Tax NewsletterDeloitteCentral Europe

March 2011

Tax news in Central European countries

Czech Republic

Changes to VAT rules• TheCzechParliamenthasapprovedchangestothe

VATActthatshouldapplyfrom1April2011.Thefollowingchangescouldhavea significantimpactontheactivitiesofcompanies:

• Thetimetaxdocumentsarereceivedwillbeimportantbecausea claimfora VATdeductionwillnotbepossiblebeforethetaxableperiodinwhichtheVATpayerreceivesthetaxdocuments.Forexample,fortaxablesuppliesmadeon31May2011,thetaxdocumentslikelywouldbereceivedinJune2011.A VATpayerwitha monthlytaxationperiodwillnotbeabletoincludetheVATdeductionclaimearlierthanintheJuneVATreturn,whichmustbefiledby25July2011.Thus,theproposedchangecouldhavea negativeimpactoncashflow.

• AninputVATdeductionwillbedisallowedifthetaxdocumentsdidnotcontainalloftherequiredinformation(i.e.informationnecessaryforthetaxcalculation).

• VATpayerswillbealloweda taxdeductiononlyintheamountcorrespondingtotheVATthatcanbeclaimedaccordingtotheVATAct.Thissituationcouldariseifa supplierappliesa VATratehigherthanthecorrecttaxrate.A personwhoclaimsa taxdeductionusinganincorrectVATratewouldhavetosubmitanothertaxreturntocorrecttheerror.Therefore,reviewingtheaccuracyoftheinputVATratebeforefilinga claimfora taxdeductionisrecommended.

• A taxdeductionina proportionateamountonlywouldbeavailableforacquiredfixedassetsiftheassetswereusedalsoforactivitiesthatdonotrelatetotheeconomicactivitiesofthecompany(e.g.wherevehicleswereacquiredforboththebusinessandpersonaluseofemployees).

• Therulesforcorrectingthetaxbaseandissuingcreditnotesanddebitnoteswillbeadjusted.Theterm“creditnote”(“debitnote”)wouldbereplacedwiththeterm“correctivetaxdocument”anditwouldalwaysbenecessarytoissuea correctedtaxdocumentwiththerequestedinformationaccordingtotheVATActwithin15daysfromthedaythatthefactsdecisiveforsucha correctionareidentified,evenifthetaxbasewouldbedecreased.

• AsfromApril2011,taxpayerswillbegiventheopportunitytoobtaina refundoftheVAToriginallypaidinthecaseofreceivablesfromdebtorsinbankruptcy.

• TheobligationtopayVAToncertainlocalsuppliesbetweentwoVATpayerswillbeshiftedtothecustomer.Thisrulewillapplytothesupplyofgold,selectednon-ferrousmetalsandwaste,andthetradingofgreenhousegasemissionallowances.

New tax rules on energy generation On9November2010,theChamberofDeputiesoftheCzechParliamentpassedthe“EnergyPackage”,a setofamendmentswhichareexpectedtolimitsupportoftheenergyindustry.

Belowisa summaryofthechangesandtheircorporatetaxationimplications.

Photovoltaics (Act Supporting the Use of Renewable Energy Sources):A three-yearwithholdingtaxisintroducedonelectricitygeneratedfromsunlightusingequipmentthatwasputintousebetween1January2009and31December2010.Thetaxratesare26%wherepaymentismadeintheformofa purchasepriceand28%ifpaymentismadeintheformofa “greenbonus”.Thewithholdingtaxappliesfrom1January2011to31December2013andmaybedeductedincomputingtaxliability.

Thetaxexemptionforincomefromoperatingenvironmentallyfriendlyequipmenthasbeenabolished.Furthermore,a requirementtochargetaxdepreciationoncertaintangibleassetsusedforpowergenerationfromsunlightwasadopted.

Taxation of Emission Allowances (Act on Inheritance Tax, Gift Tax and Real Estate Transfer Tax): Thefree-of-chargeacquisitionofgreenhouseemissionallowancesin2011and2012issubjecttogifttax,withthetaxbasebeingtheaveragemarketvalueoftheemissionallowanceaspublishedbytheMinistryoftheEnvironment.Thegifttaxrateinrespectoffree-of-chargeallowancesis32%.

New code on tax administration in effectThenewTaxCode280/2009Coll.becameeffectiveon1January2011,replacingtheActontheAdministrationofTaxesandFees(AATF).

Deloitte Central EuropeTaxNewsletter, March20113

Estonia

Introduction of euroEstoniaadoptedeuroasitsofficialcurrencyon1January2011,withtheEstoniankroon(EEK)ceasingtoexistasfromthatdate.Theofficialexchangerateis:EUR1=EEK15.6466.

Alltaxdeclarationsandreports(e.g.annualreport)madeforperiodsendingon31December2010orearliermustbeinEstoniankroons,evenifthereport/declarationisactuallysubmittedtotheauthoritiesin2011orthereafter.Taxpaymentsmadeortaxrefundsissuedin2011willbeinEuroswiththeamountcalculatedaccordingtotheofficialexchangerate.

Untiltheendof2010,alltaxableamountsweredeclaredinfullkroonsandthetaxamountsroundedtonearestkroon.Beginningin2011,allamountsmustbedeclaredinEurocents(norounding).Thesameprincipleappliestoanytaxamountstobepaidorrefunded.

Taxation of employee stock option plans Asfrom1January2011,theEstonianIncomeTaxActhasseparaterulesforemployeestockoptions.Optionswillnotbetaxableasfringebenefitsiftheperiodfromgranttoexerciseisatleastthreeyears.Asa result,theemployerwillnothaveanytaxobligationsonstockoptionprogramsthatmeetthethree-yearrequirement.Theemployeewillhavetopaya 21%incometaxoncapitalgainsderivedfromthesaleofsharesreceivedundertheoptions(unlesstheemployeesellstheoptionbeforethetimeofexercise).

Definition of related persons Thedefinitionofrelatedpersonshasbeenexpandedtoincludepersonsthathavea jointeconomicinterestorifonepersonhasdominatingpowerovertheother,andindividualsthatarepartners(i.e.cohabitants),evenintheabsenceofmarriage.Previously,personshadtobeconnectedbyanownershippercentagetobedeemedtoberelated.Thebroaderdefinitionwillhavea directimpactontheapplicabilityofthetransferpricingrulesandtransferpricingdocumentationrequirements(i.e.moretransactionswillrequiredocumentation).

Investment accounts for individualsA uniquefeatureoftheEstoniancorporatetaxregimeisthatthereisnoannualtaxationofearnedprofits;onlythedistributedpartofprofitsistaxable.Beginningin2011,thisprincipleisexpandedtoincludecertaininvestmentincomeofindividuals.

A residentindividualmayopena separatebankaccountina creditinstitutionsituatedinanEU/EEAmemberstateoranOECDcountry.Investmentsincertaintradablesecuritiesandsavingsheldincertainsavingsaccountsshouldbemadefromsuchbankaccountandanyincomefromtheinvestmentsshouldbetransferredtotheinvestmentaccount.Anyexcessamounttakenoutfromtheinvestmentaccount(ifnotinvestedintoqualifyingsecurities)comparedtopriorcontributionswillbesubjecttoa 21%personalincometax.A comparisonoftheamountspaidinandtakenoutwillbemadeaftereachtransaction.Onepersonmayhavemultipleinvestmentaccountsandmayhavenon-taxabletransfersbetweentheinvestmentaccounts.TheEstonianIncomeTaxActstipulatesthelistofeligibleinvestmenttargetsforwhichtheamountsontheinvestmentaccountcouldbeused.Typicalexamplesarepubliclytradablesecurities,savingsaccounts,investmentfundunits,options,certainlifeinsuranceagreements.Theinvestmentsshouldbemadeto(i.e.securitiesissuedorservicesrenderedbya personsituatedin)anEU/EEAorOECDmemberstate.Sharesinprivatelimitedcompaniesandprivatelyheldpubliclimitedcompaniesdonotqualifyaseligibleinvestments.

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VAT reverse charge mechanism available for supply of real estate and metal wasteAsfrom2011,thereversechargeisavailableforthesupplyofrealestateandmetalwaste.ThepurchaserwilldeclareboththeinputandoutputVATonitsVATdeclarationinthemonththeinvoicewasreceivedfromtheseller.ThesellershouldindicateontheinvoicethatVATwillbecalculatedbythebuyer.ThesellerwilldeclarethetransactiononitsVATdeclarationonaninformationrowandwillconsiderthetransactionasa supplysubjecttoVAT.ThereversechargemaybeusedforrealestatetransactionswheretheEstonianTaxandCustomsBoardhasbeeninformedbeforethetransaction(optiontotax)takesplace.Itisnotavailableforsalesofresidentialproperty(e.g.apartmentsanddwellings)forwhichtheapplicabilityofVATisnotoptionalorforrealestatetransactionsthataresubjecttothegeneralrateVAT(e.g.lotswithoutconstruction,constructiontransferredpriortothecommencementofuse,significantlyimprovedconstruction).

Cash-based VAT calculation available to small companiesAsfrom1January2011,theavailabilityofthecash-basedVATcalculationisexpandedtoapplytocompanieswhoseannualturnoverdoesnotexceedEUR200,000(itwaspreviouslylimitedtoself-employedpersons).Undera cash-basedVATcalculation,inputVATisdeductibleatthetimeaninvoiceforgoodsorserviceshasbeenpaidandoutputVATisdeclaredatthetimepaymentforgoodsorservicesisreceived.

Deloitte Central EuropeTaxNewsletter, March20115

Hungary

TheHungarianParliamentadoptedvariousproposalsfor2011on16November2010,amendinga broadrangeoftax,socialcontributionandaccountingrules.Notableprovisionsofthelawadopted16Novemberarediscussedbelow.

Separately,on18October2010,Parliamentpassedananti-crisistaxfortaxyears2010-2013ontheretailandtelecommunicationssectorsandenergysuppliers.Thetaxrateforenergysuppliersis1.05%ofnetturnover,withvariousbandsfortheretailandtelecommunicationssectors.Forretail,thebandsare:0%forthefirstHUF500million;0.1%ontheportionofthetaxbaseexceedingHUF500million;0.4%onthatexceedingHUF30billion;and2.5%onthatexceedingHUF100billion.Thebandsfortelecommunicationsare:0%onthefirstHUF100million;2.5%ontheportionexceedingHUF100million;4.5%onthatexceedingHUF500million;and6.5%onthatexceedingHUF5billion.A taxpayerthatcarriesoutmorethanonetaxableactivitywillhavetopaythetaxonlyontheactivitythatresultsinthehighesttaxliability,andanti-avoidanceruleswillapplyinestablishingthespecialtaxliabilityofgroupentities.

Corporate income taxTax rates, deductions and exemptionsThecurrent19%rate(10%onthetaxbaseuptoHUF500million)willbereducedto10%effective1January2013.Asfrom1January2011,the30%withholdingtaxleviedoninterest,royaltiesandservicefeespaidtononresidententitieslocatedinnon-taxtreatycountrieswasabolished,aswellastheprovisions(introducedin2010)thatdeterminenonresidententitiesthataresubjecttocorporateincometax.

A deductionfrompre-taxprofitsisavailableforcapitalgainsonsharesreportedtotheTaxAuthority(notifiedshares),aswellasforgainsrecognisedontheretirementofnotifiedsharesasin-kindcontributions.Also,forthetaxyearthatcommendingin2010,a taxpayermaydecreaseitstaxbaseby50%ofthevalueofdonations,benefits,servicesandassetstransferredfreeofchargetotheHungarianReliefFundifthetaxpayerobtainedtheappropriatecertificate.

Thecorporateincometaxexemptionfor75%ofinterestincomeearnedfromabroadwasrepealedasfrom1January2011.Suchinterestmaybeexemptunderthegeneralrulesprovidedanexemptionisgrantedunderanapplicabletaxtreaty.

Anti-avoidance regimesNonresidentcompaniessubjecttoaneffectivetaxrateof10%ormoreintheircountryofresidencenolongerqualifyasCFCsasfrom1January2011.Fortransferpricing,thetransactionalnetmarginandtheprofitsplitmethodswereaddedtotheexistingcomparableuncontrolledpricemethod,resalepricemethodandcostplusmethodasbeinggenerallyapplicableinrelatedpartytransactions.

Top-up liabilityFortaxadvancesupplementsdueafter16December2010,a taxpayerwillhavea year-endtaxadvancesupplementliabilityonlyifitsrevenueintheyearprecedingthecurrenttaxyearexceedsHUF100million(previouslyHUF50million).

Personal income taxRates, family allowance and tax creditsUnlessotherwisenoted,theamendmentstothepersonalincometaxbecameeffectiveon1January2011.Undertheseamendments,a flatrateof16%(previouslyprogressiveat17%and32%)appliestoincomeinthecomprehensivetaxbase(e.g.employmentincome)andseparatelytaxableincome(e.g.dividends,exchangerategains,interest,incomefrompropertytransfers).Additionally,themonthlytaxallowanceperchildisnowHUF62,500forfamilieswithonetotwochildrenandHUF206,250perchildforfamilieswiththreeormore.Thetaxallowanceisdeductiblefromthetaxbase,includingthetaxbaseadditionandalsoappliestoindividualseligibleforchildcarebenefitsunderEEAmemberstatelaws.

Thegeneralemployeetaxcreditwasreducedtoa maximumofHUF12,100monthlyforannualincomeofHUF2,750,000orless(phasingoutforannualincomeaboveHUF3,960,000).Also,thereimbursementoptionassociatedwithamountspaidbyanindividualtoa voluntarymutualfundorpensionsavingsaccount(NYESZ)wasreducedfrom30%to20%.

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Intheabsenceofa taxtreaty,taxespaidabroadwillcontinuetobegenerallydeductible,subjecttocertainlimitations.Rulesimposingtaxoninterest,royaltiesandservicefeespaidtononresidentindividualsintheabsenceofa taxtreatyandtheseparatetaxationrulesontherentingoutofpropertywererepealed.

Theprovisionsrelatingtothe27%taxbaseadditionaspartoftheconsolidatedtaxbase(introducedin2010)remainineffectin2011,withtheratereducingto13.5%in2012andtheadditionabolishedasfrom1January2013.

Thefairmarketvaluesystemusedforactivitiesandtypicalwages,alongwiththerulesoncompensationsupplementsforpersonalinvolvementandwork,wereabolished.Theconceptofnon-taxableemolumentsalsowasabolished.Certaintypesofincomeclassifiedasnon-taxableemolumentsarenowclassifiedastax-exempt(e.g.pensionsandthehousingallowanceprovidedbytheemployerwithoutanobligationofrepayment).

Non-pecuniary benefitsTherulesapplyingtobenefitsinkindweremodifiedsignificantly,withtherangeofbenefitsthatmaybeprovidedsubjecttotaxpayablebytheproviderbeingnarrowedandtheterm‘benefitinkind’abolished.Underthemainrule,benefitsinkindaretaxableaspartoftheconsolidatedtaxbase,withtherelatedpersonalincometaxliabilitypayablebytheindividualandthecontributionandpercentagebasedhealthcarecontributionliabilitypayablebytheindividualand/ortheprovider(employer).

Asfrom2011,thepayermustmakea 16%personalincometaxanda 27%healthcarecontributionwherethebasisisthevalueofthebenefitmultipliedby1.19(i.e.thetaxratesare19.04%and32.13%).(Previously,a payerwassubjecttoa 54%personalincometaxanda 27%socialsecuritycontributiononthevalueofthebenefitincreasedbythepersonalincometax(andinsomecases,thetrainingcontribution),ortoa 27%healthcarecontributiononthevalueofthebenefit.)Affectedbenefitsincludebusinesstravelmeals,businessentertainment,personaluseofphones,andlowvalueandpromotionalgifts.

Mostbenefitsinkindthatweresubjecttobeneficialtaxratesunderthepriorrulesnowqualifyas“non-wagebenefits”(e.g.holidayvouchers,meals,localtravelpass,assumptionofschooltrainingcosts),butthepreferentialrateswereretained.Suchbenefitsmaybeprovidedsubjecttoa 19.04%personalincometaxliabilitypayablebytheprovider(16%ona basethatcomprisesthevalueofthebenefitmultipliedby1.19),withoutanycontributionorpercentage-basedhealthcarecontributionimplications.Finally,thepreviouslyfullytax-exemptinternetusagewasaddedtothegroupofnon-wagebenefitstaxableata preferentialrate(onthefirstHUF5,000).

Tax statementA newtaxfilingoptionwasintroduced.Specifically,ifanindividualearnsincomethatispartoftheconsolidatedtaxbasefroma singleemployer,andthepayerhasdeductedtaxinaccordancewiththeeffectiveregulations(i.e.thedifferencebetweenthedeductedamountandtheactualtaxliabilitydoesnotexceedHUF1,000),theindividualmayopttosubmita taxstatement(hardcopyorelectronically)inlieuofa taxreturn(providedothercriteriaaremet,suchastheindividualdoesnotapplyitemizedcostaccountingorthefamilyallowanceisnotshared).Thetaxstatementmustbefiledby20Mayoftheyearfollowingthetaxyearandemployersarerequiredtoobtaintheappropriateformfortheemployee.Thetaxstatementincludesonlypersonalparticularsofthetaxpayer,thetotaltaxableincomeforthetaxyear,theamountofthepersonalincometaxobligationandadvancepaymentspreviouslydeducted.

Social security contributionsGeneral rulesInlinewiththeamendedPersonalIncomeTaxAct,theconceptofwhatincomeconstitutesthecontributionbasewasmodifiedbyabolishingthecontributionpaymentrulesrelatingtoincomefromspecificactivities.Thecapontheemployer’ssocialsecuritycontributionthatwasintheproposedruleswasscrapped;thecapontheindividualpensioncontributionpaymentwasretained.Additionally,thesocialsecuritycontributionliabilitiesonincomeconstitutingthecontributionbaseandreceivedfroma nonresidententitywithrespecttoaninsurancerelationshipwiththeemployerwereabolished.

Deloitte Central EuropeTaxNewsletter, March20117

Thepensioncontributionratepayablebytheinsuredwasincreasedfrom9.5%to10%.The14%healthcarecontributionisnotpayableondividendincomethatwasformerlysubjecttoa 10%taxliability(i.e.dividendspaidonsecuritieslistedonthestockexchangeofanEEAmemberstate).Finally,duringtheperiodfrom1November2010to31December2011,privatepensionfundmemberswererequiredtopaya 10%privatepensionfundcontributiontothestatepensionfund,withthemembershipfeebeing0%fortheperiod.

Provisions relating to secondmentThenewrulessetouttheprinciplesforextendingmandatorysocialsecurity(foremploymentoutsideHungary)inaccordancewiththerulesofEURegulationNo.883/2004/EContheCoordinationofSocialSecuritySystems.Amendedrulesapplytothecontributionpayment,reportingandfilingobligationsrelatedtoemployeesworkinginHungaryforforeignemployersthatarenotrequiredtoregisterinHungaryunderHungarianlaw.Additionally,citizensofthirdcountrieswhoareemployedinHungarybya foreignemployerona secondment,assignmentorworkforcehiringandwhoqualifyasforeignindividualsarenotentitledtosocialsecurityinsuranceiftheirworkperiodinHungarydoesnotexceedtwoyears.Finally,ThecontributionpaymentobligationisspecifiedforcaseswhereanindividualissecondedtoHungaryand,basedonanagreementbetweentheemployers,wagesandrelatedsocialtaxesarepaidbytheHungariancompany.

Value added taxChangestotheVATlawgenerallyaredesignedtoimplementEUlawintodomesticlaw.InlinewithEUrules,“independentgroups”maynowbeestablishedforVATpurposes,providinggrouptaxliabilitywithoutmemberslosingtheirindividualtaxliability.AnindependentgroupmaybeformedbyVATtaxableandnontaxablepersons(membersofcivilassociations)andmayincludenonresidentsifthereareatleasttwomembersandthepartiesjointogethertoachievecommongoals.A groupmayprovidecertainVAT-exemptservicestoitsmembersiftheconsiderationdoesnotexceedthecostsincurredbythegroup.Thefinallawallowsa combinationoftheconceptsofVATgrouptaxationandindependentgroupofpersonsinsucha waythattheappointedrepresentativeofa VATgroupsubjecttogrouptaxationmaybelongtoanindependentgroupofpersons,andthusmayacquirerightsandassumeliabilitiesforallmemberssubjecttogroup

taxation.Accordingly,VAT-exemptservicesprovidedtomembersofanindependentgroupmayberesoldtogroupmembersofa VATgroupasa serviceoutsidethescopeofVAT.

Asfrom1January2011,cultural,educational,scientific,entertainment,sportsandsimilarservicesareconsidereddeliveredwherethecustomerhasitsplaceofbusiness(ratherthanwheretheyarecarriedout).Thus,servicesprovidedtoa nonresidenttaxpayerarenotsubjecttoHungarianVATunderthegeneralrule,eliminatingthecompetitivedisadvantageofHungary’shighVATrateapplyingtotheorganizationofconferences,exhibitionsandfairsandfilming.Theplaceofdeliveryforservicesensuringentrytotheaboveeventsremainstheevent’sactualvenue.Similarly,theeventvenueistheplaceofdeliveryifthecustomerorparticipantisnota taxableperson.

Therangeofcasesinwhicha subsequentreductionofthetaxbasedoesnotrequirea self-revisionwerebroadenedtoincludea transferoftherightoftemporaryuseofvaluablerightsifthetransactionsubsequentlydoesnottakeplace.However,theabilitytomakea taxbasereductionwithouta self-revisioninthecaseofa closed-endlease,hire-purchaseorleasewasabolished.Now,eitherparty’sfaultorunavoidableexternalreasonsmaybegroundsfora subsequentmodificationofthetaxbasewithoutself-revision.Tomitigatetheadministrativeburden,theVATbasealsomaybereducedsubsequentlywithoutself-revisioninthecaseoftax-exempttransactions(e.g.EUVATtax-exemptorexportsales).

Asfrom2011,thesaleofnaturalgasthrougha networklocatedintheEUoranyothernetworkconnectedtosucha networkisdeemedtobedeliveredinthecountrywherethecustomerhasitsplaceofbusiness.Thesamerulesapplytotradeinheatandrefrigeration.Theconceptofa tax-exemptenergyimportwasextendedtoincludetheimportofgassuppliedtoa naturalgasnetworkoranupstreampipelinenetworkfroma gastankerandtheimportofheatorrefrigerationthroughthenetwork.Thetransferofa valuablemarketablerightforgreenhousegasemissionsissubjecttothereversechargemechanism.

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A saleoftangibleassetsbya VATtaxablepersoninaninsolvencyprocedureissubjecttothereverse-chargemechanismwithouta valuelimit.Forthesaleofotherassetsofthetaxpayer,a valuelimitofHUF100,000perpurchaseatthemarketpriceatthetimeofsale(ratherthanthepurchaseprice)applies.A similarchangewasmadetothetaxbaseofgratuitousproducttransfers,i.e.theVATbaseisnottheoriginalpurchasepriceoftheproductbutratherthepurchasepriceatthetimeofthetransfer,whichisthepriceassociatedwiththeconditionoftheproductatthetimeofthetransfer(forpracticalpurposes,thefairmarketprice).

DuetothedifficultiesofintroducingthenewVATrefundsystem,taxpayersregisteredabroadhaveuntil31March2011tosubmittheir2009claimsfora VATrefund.Finally,thechangesincludedintheproposedmeasurestotherulesfordeterminingthe“dateofperformance”fortransactionssubjecttoperiodicsettlementwerenotincludedinthefinallaw.

Local Business TaxTherangeofactivitiesqualifyingastemporarybusinessactivitieswasfurtherrestricted(e.g.theconceptsofretailactivitiesconductedatfairsandmarketwasabolishedforthesepurposes).A constructionbusinessanda companyengagedinexplorationfor,orresearchinto,naturalenergyresourceswillnowbeconsidered“temporary”ifitlastsfor30to180days.Entitieswhoseactivitiesarelikelytolastmorethan180daysmustregisteraspermanentestablishments(PEs)andcomplywiththeirtaxliabilitiesaccordingtotherulesgoverningpermanentbusinessactivities.Iftheentitydoesnotregisterasa PEanditsoperationexceeds180days,thetaxpayermaydeductthelocalbusinesstaxpaidonthetemporaryactivityfromthetaxsubsequentlypayableonthepermanentbusinessactivity.

Previousmethodsapplyingtothetaxbasesplitwereamendedtoguaranteea minimumtaxbasetothemunicipalitywheretheentityhasitsregisteredoffice.Forcompaniesengagedintelecommunicationactivities,thetaxbaseisdivided–unlikethegeneralmethods–accordingtotheproportionofthenetrevenueconnectedtotheclients’municipalityasindicatedintheinvoicingaddressandtotalnetrevenuegeneratedfromtelecommunicationsactivity.

Special tax on financial institutionsThespecialtaxonfinancialinstitutionswillremainineffectfor2011(onthe2010taxbase)withrulessimilartothoseapplicablefor2010.Thetaxwillbeassessedandthereturnwillbedueby10March2011,withthetaxliabilitypaidinfourequalamountsbythe10thofthelastmonthofeachquarter(i.e.March,June,SeptemberandDecember2011.)Forcreditinstitutions,thespecialtaxapplicableona taxbase(whichisassessedontheamountofthetotalassets)exceedingHUF50billionwasincreasedfrom0.5%to0.53%.Fora taxbasebelowthatthreshold,thetaxrateis0.15%.(However,a specialtaxforcreditinstitutionsappliesinsteadofthefinancialinstitutionstaxifcertaincriteriaaremet.Thisotherspecialtaxislargelybasedontheprofitbeforetax.)A bracketedtaxsystemappliestoinsurancecompaniesat1.5%onthefirstHUF1billion,3%ontheamountexceedingHUF1billionuptoHUF8billionand6.4%ontheamountofthetaxbaseaboveHUF8billion.Toavoiddoubletaxationoncreditinstitutions,itemsthatdecreasethespecialtaxbaseintransactionswithdomesticcreditinstitutions(e.g.intra-bankloans)alsoapplyinrespectoftransactionswithinstitutionsthatareresidentinotherEUmemberstates(manyofwhichareplanningtointroducesimilartaxes).Additionalguidancewasprovidedonfinancialinstitutionsestablishedwithouta legalpredecessor,thoseusinga non-calendaryearbusinessyearandinstitutionsthatwerebeingliquidatedin2010.

Deloitte Central EuropeTaxNewsletter, March20119

Special tax on credit institutionsThe amendments include a special tax for credit institutions:creditinstitutionsthatearnsufficientprofitswillaccountforthistaxontheirafter-taxprofitinsteadofthespecialtaxonfinancialinstitutionspayableonthebalancesheettotal.Theamountofthespecialtaxforcreditinstitutionsdecreasestheamountofspecialtaxpayableonthebalancesheettotal,i.e.thespecialtaxoncreditinstitutionsmaybedeductedfromthespecialtaxonfinancialinstitutions.

Thetaxbaseforthespecialtaxoncreditinstitutionsisthecompany’spre-taxprofit(increasedbyaddingbackthespecialtaxdetermineduponthebalancesheettotalandrecognizedasexpenses),withthetaxratebeing30%.Thetaxmustbedeclaredandpaidbytheduedateforthecorporateincometaxreturn.Thisnewtax,however,doesnotimposeanextraburdenonthecreditinstitutionsconcernedbecausetheamountofspecialtaxpayableontheirprofitmaynotexceedtheamountofspecialtaxonfinancialinstitutionspayableonthebalancesheettotal.Thepartofthespecialtaxonfinancialinstitutionsthatisnottakenintoaccountinarrivingatpre-taxprofitsduetothedeductionreferredtoabovedecreasesthecorporateincometaxbase.Thus,thespecialtaxburden(whetheraccountedforagainstpre-taxorafter-taxprofit)maybetakenintoaccountasa quasicostforthepurposeofassessingthecorporateincometaxbase.

Accounting ActThemostimportantchangerequiresthatcompanies,intheirfinancialstatementspreparedforthefinancialyearstartingin2011,carryouta revaluationtoHUFvalueoftheirFX-denominatedassets,receivables,andliabilitiesandrecognizeanyunrealizedexchangeratedifferenceatthebalancesheetdateregardlessoftheirinternalaccountingpolicies.Unlikepriorrules,thisobligationapplieseveniftheeffectoftherecognizeddifferencewithrespecttothevalueofassets,liabilitiesandprofitsisimmaterialunderthecompany’sinternalaccountingpolicies.

ProvisionsconcerningtheeliminationoftheeffectsofexchangeratefluctuationsoncapitalgainsforFX-denominatedshares,participationsanddebentureswereabolished.Theconceptof“irrecoverablereceivables”wasextendedtoincludewarrantsforpaymentprocessesthatultimatelycreateorincreaselosses.Also,a company’sobligationtoraisefundsfortaxliabilitiesarisingdirectlyfroma companytransformation(i.e.fromtheovervaluationofassets)withintied-upreservesifnofundsareotherwiseavailablewasrepealed.Companiescanopttoapplytheamendmentswhenpreparingtheirfinancialstatementsforthefinancialyearstartingin2010.

Miscellaneous• AmendmentstotheActontheRulesofTaxation

generallyclarifytherulesoraddinterpretativeorapproximatingprovisions.

• Theperiodforprocessingpropertytransfertaxcaseswasextendedfrom30to60days.

• Forassessingthetaxbaseofthebuildingtax,theupperlimitofthetaxratepertainingtousefulfloorspacewasincreasedfrom900HUF/m2to1100HUF/m2,while,forpurposesoftheadjustedmarketvalue,itwasincreasedfrom3%to3.6%.

• TheTaxandFinancialControlAdministrationandtheCustomsandExciseOfficewillbemergedintoa newNationalTaxandCustomsOffice.Asanaddedrole,thenewagencywillhavethepowertoinvestigatecases.

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Latvia

New tax incentive regime introducedAmendmentstoLatvia’sCorporateIncomeTaxActannouncedon20December2010includetheintroductionofa taxincentiveregimetoattractinvestmentinmanufacturing,telecommunicationsandcomputerprogrammingfacilities.Theamendmentsareeffectiveasfrom1January2011.

The new regime provides for a corporate income tax deduction equal to 25% of the amount of an investment up to LVL 35 million (approximately EUR 50 million) and 15% of the investment amount exceeding this sum. The following requirements must be met to benefit from the tax deduction:

• TheinvestmentmustbeatleastLVL5million(approximatelyEUR7million);

• Theinvestmentmustbeina designatedindustrysector(seebelow)andbemadewithinthreeyearsfromthedatethegovernmentdecisionapprovingtheinvestmentproject;and

• Theinvestmentmustinvolvethecommencementofa newactivityorthemodernizationand/orexpansionofexistingactivities,includingmanufacturinga newproductorchanginganexistingmanufacturingorserviceactivity.

Further,newmanufacturingtechnological,telecommunicationsorcomputerprogrammingequipmentmustbeusedfortheinvestmentactivities,aswellasnewlyconstructedbuildingsandconstructionsclassifiedascommunicationsandtrafficbuildings(trafficbuildingsincludeportterminals,busstations,depots,etc.),industrialmanufacturingpremises,storageandtransportationbuildings.Theinvestmentmustbemadeinthecourseofthebusinessoftheinvestorandberelatedtotheinvestor’sbusinessactivities.DetailsoftheinvestmentprojectmustbepreparedandsubmittedtotheCabinetofMinisters.

The qualifying investments must be made in supported industries based on the NACE rev.2 classification (EC Statistical Classification of Economic Activity) as follows:

• Telecommunications;

• Computerprogrammingandrelatedactivities,excludingconsultancyoncomputerusageissues;

• Storageandtransportauxiliaryworks;and

• Themanufactureof:

− Foodproducts(withsomeexclusionsfortheagriculturalsectorandfisheries);

− Drinks;− Woodandwoodandcorkproducts(except

furniture);− Articlesofstrawandplaitingmaterials;− Chemicalsandchemicalproducts(exceptsynthetic

fibers);− Basicpharmaceuticalproductsandpreparations;− Rubberandplasticproducts;− Metal(exceptthemanufacturingofproductsfor

thesteelsector);− Fabricatedmetalproducts(exceptmachineryand

equipment);− Computer,electronicandopticalproducts;− Electricalequipment;− Machineryandequipmentnotclassifiedelsewhere;− Motorvehicles,trailersandsemi-trailers;and− Othertransportequipment(exceptshipsand

boats).

IndustriessupportedareamongthoseeligibleforstateaidunderEUregulations.ThistypeofstateaidiscompatiblewiththeinternalmarketundertheGeneralBlockExemptionRegulation(Regulation(EC)No.800/2008).

Itshouldbenotedthattherearesomerestrictionsonbenefitingfromthetaxdeduction,e.g.insolvencyoftheapplicantcompany,previousillegallygrantedstateaid,enjoyingtaxdiscountsunderthespecialeconomiczoneregimeandtheexistenceofadequateequity.

Deloitte Central EuropeTaxNewsletter, March201111

Poland

Corporate income tax changesA numberofchangestotheCorporateIncomeTaxActbecameeffectiveon1January2011.

• A corporateincometaxexemptionisintroducedforpensionandinvestmentfundsestablishedinanEU/EEAMemberStateprovidedcertainrequirementsaremet.

• Gainsderivedfroma voluntaryredemptionofsharesarenolongertaxedasdividends,butinsteadaretaxableundergeneralprinciples,withtheresultsuchgainswillbegenerallysubjecttothe19%Polishtaxrate,

• Severalchangesaremadetotherulesgoverningshare-for-shareexchanges,includingthatboththeacquiringcompanyandtargetberesidentandsubjecttotaxinanEU/EEAMemberState.

• Therevenuesfromtransferoftheownershipofassetssubjecttoa contributiontoa companythatisnota legalperson,generallyshouldnotbetreatedastaxablerevenues,

• Theamendingregulationsestablishcertainprinciplesasregardsvaluationanddepreciationofcomponentsofpropertycontributedinkindtoa companythatisnota legalperson,i.e.theinitialamount(grossvalue)indicatedintherecordsoftheentitymakingthecontributionshouldbeused;thesaidprinciplesalsoordercontinuationofsuchdepreciation,

• Thenewregulationsmodifytheprinciplesofvaluationanddepreciationintheeventofacquisitionofanenterpriseoritsorganizedpartbycontributioninkind,theyalsoexcludethepossibilityofincreasingthedepreciationbaseoftheassetsundisclosedintherecordsofthecontributingentitytothemarketvalue;

• AdditionalrequirementsareintroducedtobenefitfromthetaxexemptionondividendspaidbyforeignorPolishcompany:therecipientcompanycannotbenefitfroma taxexemptiononallofitsincome(regardlessofsource)anditmustsubmita declarationtothiseffectandtherecipientholdsdirectlytheparticipation(i.e.asanowner,exceptionsapplyincertaincases)inthecompanydistributingthedividends.

The5%withholdingtaxoninterestandroyaltiesunderPoland’simplementationoftheEUInterestandRoyaltiesDirective(withthefullexemptionapplyingasfrom1July2013)isextendedtoapplytoqualifyingrecipientsofsuchpaymentsthataretaxresidentintheEEA.Theexemptionwillapply,however,onlyiftherecipientdoesnotbenefitfroma taxexemptiononitsincome(regardlessofsource)andtherecipientsubmitsa declarationtothiseffectandtherecipientholdsdirectlytheparticipationinthepayercompany(.e.asanowner).

Personal income tax changesChangestothePersonalIncomeTaxLaw(article24.11)affectthetreatmentofsharesrelatedtostockoptionplans.Specifically,therequirementstobenefitfroma deferraloftaxationongainsderivedfromtheacquisitionofsharesatnocostorata preferentialcostuntilthesharesaresold(whichusuallyappliestoemployeesparticipatinginstockoptionplans)wereamended.Theprovisionallowsnotonlydeferraloftaxationbutalsoa beneficialrateontheproceedsfromthesaleofthesharesandthedifferencebetweenthemarketpriceatacquisitionandthepreferentialpricepaidbytheemployee.Therateisa flat19%(applicabletocapitalgains)ratherthantheamountsbeingtreatedasemploymentincomesubjecttoprogressiveratesupto32%.Undertheamendment,deferraloftaxationisavailablenotonlyfortheacquisitionofnewlyissuedshares(asbefore),butalsoforexistingshares.Inbothcases,however,therequirementwasaddedthatthecompanymustbelocatedintheEU/EEA.

Anemployeroperatinganstockoptionplanthatpreviouslyappliedregulartaxwithholdingatthetimesharesareacquired(e.g.becausethesharesacquiredundertheplanwereexistingshares)shouldrevisetheirtreatmentsothat,ifthenewconditionsfordeferralaresatisfied,personalincometaxwillnotbewithheld–theemployeewillbepersonallyrequiredtodisclosetheincomeandpaytaxatthetimethesharesaresold.Similarly,anemployerthatpreviouslydeferredtaxationonsharesacquiredundertheirplansthatwerenon-EUornon-EEAsharesalsoshouldrevisetheirtaxtreatmentbecausetaxcannolongerbedeferred.Anemployerintendingtointroducea newequityplanshouldtakeintoaccountthenewwordingoftheprovisionandstructuretheplanina waythatmeetstheabovecriteria.

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Theamendmentsdonotentirelyresolvethecontroversyrelatingtothetaxationofincomefromstockoptionplans.Inconsistentapproachesarebeingtakeninrulingsbythetaxauthorities,withsomerulingsreflectingthatincomeresultingfromthepreferentialacquisitionofsharesshouldbetreatedasemploymentincome(orincomefromothersources)unlesstheconditionsinthePersonalIncomeTaxLawaresatisfied,whereasotherrulingsprovidethatnotaxationistriggeredattheacquisitionofsharesandtaxliabilitywouldariseonlyatthetimeofsale,regardlessofwhetherarticle24.11applied.

VATSeveralamendmentstothePolishValueAddedTaxLawcameintoeffecton1January2011.

ThechangesprimarilyhavebeenmadetoharmonizePolishVATruleswithEUrules,toconformtodecisionsoftheECJand/ortoreducethepublicdebt.

The most important changes are as follows:

• TheVATrateshaveincreasedtemporarilyfrom3%,7%and22%to5%,8%and23%,respectively,andwillapplyuntil21December2013.Notably,theratesmaybefurtherincreasedby1%peryearduringthethree-yearperiodifthepublicdebtexceedsa certainthreshold.

• CertaingoodsandservicesarereclassifiedtopreventdifferentVATtreatment.

• Certainactivities(e.g.servicesthataregenerallyexemptfromVAT,suchaseducation,healthcare,insuranceandfinancialservices)arenotlongerdescribedaccordingtothePolishClassificationofGoodsandServices,butinstead,newdefinitionsandconditionshavebeenincludedintheVATLaw.Companiesprovidingthesesuppliesshouldbecomefamiliarwiththechanges.

• VATdeductionsinrespectofanacquisitionorleaseofpassengercarsarerestrictedasa resultofa decisionoftheECJ.Underthenewrules,a taxpayermaydeductonly60%oftheVATuptoa maximumofPLN6,000.Nodeductionisallowedforthepurchaseoffuelforsuchcars.

• Thespecialrulesrelatingtotheoccasionalinternationaltransportofpassengershasbeenabolished.

• Changestothee-invoicingruleshavebeenintroducedtoconformPolishruleswithEUlawE-invoicingproceduresaresimplified,hardcopyandelectronicinvoiceswillbetreatedequally,andmethods,otherthanEDIandadvanceelectronicsignatures,areavailabletoensuretheintegrityandauthenticityoftheinvoices.E-invoicesmaybestoredinanotherEUmemberstateprovidedthePolishauthoritiesaregrantedonlineaccesstosuchdatabases.

Changes that most probably will become effective on 1 April 2011 include:

• Thereverse-chargeismandatoryifthesupplierisnota residentorhasnofixedplaceofbusinessinPoland.

• Thedisallowanceofa VATdeductionwhereservicesarerenderedfromtaxhavenjurisdictionsisabolished(theECJconcludedthislimitwastoogeneralandthereforenotincompliancewithEUVATrules).

• A free-of-chargetransferofgoodsownedbythesellerissubjecttoVATifthesellerisentitledtodeductinputVAT.

Deloitte Central EuropeTaxNewsletter, March201113

Slovakia

TheSlovakParliamenthasapprovedandthePresidentsignedamendmentstotheIncomeTaxAct,VATAct,ActonExciseDutyonMineralOils,ActonExciseDutyonElectricity,CoalandNaturalGas,ActonExciseDutyonTobaccoProducts,ActonUsingElectronicCashRegisters,SocialSecurityActandHealthInsuranceAct.Thechangesapplyasfrom1January2011.

Corporate Income TaxThe following changes are made to the corporate income tax rules:

• Incomefromthetransferofrealestate,rentalincomeandincomefromotherusesofpropertylocatedintheSlovakRepublicisregardedasSlovak-sourceincomeifderivedfroma taxableperson,i.e.regardlessofwhetherthetaxablepersonisa residentofthecountry.

• Goodwillornegativegoodwillrecognisedafter31December2010isincludedinthetaxbaseinthecaseofa merger,amalgamationandde-mergeratfairvalue,untilitisfullyutilised(atleast1/7thoftheamountmustbeincludedfornomorethansevenconcurrenttaxperiods).

• TwonewprovisionsaddresstherecognitionofforeignVATasa tax-deductibleexpense:− ForeignVATmayberecognisedasa taxexpensein

thereportingperiodinwhichthetaxablepersonaccountsfora VATrefundclaimprovidedtheVATpayerisentitledtoa VATrefundintheEUmemberstateinwhichthegoodsorservicesweresuppliedtotheVATpayerortowhichtheVATpayerexportedtherelevantgoodsandthegoodsorservicessubjecttoVATareregardedasa taxexpense.

− VATmayberecognisedasa taxexpenseinthereportingperiodinwhichthegoodsorservicesaresettlediftheVATamountisbelowtherefundamountandthesuppliedgoodsorservicesareregardedasa taxexpense.

• TheamendedversionoftheIncomeTaxActnolongerprovidesitsowndefinitionofintangibleassets;instead,referenceismadetotheaccountingregulations.Further,thedefinitionofintangibleassetshasbeenextendedtoinclude,fortaxpurposes,non-currentintangibleassetsrecognisedbythelegalsuccessorofa taxablepersondissolvedwithout

liquidationthatwereexcludedfromgoodwillornegativegoodwillatfairvaluesinaccordancewiththeaccountingregulations.

• Severalchangesaremadetotherulesgoverningtheadvancepaymentofcorporateincometax:− A taxablepersonthatexistedforonlya partof

theprecedingtaxperiod(lessthanthreemonths)isnotrequiredtoseparatelyreporttheamountofestimatedtaxtothetaxadministrationwhencalculatingadvancepaymentsforthesubsequenttaxperiod.Thetaxablepersonmuststatetheamountoftheestimatedtaxinthetaxreturnsubmittedforthefirsttaxperiod.

− Taxablepersonsestablishedinthepriorcalendaryearthrougha merger,amalgamationordemergermustcontinuetomakeadvancepaymentsinanamountcalculatedinaccordancewiththeIncomeTaxActbythedeadlineforfilingthetaxreturn.

− Ifthereisa deficiencyintheadvancetaxpaymentsmadefromthebeginningofthetaxperioduntilthedeadlineforfilingthetaxreturnandtheadvancepaymentsarelessthantheamountdueunderthetaxreturn,thetaxablepersonwillberequiredtopaythedifferencebytheendofthecalendarmonth(previouslywithin30days)followingthedeadlineforfilingthereturn.

• A newtaxonemissionallowancesisintroducedforallowancesregisteredin2011and2012.Thetaxrateis80%ofthetaxbase;thebaseiscalculatedastheamountofemissionallowancestransferredinrelevantcalendarmonthsandtheaveragemarketpricesforthepriorcalendarmonth(i.e.themonthbeforethemonthofthetransfer)andtheunusedemissionallowancesintherelevantcalendaryearmultipliedbytheaveragemarketpricefortherelevantcalendaryear.ThetaxablepersonistheobligatoryparticipantofthetradingschemethatperformstheactivitiesspecifiedinActNo.572/2004Coll.onEmissionTrading;thatpersonisrequiredtofilea taxreturnonemissionallowancesby30Juneaftertheendoftherelevantcalendaryear,andpayadvancetax.Thetaxonemissionallowancesisnota deductibleexpensefortaxpurposes.

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Personal Income TaxThe following changes became effective on 1 January 2011:

• ThenontaxableallowanceintheamountofEUR398.33forcontributionstosupplementarypensionsavingschemes,financialfundsforspecificsavings,andlifeinsurancepremiumsisabolished.

• Non-taxabletaxallowanceclaimsfora taxablepersonandhis/herspousearelimitedtoactiveincome,i.e.employmentincome,incomefroma businessandotherindependentearningactivities.

• Theflatexpensedeductionfromtheearningsofself-employedpersonsandrentalincomeisunifiedat40%.

• Ifa taxablepersonclaimsprovabletaxexpensesinhis/hertaxreturnfortherelevanttaxperiod,aftertheexpirationofthedeadlineforfilingthereturnfortherelevantperiod,theexpensescannotbechangedtostandardexpensedeductionorviceversa.

• Taxwithheldfrominterestincomecannotbeclaimedasa taxadvance.Thewithholdingtaxoninterestincomeisregardedasa finaltax.

• Thetaxexemptionforgainsderivedfromthesaleofanapartmentsorapartmenthouse(includingrelatedland)inwhichthesellerhaspermanentlyresidedforatleasttwoyearsimmediatelybeforethesaleisabolished.Theexemptionforgainsderivedfroma saleafterfiveyearsofownership,however,remainsineffect.Theserulesapplytorealestateacquiredafter1January2011.

• Thetaxexemptionforincomefroma lease,occasionalactivities,transfersofoptions,securitiesetc.issetatEUR500.

• Payrolltaxwithholdingisrequiredforallemploymentincomeregardlessoftheamount.

• PursuanttotheamendedTravelAllowancesAct,employersarenolongerrequiredtoprovideemployeeswithcashforforeignbusinesstrips.Suchfundsarenottaxableincomeregardlessoftheamount.Taxablepersonsderivingincomefrombusinessactivitiesorself-employmentarenolongerallowedtodeductsuchallowancesasexpenses.

Value Added TaxRates:ThefollowingchangesaremadetotheVATActaspartofthemeasurestoreducethegovernmentdeficit:

• Thestandardrateisincreasedfrom19%to20%.This1%increaseisa temporarymeasurethatwillberepealedonthelastdayoftheyearthegovernmentdeficitdecreasesbelow3%.

• Ifa companyregisteredforSlovakVATreceivesa prepaymentin2010inconnectionwitha domesticsupplytobedeliveredin2011,theprepaymentwillbesubjecttothe19%VAT.Asfrom2011,ifa supplierissuesa creditnotethatrelatestoa supplymadein2010(e.g.inthecaseofa pricedecreaseorreturnedgoods),theVATrateusedfortheoriginalsupplyshouldbeusedonthecreditnote.

• Thereducedtaxrateof6%onthesaleofcertaingoodsbysmallproducersfromtheirownpremisesisabolished.

Place of supply of certain services: Therulesgoverningtheplaceofsupplyofservicesrelatedtocultural,artistic,sporting,scientific,educational,entertainmentandsimilaractivitieshavebeenamended.Iftheservicerecipientisanentrepreneur(a taxableperson),theplaceofsupplywillbegovernedbythebasicrule,i.e.theserviceswillbetaxedattheplacewheretheservicerecipienthasitsregisteredseat,placeofbusiness,permanentestablishmentorpermanentresidence.Iftheservicesrelatetoentrytocultural,artistic,science,sport,trainingorentertainmentevents(e.g.fairsandexhibitions)andancillaryservices,theplaceofsupplyistheplacewheretheactivitiesarephysicallycarriedout.

Ifsuchservicesareprovidedtonon-businessentities,theplaceofsupplyremainsunchanged,i.e.theplaceofsupplyiswheresuchactivitiesarephysicallycarriedout.ProvidersoftherelevantserviceswillneedtodistinguishtheVATstatusofforeignrecipientsandtakeintoaccountwhethertheservicesareassociatedwithentrytoanyoftheaboveevents.

Deloitte Central EuropeTaxNewsletter, March201115

Documents required for VAT exemption on imports:Theamendedrulesspecifythedocumentsrequiredtoobtaina VATexemptiononimportedgoodswheretheimportisfollowedbyanintra-Communitysupplyora VAT-exempttransferofa company’sowngoodstoanotherEUMemberState.Thecustomsauthoritieswillexempttheimportofgoodsiftheimporteroritstaxagentsubmits:

• TheSlovakVATidentificationnumber;

• Theimporter’sforeignVATidentificationnumber(inthecaseofa transferofowngoodstoanotherMemberState)ortheVATidentificationnumberofthecustomerintheotherEUMemberState;and

• ProofthatthegoodswillbetransportedorsentfromSlovakiatoanotherEUMemberState(transportationdocument,transportationcontract).

Capital goods:Theperiodformonitoringtheuseofcertaincapitalgoodsisincreasedfrom10to20years.Capitalgoodsrelateto,forexample,buildings,plotsofland,constructionthatrequiresa buildingpermitandotherrealestatedefinedbylaw.A changeinuseleadstoanadjustmentoftheoriginalVATdeducted.However,ifanadjustmentwasalreadymadebetween2004and2010inconnectionwithcapitalgoodsacquiredinthepast,theoriginalmonitoringperiodof10yearswillcontinuetoapply.

The requirements to obtain a VAT deduction for the above listed capital goods have been tightened:ifthetaxpayerisawarethatthecapitalgoodswillbeusedforbothbusinessandnon-businesspurposes,thetaxpayerwillnotbeabletodeductthefullamountofinputVATandapplyoutputVATwhenthegoodsaresubsequentlyusedfora purposeotherthana businesspurpose.InputVATwillbedeductibleonlytotheextenttheassetsareusedforbusinesspurposes.Thetaxpayerwillhavetomodifythetaxdeductedifinthesubsequentperiodsthetaxpayerchangestheextenttowhichtheassetsareusedforbusinessandnon-businesspurposes.Thisruleappliesforeachchangeoftheproportionofusingtheassetforbusinessandnon-businesspurposes.

TheadjustingmethodisverysimilartothemethodthatiscurrentlyusedforchangestotheextenttowhichcapitalgoodsforVAT-ableandexemptsuppliesareused(accordingtotheformulafromAppendix1oftheVATAct,adjustmentismadeinthelastmonthofthecalendarorfiscalyear).

Paralleltothistreatment,theobligationtomonitorthechangeintheuseofassetsthatareusedforactivitieswithoutanentitlementtoa VATdeduction(e.g.somefinancialservices)orforactivitieswitha partialentitlementtoa VATdeductionviathepro-ratacoefficientremainsunchanged.

ThechangeintheActwillaffecttheset-upofinformationsystemsofallentitiesthatacquire(orcreatein-house)theabove-mentionedrealestateandtherealestateisalsousedfornon-businessactivitiesasdefinedfortheVATpurposes.Ifyourcompanyprovidespremisesforyouremployees’privatepurposesforfree,orifitprovidesthemtootherpersonsforfree,orevenifingeneralsomeoftheactivitiesperformedarenotconsideredbusinessactivitiesforVATpurposes,werecommendyouconsidertheimpactthechangeswillhaveonyourcompany.

Repeated supplies:Thedefinitionofthedayofsupplyofgoodsandservicesfora repeatedsupplyofgoodsorserviceshasbeenchangedbacktotheoriginal2009version.Byre-insertingtheword“nolater”intheprovision,thesupplycanbeconsideredtobeperformedsoonerthanthelastdayoftheperiod,whichiscoveredbya paymentfora repeatedsupplyofgoodsorservices.

Thecurrentversionhascausedadditionaladministrativecosts(settingofITsystems,additionalinvoices)forcompaniesthatrepeatedlysupplygoodsandservicesand,atthesametime,ithascauseduncertaintyinthedeductionofVATbycustomers.TheproblemwasdiscussedinJune2010atthemeetingofthespecialisedVATCommittee,whosemembersarealsorepresentativesoftheauthorities.Theresultwasa legallyunbindingagreementbasedonwhichtheprocedureusedin2009hasbeenacceptedin2010undercertainconditions.

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Person liable to pay tax: Theamendmentadjuststhedeterminationofthepersonliabletopaytaxinthecaseofa supplyofgoodswithassemblyorinstallationbya foreignpersonanda supplyofservicesbya foreignperson.ForsuppliesinSlovakia,thepersonliabletopaythetaxisthedomestictaxableperson(witha registeredseat,placeofbusiness,permanentestablishmentorpermanentaddressinSlovakia)regardlessofwhethertheforeignsupplierisregisteredforVATpurposesinSlovakia.Thechangewillsubstantiallyprovidemorecertaintyinconnectionwiththedeterminationofa personliabletopaythetax.

Theadjustedsystemwillbemorefavorablefroma cash-flowperspectiveforSlovakcustomers,whowillapplyreverse-chargetaxation.However,foreigncompaniesprovidingtheaboveservicestoSlovakcustomersandoperatingwithSlovaksub-suppliersshouldconsiderretainingVATregistrationinSlovakia,whichcould,incomparisonwiththerefundsystembasedonthe8thand13thDirectives,enablethemtoobtainanearlierrefundofSlovakVATchargedbythesub-suppliers.

Special regime for energy commodities:Thespecialprovisionsapplicabletoimportsandtheplaceofsupplyofnaturalgasandelectricityareextendedtotheimportationorsupplyofnaturalgasthroughpipelinesthatdonotbelongtoa distributionsystem,orbyvessels.Theprovisionsalsoareextendedtocovertheimportationorsupplyofcoldandheatthroughspecializednetworks.

Reverse-charge on domestic supplies:Thespecialtreatmentuseduntilnow,forexample,forinlandsuppliesofscrapmetal,isbeingextendedtothetransferofgreenhousegasemissionquotaswiththeplaceofsupplyinSlovakia.A domesticVATregisteredsupplierwillnotapplySlovakVATontheinvoicewhenquotasaretransferredtoanotherSlovakVATpayer.Thesupplywillbereverse-chargedbythecustomer,whocanthendeductthereverse-chargedVATprovidedthestatutoryconditionsarefulfilled.

Excess input VAT refund:Theperiodtoobtaina refundofexcessinputVATinspecificcasesisamended.Ifthetaxauthoritiesinitiatea VATauditduringtheperiodforwhicha refundofinputVATisavailableandtheauditedentitypreventstheVATauditfrombeingcarriedoutsuccessfullyforthefollowingsixmonths,theentitlementtotherefundwillexpire.

Refund from other EU Member States:BasedontheCouncilDirectivethatrecentlybecameeffective,thedeadlineforfillingthe2009VATrefundapplicationhasbeenextendedto31March2011.Additionally,thedomesticframeworkfora VATrefundhasbeenchangedasfollows:

• Restrictionsprohibitinga representativefromrepresentingmorethanonetaxrefundapplicantina taxrefundprocedurehavebeenabolished,sothatonerepresentativecanrepresentmorethanonetaxrefundapplicant.

• TheVATrefundapplicationcontainsa moredetaileddescriptionsectionforluxurygoods,refreshments,representationandentertainmentgoodsandservicesforwhichtheVATrefundisrequested.

New rules for electronic cash registers:Theeffectivenessofthenewrulesforelectroniccashregistersintroducedin2008willbepostponedto1January2012,whichmeansthattheoldruleswillstillbeapplicableforallsubjectswhowereobligedtousecashregisterspriorto30December2010.Suchsubjectswillbeallowedtouseelectroniccashregistersthatdonotmeetthenewcriteriauntil31December2011.

Thenewrulesintroduceseveralchanges.Oneofthemostimportantchangesistheobligationthatthecashregistermustbefittedwithanoperativeandfiscalmemory,onewhichcanregisterandstoreoperationsforatleastfiveyears.Furthermore,changesinthecashreceiptrequirementswereintroduced,particularlythatthecashreceiptsmustnowbereadablefora periodof10years.Moreover,thenewrulesintroducetheobligationofdevicesealinglimitinghardwareaccesstothecashregisterdeviceitselfandtherequirementforregularservicingofelectroniccashregisters,wherebyanyserviceorrepairmustbedoneonlybyauthorisedserviceoperators.

Deloitte Central EuropeTaxNewsletter, March201117

Excise dutiesTheexcisedutiesontobaccoproducts,mineraloil,coalandnaturalgashavebeenincreasedtogeneratemorerevenuefortheStatebudget.Theexpectedincreaseintheexcisedutyonbeerwasnotapproved.Theexcisedutyontobaccoandtobaccoproductswillincreaseintwostages:partofthetaxoncigarettesincreasesbyEUR3.26/1,000pieceson1February2011andon1March2013willrisebya furtherEUR3.30/1,000pieces.

Intheamendmenttotheactonexcisedutyonelectricity,coalandnaturalgasvalidfromJanuary2011Parliamenthasapprovedthetaxationofcoalandnaturalgasusedbyheatingcompaniestoproduceheat.Thiswillresultinincreasedpricesforfinalcustomers.Similarly,naturalgasusedasfuelandcompressednaturalgasusedasfuel(CNG)willbecomesubjecttotaxation.ThenewrulesintroducesregistrationobligationforCNGproducersthatproducefortheirownconsumption.Forproducersofheatforhouseholdstherewillbea transitionalperiodforanexemptionfromexcisedutyuntil31May2011.Pleasenotethatthereisanobligationforselectedauthorisedconsumersofcoaltoperforma coalstockinventorycheckasof15June2011.

Asof1January2011,theactonexcisedutyonmineraloilsextendstherangeofbiogenicsubstancesandchangesthemethodofthedutyrateapplicationona mixtureofmineraloilwitha biogenicsubstance.Theamendmentrepealsthereducedrateofexcisedutyonmarkedgasoils(so-called“reddiesel”)andalsoreducestheexcisedutyrateonliquefiedhydrocarbongas(LPG)usedasfuel.Thepurposeoftheamendmentistoreducetheadministrativeburden,andtoclarifyandsimplifythesystemoftaxationviatheexciseduty.

Changes in Health Insurance

• Sharesinprofitsearnedafter1January2011aresubjecttomandatoryhealthinsurancecontributionsof10%;

• Incomefroma lease,capitalgainsandotherincomearesubjecttomandatoryhealthinsurancecontributions,withtheexceptionofincomesubjecttowithholdingtax;

• Thedefinitionofthebaseforcalculatinghealthinsurancecontributionsisexpandedtoincludeothertaxableincome,suchasretirementpayments,severancepayments,amountstaxedinrespectofusinga companycar,stockoptions,severancepayments,etc.

Changes in Social Security

• Therangeofpersonsliabletomakeinsurancepaymentsisexpanded.Companyexecutives/directorsandothermembersofstatutorybodies(membersoftheboardofdirectors)arenowregardedas“insuredpersons”andrequiredtocontribute.

• Thedefinitionofthebaseforcalculatingsocialsecuritycontributionsisexpandedtoincludeothertaxableincome,suchasretirementpayments,severancepayments,severancepayments,sharesinprofit–dividends,bonusesprovidedatanniversaries,compensationforstandbyworkprovidedtoemployeesorcivilservants,standbyworkbonuses,contributionstosocialfunds,employeeincomeresultingfromusinga motorvehicleforbusinessandprivatepurposesandothernon-monetaryincomeearnedbytheemployee.

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Contacts

AlbaniaOlindoShehu+355(4)2277929oshehu@deloitteCE.com

BulgariaGeorgiSarakostov+359(2)8023118gsarakostov@deloitteCE.com

CroatiaSonjaIfkovic+385(1)2351915sifkovic@deloitteCE.com

Czech RepublicMiroslavSvoboda+420246042924msvoboda@deloitteCE.com

EstoniaMaitRiikjarv+3726406524mriikjarv@deloitteCE.com

HungaryIstvanVeszpremi+36(1)4286907iveszpremi@deloitteCE.com

KosovoOlindoShehu+355(4)2277929oshehu@deloitteCE.com

LatviaJanisCupans+371(6)7074171jcupans@deloitteCE.com

LithuaniaTatjanaVaiciuliene+370(5)2553004tvaiciuliene@deloitteCE.com

MontenegroTamaraDmitrovic+381(11)3812163tdmitrovic@deloitteCE.com

PolandTomaszWalczak+48(61)8602140twalczak@deloitteCE.com

RomaniaPieterWessel+40212075242pwessel@deloitteCE.com

SerbiaMarijanaVujosevic+381(11)3812149mvujosevic@deloitteCE.com

SlovakiaMiroslavTain+421(2)58249361mtain@deloitteCE.com

SloveniaBarbaraGuzina+386(1)3072922bguzina@deloitteCE.com

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