february 2010

Declaring individual income

From 15 February, individuals can file their tax returns electronically through e-maksuamet (the Estonian Tax and Customs Board's electronic service desk). The deadline for submitting an individual’s income tax return is 31 March. Overpaid income tax will be refunded from 26 February. The due date for paying any additional amount due and refunding overpaid income tax is 1 July. Income tax on income derived from business or gains from transfer of property has to be paid on 1 October at the latest which is also the final date for overpaid income being refunded.

This year, income tax returns can also be submitted in the English language environment of e-maksuamet: http://www.emta.ee./index.php?id=27259&tpl=1026

For further information, please contact: Erle Laasberg elaasberg@kpmg.com

Forms for reporting on the movement of excise goods and stock in the warehouse amended

Regulation No 8 of 4 February 2010 by the Minister of Finance Forms for reporting on the movement of excise goods and stock in the warehouse and instructions for the completion thereof was published in appendix 12.02.2010, 7, 124 to Riigi Teataja (the State Gazette).

According to the accompanying letter of explanation, the purpose of the amendments was to adjust and update the forms for reporting on the movement of excise goods and stock in the warehouse and instructions for the completion of the forms. The regulation will enter into force as from 1 March 2010.

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

Amendment to the regulation stipulating medicinal products, contraceptive preparations, sanitary and toiletry products, medical equipment and medical devices subject to value added tax at the rate of 9 per cent 

Regulation No 9 of 21 January 2010 by the Minister of Finance Medicinal products, contraceptive preparations, sanitary and toiletry products, medical equipment and medical devices subject to value added tax at the rate of 9 per cent was published in appendix 29.01.2010, 5, 95 to Riigi Teataja. The regulation will enter into force as from 1 April 2010.

Draft regulation was introduced in our InfoCourier in November. 

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

Sales tax

On 17 December 2009, Tallinn City Council adopted the regulation establishing local sales tax of 1 per cent within Tallinn as from 1 June 2010. Sales tax has to be paid by retail trade, e-commerce, catering and servicing enterprises who are registered in the register of economic activities and whose place of business (or seat, for e-commerce entities) is within the territory of Tallinn. The taxable value of goods and services is calculated according to section 12 subsection 1 of the Value Added Tax (VAT) Act. Sales tax applies also to those enterprises not registered for VAT.

Sales tax will not be applied to:

• medicinal products, contraceptive preparations, sanitary and toiletry products, medical equipment and medical devices subject to 9 per cent VAT rate;

• milk and certain dairy, bread and white bread products;

• certain infant garments and clothing accessories, homogenised products, food preparations and vegetables, preparations for infant use, preparations for infant use packaged for retail sale, special milk for infants and preparations for infant use containing milk and milk products, certain toys and parts and accessories thereof.

Sales tax is reported and paid by the 20th day of the month following the quarter.

For further information, please contact: Erle Laasberg elaasberg@kpmg.com


Amendments to the EU VAT Directive

The Council of the European Union (the Council) has approved amendments to the VAT Directive which Member States have to integrate into their law by 1 January 2011 at the latest. The Council Directive 2009/162/EU which amends certain provisions of the Directive 2006/112/EC on the common system of VAT brings changes in the following areas:

• Deducting input value added tax (input VAT) on transactions with immovable property. The amendment specifies that upon acquiring immovable property, input VAT is deductible only up to the proportion of the property’s use for purposes of the taxpayer’s business. Member States may also apply the same principle to transactions with other assets.

• In addition to the supply of access to the natural gas and electricity distribution systems, the supply of heat and cooling energy will be taxed at the place where they are consumed.

Link to the Directive in the Official Journal (PDF)

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


Cash-based VAT accounting scheme from 2011

The Council has made a decision applicable to Estonia which expands the right to apply simplified VAT accounting (the cash accounting scheme) to include all small undertakings. The simplification measure allows enterprises to apply VAT accounting which is based on their actual cash inflow or outflow. According to the effective Estonian VAT Act, the above simplified accounting scheme may be applied only by sole proprietors (see section 44 of the VAT Act). According to the Council’s decision, from 2011 the simplified accounting scheme has to be applied to all small undertakings whose annual turnover does not exceed a ceiling of about 3 million Estonian kroons.

Link to the Council Implementing Decision in the Official Journal (PDF)

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

 
Supreme Court judgements

Taxation of purchase bonuses

In case 3-08-1863 of the Tallinn Circuit Court, the issue of litigation was whether or not a seller of goods is entitled to deduct input VAT on purchase bonuses invoiced by a customer. Since the Supreme Court did not decide to initiate proceedings in that case, the Circuit Court judgement, which is positive for the taxpayer, is final.

The tax authority believed that a purchase bonus could not be treated as a discount since it did not reduce the price of that particular delivery, and since no goods were transferred or services rendered, adding VAT on purchase bonus invoices and deducting the above amounts as input VAT was not justified.

The Circuit Court did not agree with the tax authority’s opinion and decided that purchase bonuses provided for purchasers served as a markdown which reduced the taxable value of goods. The purchase bonus can be related to particular goods and invoices even if concessions are made as a percentage calculated on aggregated purchase sums on a quarterly basis. In such cases it is evident that the discount relates to all goods purchased and invoices submitted during the period. In the above judgement the Court decided that the customer was entitled to add VAT on the purchase bonus invoice and the seller of the goods was entitled to deduct input VAT on the basis of the invoice received.

For further information, please contact: Erle Laasberg elaasberg@kpmg.com
 

Tax evasion and the duty of care

The Supreme Court judgement in case 3-3-1-74-09 discussed whether or not deducting VAT on purchased goods was justified and whether the goods purchased were related to business.

First, the Court had to specify the concepts of tax evasion and the limitation period for making a tax assessment. The Supreme Court explained that only an intentional activity can be considered tax evasion. However, ascertaining tax evasion need not always be based on a taxpayer’s subjective considerations. Instead, factual information which proves tax evasion may become decisive. When ascertaining intention, the principle of presumption of good faith does not apply to cases where the tax authority has reason to suspect, for instance, that the purchaser is involved in tax evasion. In the case of the tax authority’s reasonable suspicion, the purchaser has to provide additional evidence to prove that the transaction has been carried out. Consequently, the taxpayer has to eliminate the above reasonable suspicion and to fulfil his or her obligation to cooperate.

The Court also explained the essence of the duty of care. The fact that the duty of care has been disregarded need not mean that tax was evaded intentionally. Even if the duty of care was disregarded intentionally, it cannot be concluded that tax was evaded intentionally. The consequences arising from the disregard of the duty of care may be different as regards income tax and VAT.

The Court explained that following the duty of care when identifying the seller is essential as regards VAT calculation and payment. A taxpayer who has disregarded duties of care has to remember that when the burden of proof is transferred, he or she may not have sufficient evidence due to his or her carelessness to prove that the transactions were actually carried out on the alleged terms and conditions. When due to his or her carelessness, the taxpayer is unable to remove the tax authority’s reasonable suspicion as regards the identity of sellers, deduction of input VAT is unlawful. The Court also said that as concerns income tax calculation, the requirements for proof are significantly less strict than those applied to VAT calculation. Therefore, the same transaction may be assessed differently depending on whether the income tax calculation or VAT calculation aspects are focused on.

For further information, please contact: Liina Mauring lmauring@kpmg.com

The importance of a company’s articles of association in resolving shareholders’ disagreements

In case 3-2-1-166-09, the Supreme Court analysed a situation where shareholders disagreed about who has the right to decide to adopt resolutions without calling a shareholders’ meeting (either shareholders or the management board). In addition, the parties interpreted the provision of the company’s articles of association concerning adopting resolutions by shareholders differently, and argued whether or not adopting resolutions without calling a meeting was allowed.

The Supreme Court decided that majority requirements are different depending on whether a resolution is adopted at a shareholders’ meeting or without calling a meeting. If a company wants to apply other majority requirements than stipulated in the Commercial Code, a greater majority requirement for adopting resolutions by shareholders has to be prescribed in the company’s articles of association separately for adopting resolution at shareholders’ meetings and for adopting resolutions without calling a meeting.

In addition, the Supreme Court explained that a company’s articles of association have to be interpreted according to the rules of interpreting contracts which are stipulated in section 29 of the Law of Obligations Act. The key factor on interpreting a contract is the actual common intention of the parties. If the actual common intention of the parties cannot be determined, the contract has to be interpreted according to the meaning that reasonable persons of the same kind as the parties would give to the contract in the same circumstances. Also, when resolving arguments, the parties’ former practice has to be considered. If shareholders resolutions without calling a meeting were previously adopted only when all shareholders agreed to adopt the resolution, this indicates that according to the company’s articles of association, for adopting shareholders’ resolutions without calling a meeting all shareholders’ consent is required.

For further information, please contact: Mare Kingo mkingo@kpmg.com

A contract between parties regarded as an employment contract

In case 3-2-1-160-09, the Supreme Court explained that in cases where an agreement between parties has characteristics of both an employment contract and a contract regulated by some other civil law and therefore the nature of the contractual relationship cannot be determined explicitly, and the employer cannot prove that the parties had entered into some other contract, the contract made by the parties has to be regarded as an employment contract. The Supreme Court also explained that the Employment Contract Act does not provide that an employment contract may be actually terminated without any basis or without formalising the termination of the contract.

For further information, please contact: Mare Kingo mkingo@kpmg.com

The importance of working environment risk assessment in resolving labour disputes

When judging an employee’s claim against the employer for the compensation of damage resulting from an occupational disease, the Supreme Court stressed the importance of risk assessment. In their judgement in case 3-2-1-145-09 the Supreme Court explained that a causal link between the employer’s failure to perform a risk assessment of an employee’s working environment and causing damage to the employee’s health may reveal, for instance, in the fact that since the risks of the working environment had not been assessed the employee was not aware of risk factors and was not able to protect his or her health when working in hazardous conditions.

For further information, please contact: Mare Kingo mkingo@kpmg.com

InfoCourier does not cover all amendments to Estonian legislation. 

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