KPMG InfoCourier May 2017 | KPMG | EE

KPMG InfoCourier May 2017

KPMG InfoCourier May 2017

InfoCourier is a monthly newsletter which gives an overview of the latest changes in legislation.

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KPMG InfoCourier May 2017

An overview of the latest changes in legislation

This InfoCourier reviews the bill for an Act to Amend the Income Tax Act, the Value-Added Tax Act and the Traffic Act which is before the Estonian Parliament. The bill would require credit institutions to make advance income tax payments, reduce the income tax rate for regular dividend distributions, change the taxation of car-related benefits, supplement the tax regulation for employee share options and make other changes to the taxation of fringe benefits. 

In addition, we touch on the regulation of exchange of information on financial accounts and the taxation of sweetened beverages. You will also find an overview of more significant court decisions. 

When submitted to the parliament, Act to Amend the Income Tax Act, the Value-Added Tax Act and the Traffic Act also included a proposal to impose income tax on intra-group loans. However, the Estonian government recently gave up on this by announcing that other measures will be analysed to tackle profit shifting and tax evasion.

Similarly, the coalition parties decided to give up on amendments to Packing Excise Duty Act by stating that the issue needs further analysis.

We hope you are enjoying reading it!

Proposed amendments to the Income Tax Act

• Regularly paid dividends

From 2019, a profit distribution that is smaller than or equal to the past three years’ average profit distribution which was taxed in Estonia would be subject to income tax of 14% (calculated as 14/86 of the net distribution). The bill includes certain transitional provisions and additional provisions applying to individuals. 

• Car-related benefits

From 2018, the price of the fringe benefit of using an employer’s car for both work and personal purposes will be based on the car’s engine power. According to the bill, the tax base will be 1.96 €/kW and 1.47 €/kW for cars which are more than five years old. The bill also specifies the taxation of the use of vans for private purposes, the definition of self-supply in the VAT Act and the adjustment of deducted input VAT when the purpose of use of a car changes. 

• Share option programs

According to the bill, from 1 July 2017 section 48 of the Income Tax Act including the taxation of option programs will be revised. The proposed regulations broadens the list of conditions under which acquisition and realisation of share options will not be treated as a fringe benefit.

• Advance payments by credit institutions

According to the bill, banks and the branches of foreign banks operating in Estonia will be obliged to make advance payments of income tax on the profit earned during the previous quarter. The tax rate will be 14% and banks may take into account and carry forward prior period losses.

Information exchange regarding financial accounts

From autumn 2017, information exchange between tax authorities regarding the funds one country’s tax residents are keeping in another country will be expanded in line with the relevant OECD standard.

A detailed overview in Estonian is available here.

For further information, please contact Merike Oja, tax adviser, moja@kpmg.com

Sweetened Beverage Tax Act

The Ministry of Finance has drafted a bill for the Sweetened Beverage Tax Act. The bill provides for the taxation of sweetened beverages which include at least 5g/100ml sugar per beverage or have been added sweetener. In addition, the bill provides for the taxation of beverages that need to be diluted or dissolved before consumption. The act should enter into force on 1 January 2018.

A detailed overview in Estonian is available here.

For further information, please contact Einar Rosin, tax adviser, erosin@kpmg.com

Court decisions

A situation where a person who has paid unemployment insurance contributions does not have the right to receive unemployment insurance benefits is unconstitutional

The Supreme Court decided to satisfy the proposal of the Chancellor of Justice and declare subsections 6(5)4) of the Labour Market Services and Benefits Act and subsection 6(1)1) of the Unemployment Insurance Act unconstitutional and repeal them in the part where the acts preclude the payment of unemployment insurance benefits to an insured person listed in subsection 3(1) of the Unemployment Insurance Act who, based on section 6 of the same act, would have the right to receive unemployment insurance benefits because he/she is a member of a company’s management board.

A detailed overview in Estonian is available here.

 

Business use of apartments in the ownership of a limited company and taxation of relevant transactions

On 21 March 2017, Tartu Circuit Court made a decision on administrative matter 3-15-1564 concerning acquisition of property from the owner of a limited company and its further use for business purposes.A company purchased apartments from its owner and then rented them out to the same owner. The tax authorities treated the transaction as a concealed dividend distribution and charged income tax on it. Tartu Circuit Court took the position that the transaction did not constitute a concealed dividend distribution because the apartment was sold on market terms. This means that neither party’s assets increased or decreased as a result of the transaction.

A detailed overview in Estonian is available here.

For further information, please contact Einar Rosin, tax adviser, erosin@kpmg.com

© 2017 KPMG Baltics OÜ, an Estonian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

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