Serbia in the global exchange of tax data
The growth of the world economy in the last decades of the twentieth century, which was conditioned by development in the fields of technology, communication systems and transport, in addition to large profits, brought companies a wide range of opportunities for tax evasion. Domicile tax administrations remained deprived of data on companies’ taxable revenues generated abroad, while state budget planning in terms of financing the budget from collected taxes became unpredictable and uncertain, causing a budget deficit due to significantly less collected taxes than planned. The first steps towards safer budget planning have been taken, quite logically, in the United States. As a state pioneer of global trade, it passed the Foreign Account Tax Compliance Act (FATCA), which refers to a set of regulations of the United States of America in the fight against tax evasion. In Europe, the Convention on Mutual Administrative Assistance in Tax Matters already existed within the activities of the Organization for Economic Cooperation and Development. Its upgrading and improvement was carried out on the basis of FATCA. In addition, the European Commission has adopted several directives regulating the exchange of tax data and interstate institutional assistance in tax matters.
Implications on Serbia
Tendencies of international regulation of cooperation of tax administrations in the exchange of data and assistance in the collection of taxes, had their reflection on the positive right of the Republic of Serbia.
In 2019, the Republic of Serbia signed a bilateral agreement with the United States of America on the application of FATCA regulations to the financial institutions in Serbia. With this agreement, the Republic of Serbia undertook to collect information from financial institutions operating in Serbia regarding each account subject to report by the US Internal Revenue Service (IRS) and to enable their automatic exchange. The agreement clearly defines the financial institutions that are obliged to provide information. The Administration for the Anti Money Laundering is in charge of the implementation of the agreement. The basic information that is collected is:
- a) the name, address and U.S. TIN of each designated U.S. entity that holds such an account, or, in the case of a non-U.S. entity identified as the Entity whose Persons controlling U.S. designated persons, the name, address, and U.S. TIN (if any) of that Entity and any such Designated Persons from the United States;
- b) account number (or its functional equivalent in case there is no account number);
- c) name and identification number of the reporting Financial Institution of Serbia;
- d) the balance or value of the account (including, in the case of a cash value insurance contract or an annuity contract, cash value or redemption value) at the end of the relevant calendar year or other relevant reporting period or, if the account was closed during that years, immediately before extinguishing;
- Multilateral Convention on Mutual Administrative Assistance in Tax Matters
The Republic of Serbia has also signed the International Convention of the Organization for Economic Cooperation and Development (OECD), which provides a framework for spontaneous exchange and exchange on request, tax data and assistance in tax collection procedures between signatory states.
This Convention shall apply to:
- a) income or profit taxes,
- b) taxes on capital gains introduced separately from taxes on income or profits,
- c) the tax on net assets, introduced by the party;
- d) taxes on income, profit, capital gain or net property imposed by political units or local self-government units of a party,
- e) compulsory social security contributions paid to the central government or social welfare institutions established in accordance with public law,
- f) taxes other than customs duties imposed by a party, as follows:
- taxes on property, inheritance or gift,
- taxes on real estate income,
- general consumption taxes, such as value added tax or sales tax;
- special taxes on goods and services, such as excise duties,
- taxes on the use or ownership of motor vehicles,
- taxes on the use or ownership of movable property other than motor vehicles,
- all other taxes;
- taxes in the categories listed in sub-item C. of this item introduced by the political units or local self-government units of the party
- Common reporting standard (CRS)
Article 6 of the Convention provides for the possibility of automatic exchange of data relevant to domicile tax administrations, both on the basis of the Convention itself and at the bilateral level, which is more frequently the situation. In the first place, the most important thing at this point is to note that the Republic of Serbia has not yet harmonized with regard to automatic exchange with the signatory countries to the convention or concluded a bilateral agreement (except the already mentioned with the USA). The exchange with other countries is made on request or spontaneously. For the needs of automatic exchange, the OECD has defined a standard (Common reporting standard) on which basis will the automatic exchange of tax be performed among the members of the convention, following the example of FATCA. The standard applies to entities that are residents of countries that have implemented the Common reporting standard in their national legislation. The standard defines the entities that are obliged to submit information on the basis of broadly set criteria. By applying general terminological categories. The aim of the standard is to avoid the possibility that specific types of legal forms of incorporation in one country are an obstacle for collecting data on such a company in a country whose legislation does not provide a such form of business entity. The same principle of definition is used in defining the type of accounts, shares in companies, financial instruments, financial assets and types of contracts. Obligors to submit data are:
- Financial institutions – each category of financial institution must meet certain criteria. If an entity does not meet the criteria of a financial institution, it will not be considered a financial institution for the purpose of automatically exchanging information in accordance with the CRS.
- Custody institution – custody institution means any person whose significant part of the work relates to the holding of financial assets, in accordance with defined parameters and deadlines.
- Depository Institution – means any entity that accepts a deposit as part of its regular banking or similar business.
- Investment entity
- An investment entity that conducts business for or on behalf of a client. An entity is considered an investment entity if the business primarily relates to one or more activities such as trading in financial instruments, investing, monitoring and management.
- An investment entity managed by another entity that is a financial institution and that invests for its own account, its gross profit primarily arises from investing, reinvesting or trading in financial assets, it is managed by another entity that is a financial institution or investment entity.
- An insurance company including a holding company in an insurance group that enters into insurance contracts or annuity contracts with the possibility of paying the redemption value of the policy or is obliged to make payments in connection with such contracts.
Organizations are required to submit complete information for the previous calendar year by June 30. Data exchange is performed automatically via electronic platforms of tax administrations. Advanced analytical and selection parameters for information classification have been established. The obligation to inform also applies to tax-relevant data of individuals. This way, many countries that were considered banking and tax havens have lost or are slowly but surely losing their primary significance, because taking on this kind of international obligations abolishes the term known to everyone as “banking secrecy”. . The consequences of the new reality had great implications, not only for the originally mentioned stability in the implementation of the state budget plan of the CRS countries, but also for the established ways of international business, so that the automatic exchange of information relevant to taxation procedures can be considered a revolution.
- EU directives
European legislation has taken over international standards in the field of tax information exchange and interstate administrative cooperation. Nowdays, it is an integral part of the positive law of the European Union with which member states must harmonize their legislation. Thus, based on Council Directives 2014/107 / EU, Council Directive (EU) 2015/2060, Council Directive (EU) 2015/2376, Council Directive (EU) 2016/881 and Council Directive (EU) 2016/2258, Croatia regulated the automatic exchange of tax information, passing the Law on Administrative Cooperation in the Field of Taxes, which cited the regulations implemented in the local legal framework.
Potential, additional harmonization and development of exchange
The application of sophisticated standards of automatic exchange of tax data in Serbia is without any doubt a matter of time. Although the initiative has not yet been clearly stated at the official level, in the process of accession negotiations with the European Union, Serbia will have to take steps towards harmonization with European legislation and with regard to the above-mentioned Directives.
The exchange of tax data and the expansion of tax jurisdictions tend to grow and improve. However, it is not yet possible to determine to in which way will the application of CRS in Serbia have implications for the economic and investment climate, bearing in mind that Serbia is currently a very favorable interconnector for many companies domiciled in the European Union with markets in the east.