This news letter is intended to provide you help with the most important tax-related tasks connected to the year-end closing procedure; as well as to draw your attention to some key areas we find advisable to analyse as part of the processes to calculate annual taxes and to prepare annual tax returns.
Most important deadlines and administrative tasks concerning the year-end closing procedure
Tax payers are required to prepare tax returns on corporation tax, innovation contributions and local business tax before 31st May in the year following the tax year; and to pay for the tax (the difference between the amount of tax determined for the tax year and the sum total of any tax advances and supplementary advances paid) before 31st May in the year following the tax year; and they may claim any positive differences to be refunded from that date.
Tax payers opting for a business year that is different from the calendar year are required to meet their obligation to prepare tax returns on corporation tax, innovation contributions and local business tax before the last day of the fifth month following the last day of the tax year with the proviso that their obligations to determine their taxes, to prepare tax returns, to pay for their taxes, and to pay for tax advances will be governed by rules effective on the first day of the business year.
You may prepare tax returns on corporation tax and innovation contributions by using Form 1329 issued by the Tax Authority and tax returns on local business tax by using forms issued by local governments. We kindly draw your attention, however, to a change making administration easier for you: as of 1st January 2014 tax payers may perform their obligation to submit their tax return on local business tax also by using a centrally prepared standard form as published in Ministry of Finance Decree 35/2008. Please note that this form may be submitted electronically only where it is allowed under a Local Government Decree.
We kindly draw your attention to some major changes concerning the procedure to prepare tax calculations for year 2013:
- When determining the minimum income-profit, please take into account an amendment taking effect on 1st January 2013: for the purposes of determining the minimum income-profit, the amount of total income is to be increased by 50% of the positive difference, if any, between the daily average amount of liabilities to a member and the amount of liabilities to the member on the last day of the tax year preceding the tax year in question.
- When calculating under-capitalisation, as of 1st January 2013 you do not need to take into account any transactions deriving from the transport of goods or the provision of services either among payables or among receivables deductible from payables.
- As before, accrued losses may be taken into account up to 50% of the tax base only. This limitation, however, is not applicable to any losses made before 2004 connected to the formation of companies, which losses may be used without any limitation in case certain specified conditions are fulfilled. Furthermore, when using accrued losses, please take into account that accrued losses may be used only in the order of the dates on which they arose.
- Please note also that, in parallel to preparing a corporation tax return, you are required to prepare a document on the transfer prices applied for transactions with any related enterprises as well as to check whether the prices can satisfy the principle of "usual market price". As a result of a mid-year change in the Accounting Act, as of 30th June 2013 tax payers are allowed to carry out a subsequent adjustment in their accounting records to an amount of consideration, if the price applied is different from the usual market price, by adjusting the amount of consideration paid for the original transaction to the market price to avoid the need to modify the corporation tax base.
- If a tax payer has provided some financial support, then, in order to recognize it as acceptable expense, the tax payer must obtain a declaration from the recipient stating that the recipient's profit in the tax year of the support is not negative even when calculated without the income recognized as a result of the support. In this news letter we kindly remind tax payers that the recipient of such financial support must certify that fact in a declaration also after the preparation of the financial statement; therefore, we find it important for tax payers to ensure that all required declarations are received before they finalize their calculations.
In addition to the changes of year 2013 described above, please find below a few typical mistakes tax payers tend to make when calculating the corporation tax or submitting the tax return:
- When calculating under-capitalization, if the average daily amount of the shareholders' equity is negative then the total amount of the interest payable on liabilities (as specified in the Act on Corporation Tax) will increase the tax base.
- The item that may be carried forward to subsequent tax years as accrued loss may not be the negative pre-tax profit and may only be the negative corporation tax base.
- If a tax payer makes some development reserve in a tax year, then the depreciation (as per the Act on Corporation Tax) on any investment carried out from the reserve must be considered as an amount already recognized as part of the amount of the development reserve used; therefore, this depreciation cannot reduce the corporation tax base.
- If a tax payer does not uses the option to reduce its tax base by its accrued losses in its corporation tax return, then this tax payer cannot alter this under a self-revision.
Local business tax
- In connection with the calculation of local business tax, please note that, as of 1st January 2013, the sum total of the cost of goods sold and the value of mediated services may be deducted from the sales revenue only with some limitations, progressively and with brackets applied.
- Furthermore, if a tax payer has some related enterprises, than the amount of the local business tax base must be determined as a consolidated amount with the requirement that related enterprises must determine the positive difference between the amount of their aggregated net sales revenues and the amount of the items to reduce their net sales revenues, and must apply the above-mentioned calculation to this difference. The amount of the local business tax base for each tax subject must be determined as the sum total of the said difference and the product calculated as per the proportion represented by the tax payer's net sales revenue in the consolidated net sales revenue. However, only such tax payers must use the above consolidated calculation for whom the sum total of the cost of goods sold and the value of services mediated is higher than 50 percent of the net sale revenue.
Furthermore, please note that, when making your local business tax calculations, never forget to ensure whether all items recognized as items to reduce the sales revenue can comply with legal requirements, with special regards to the following:
- In case of mediated services: is the fact of, and the option for, mediation included in the relevant contracts and invoices?
- And please check whether mediated services and sub-contractor performances are properly segregated, and whether contracts to reflect it are available.
- Considering that the innovation contribution base is identical to the local business tax base, please note that the rules to the calculation of the local business tax base (taking effect from 1st January 2013 as described above) are also applicable to the calculation of the innovation contribution.
As described above, you must take into consideration several aspects when preparing your tax calculations for year 2013. According to our experiences, changes in legal regulations may in certain cases lead to questions as to their interpretation. To avoid sanctions in future, you are recommended to involve a tax expert to review your annual tax calculations; we will be pleased to help you.