Mazars Tax News - November 2021

Tax Authority`s opinion – special procedure for taxation of distance sales of goods and electronically supplied services

News from Republic of Croatia

Regarding last year's adoption of amendments to the VAT Act and Rulebook which introduced provisions relating to new rules for the B2C supplies of services and distance sales of goods in other member states, the Tax Authority issued an official opinion in which it explained the new rules.

Namely, Tax Authority states that according to VAT Act electronically supplied services, among others, include supply of pictures, texts, information and enabling access to the data base, which regards to Attachment I., article 3. paragraph (h) of Implementing regulation (EU) no. 282/2011, include advertising space on website.

With this respect, we point out another Tax Authority`s opinion in which they have clarified what constitutes an electronically supplied service. In order to determine whether certain services are recognized as electronically performed services the provisions of Article 7 of Council Implementing Regulation (EU) No 282/2011 should be considered.

Moreover, VAT treatment of such services depends on to whom the service is provided, i.e. whether the customer is a taxpayer or not.

Further, in case where the service is performed to individual (non-taxable person) it is generally taxable in the place where that individual has place of residence, domicile etc.

On the other hand, in case where the service is performed to a taxpayer it is taxable in the place where recipient has established his business (e.g. in the case of a foreign taxpayer reverse charge is applied in accordance with Article 17. paragraph 1. Of Croatian VAT Act)

Additionally, in this opinion, Tax Authority directed to the data base that contains information about VAT rates applied in all of the EU member states, which is available on European Commission website.

News from European Union

CbC reporting

Publication of information on Corporate Income Tax paid by the foreign multinational companies

European parliament adopted new requirement for multinationals to publicly disclose the amount of tax they pay in each EU country within the framework of CbC report.

With this respect, it is expected that multinationals will have to comply with the rules starting sometime in 2024. EU member states will have 18 months to transpose the directive into national law after it enters into effect, which is expected soon.

The new requirement will apply to multinationals and their subsidiaries that have annual revenues of more than EUR 750 million and are active in more than one EU country. Companies included will have to provide information about amount of tax paid in every EU member state, as well as countries included in the EU non-cooperative jurisdiction list.

In addition to the taxes paid, companies will need to disclose information on the nature of their activities, their number of employees per country, and their profits/losses before taxes. These information will be publicly available on internet.

More details on the above mentioned can be found on European Commission website.

Other news

Minimum wage regulation for 2022

Based on article 6. of Minimum wage Act, Government of the Republic of Croatia, on a session held on October 28th, 2021. adopted Minimum wage regulation.

Minimum wage for the period of January 1st till December 31st, 2022. is determined in gross amount of HRK 4.687,50, that is HRK 3.750,00 net.

Croatian Tax Authority: Hidden employment questionnaire

Croatian Tax Authority has initiated an action aimed to identify hidden employment cases among increasing population of sole entrepreneurs.

In that respect, the Croatian Tax Authority has sent out questionnaires to sole entrepreneurs operating in a low tax regime, asking them to explain their business model and their relationship with their main clients (aspects such as dependence, control, working hours, equipment, fee arrangement, etc.).

If the Tax Authority would determine a case of hidden employment, the likely scenario would be that they would charge the sole entrepreneur with taxes and social security contributions that would be due if the fees they have received under such arrangement would be considered as salary (employment income). If the Tax Authority would not be able to collect such amounts from the sole entrepreneur directly, the tax administration will likely use available legal options to collect such amounts from the deemed employer.

Currently the focus of the Croatian Tax Authority is on domestic arrangements. However, similar actions may be expected for cross-border arrangements, especially in case the deemed employer that is based in the EU (given that in such case the Croatian Tax Authority should have legal grounds to collect at least social security contributions from an EU based employer).

Conclusion / Mazars Croatia comment:

Companies should review their arrangements with sole entrepreneurs based in Croatia to determine whether such arrangements have qualifications of hidden employment (in substance or in appearance) and take appropriate action to minimize the risk for their contractors. If needed, Mazars Croatia can help companies in that respect.

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Mazars Tax News - November 2021