KPMG tax news - September 2016
Although a seminar concerning amendments to tax laws is scheduled to be held by the tax specialists of KPMG Baltics SIA in the first weeks of January 2017, we would like to take this opportunity and warn our readers about potential changes in tax laws today.Currently, a number of amendments to the tax laws are being considered by the Cabinet of Ministers. Over the coming months, these amendments will be reviewed also by the Saeima, which may also introduce some changes. Nevertheless, given that the budgeting processes of many companies is already in full swing, in an attempt to enable tax payers to prepare for changes to come, with this article we plan to launch a series of articles that outline key areas where the Cabinet of Ministers plans to suggest the Saeima to make amendments to tax laws.
Starting this year, commercial banks have an obligation to report suspicious transactions not only to the Office for Prevention of Laundering of Proceeds Derived from Criminal Activity but also to the State Revenue Service (“SRS”). By the proposed amendments to the law ‘On Taxes and Duties’ it is intended to apply the obligation to report suspicious transactions to the SRS to all subjects of the law ‘On the Prevention on Money Laundering and Terrorism Financing’. Consequently, tax advisors, outsourced accountants, sworn auditors, sworn notaries, attorneys at law, real estate agents or intermediaries will all be required to report suspicious transactions to the SRS according to the criteria laid down in Section 222 of the law ‘On Taxes and Duties’.In addition, it is planned to introduce a specific obligation for sworn notaries to report to the SRS any cases when a heir indicates that inherited property includes non-registrable moveable property, including cash, which exceeds EUR 15,000 in value. Sanctions for the failure to report are set at up to 5% of turnover of the subjects of the law whose turnover or operating revenue in the previous year exceeds EUR 1 million, and up to EUR 5,000 for all other subjects of the law. The SRS will have the authority to determine the amount of penalty based on circumstances such as the severity and duration of the (unreported) violation and the extent to which the accountable tax payer cooperates with the SRS.Furthermore, seeking to combat the shadow economy which is largely cash based, it is intended to introduce in the law a prohibition for natural persons not engaged in business activities to make cash transactions in excess of EUR 7,200. It applies to all transactions regardless of the number of payments and the size of tranches in which payments are made, or who the recipient of such payments is.
The definition of the representative vehicle will be expanded to include motor vehicles that, in effect, meet the definition of the representative vehicle provided in the law and are not used for freight transportation, but were not subject to restrictions in terms of calculating deductible expenses due to the fact that such vehicles were classified as lorries (Category N1). It is planned that restrictions on the deduction of expenses for tax purposes will apply also to lorries with the total mass of up to 3,000kg with more than three seats, including the driver’s seat, if they are classified as Category N1 lorries but are, in effect, personal motor cars (Category M1).
A significant amendment that has been discussed by the Ministry of Finance for more than a year is restriction of utilization of tax losses carried forward from previous periods. The Ministry of Finance considered several options for such restrictions, including the number of years in which tax losses can be utilised. The current version of the amendments states that from the taxation year beginning in 2017 tax payers will be able to utilise tax losses incurred in 2008 and subsequent years but not in excess of 75% of taxable income of the reporting year. The legislator claims to have based this approach on the practice of other Member States. However, it is worthwhile to mention that in Lithuania which has this very type of restriction on the use of carried forward losses it is at the same time possible to transfer losses within a group of companies. In Latvia, this option was cancelled two years ago.
Additional changes intended to be made in the law:
- Update of the provisions of Section 172 of the law concerning the procedure for reversing the decision made by the Cabinet of Ministers to grant a tax benefit to a large investment project if it turns out after the implementation that the project in question does not meet the requirements of the laws and regulations. The law also states the areas that concern granting and controlling tax benefits which are determined by the regulations of the Cabinet of Ministers.
- Where insolvency proceedings have been announced for a tax payer and the insolvency administrator has made the decision not to continue its operations, the tax payer now has an obligation to submit a CIT return and its balance sheet and profit and loss statement not later than in four months after the year-end. Such a requirement currently does not exist but the SRS has found that such companies generate taxable income, for example, from disposal of their property.
- It is stated that advance payments of tax will be calculated by the SRS (in the EDS system) rather than by the tax payer and it is intended to abandon adjustments of the amount of advance payment according to the consumer price index specified by the Central Statistical Bureau.
- Tax payers will not be required to make advance payments beginning with the month when the entry on the suspension of their activities is made in the Commercial Register, rather than as currently from the date when the application is submitted to the SRS requesting to suspend its business activities.
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