not even know existed.
The temporary tax decision unjustifiably included domestic and foreign citizens who worked abroad considering that the regulations on pension and disability insurance of the Republic of Serbia do not apply to persons working outside the Republic of Serbia for a foreign employer. Regarding this issue, the Ministry of Labor, Employment, Veterans and Social Affairs also expressed its opinion. In it, it took the clear stance that those individuals should not be considered taxpayers. Despite such an opinion, the tax administration wrongfully assessed the liability. As a result, new appeals were filed, while the previous ones were not yet processed.
This whole situation has affected the economic climate in Serbia and caused fear that persons who do business abroad and have paid taxes there will still be taxed unjustifiably due to the transfer of those funds to bank accounts in Serbia. We do expect that due to the pressures coming from the business environment, the tax administration will not repeat the same mistake for the third time this December, and that it will do its best to avoid unjust taxation.
By Natasa Saric, Head of Tax Practice, Zivkovic Samardzic
This article was originally published in Issue 11.9 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.
