An overview of the latest changes in legal acts

Increased basic exemption for child maintenance

From 1 January 2008, a resident parent or a guardian of a child may deduct increased basic exemption from his or her income in the period of taxation for each child of up to 17 years of age. So far, the increased basic deduction was applied starting with the second child. The additional basic exemption may be first used in 2009 on submitting an income tax return for 2008.

Amendment of section 36 of Packaging Act

Target recovery indicators established in the Packaging Act have been amended. After 1 January 2009, packaging undertakings (except for persons who sell packaged goods) must guarantee the recovery of the packaging waste generated from the packaging of their own as well as imported packaged goods to the following extent:

·         at least 60 percent of the total mass of packaging waste per year;

·         by way of recycling, at least 35 percent of the total mass of packaging waste per year and at least 15 percent of the total mass for each type of packaging per year.

The purpose of the amendments is to reduce the amount of waste to be stored and increase the mass of packaging waste that is recovered. The application of the amended act means additional expenses for packaging undertakings.

Estonian text: RTI, 04.01.2008, 1, 4 Date of entry into force: 14 January 2008

Amendments to legislation

Amendment Act of Trading Act, Register of Economic Activities Act and associated acts

The amendment of the Trading Act and the Register of Economic Activities Act has mainly resulted from the need to solve some practical problems arisen during the four years the acts have been applied, and to update current standards. For example, the updated version of the Trading Act defines the concept of e-trading.

Changes in these framework acts called for amendments in other, associated acts (the Alcohol Act, the Building Act, the Tourism Act).

Estonian text: RTI, 15.02.2008, 8, 58 Date of entry into force: 15 May 2008

Law of Succession Act

The Law of Succession Act has been replaced by a new version. The currently effective act was adopted in 1996. After the General Part of the Civil Code Act and the Law of Obligations Act had entered into force in 2002, the necessity to align the contents of the Law of Succession Act with those acts occurred. The new adopted Law of Succession Act should achieve this aim.

Compared to the law of succession regulation in force, the most fundamental change is the replacement of the estate acceptance system with the waiver system. The new Law of Succession Act will enter into force on 1 January 2009.

Estonian text: RTI, 08.02.2008, 7, 52 Date of entry into force: 1 January 2009

Amendment Act of Health Services Organisation Act and associated acts

Amendments to the Health Services Organisation Act and associated acts are, in essence, changes that are necessary for switching over to an electronic system of recording health services related documentation.

For creating the health information system, besides the Health Services Organisation Act, several other legal acts are amended (the Estonian Health Insurance Fund Act, the Administrative Co-operation Act, the Mental Health Act, the Health Insurance Act, the Medicinal Products Act, the Transplantation of Organs and Tissues Act, the Determination of Cause of Death Act, the Blood Act).

Estonian text: RTI, 18.01.2008, 3, 22 Date of entry into force: 1 September 2008

 
The Administrative Law Chamber of the Supreme Court gave their judgement in two cases. In both cases, transactions were analysed where a suspicion of fictitious transactions had arisen.

In the case No 3-3-1-97-07 (OÜ Scooter), transactions were analysed where the tax authorities had levied additional tax for presenting bills of cost from companies that did actually not conduct any business operations. The Supreme Court agreed that the deduction of input value added tax from such invoices is not legitimate. However, as for income tax, the case was sent for a new hearing to identify whether the payments in question can qualify for profit distributions.

In the case No 3-3-1-90-07 (OÜ Osaker), transactions were analyzed where a suspicion had arisen that the seller’s data on invoices were incorrect and the goods as shown on the invoices were actually not purchased. The Supreme Court assented to VAT and income tax levied on those transactions as the transactions were proved not to have taken place.

In the same case, the tax authorities decision to tax a loan was examined. The loan was taken by OÜ Osaker and utilised by an employee of the company. The Supreme Court decided that even if an individual is in employment relationship with a legal entity, not all the payments made by the legal entity are subject to social tax. In this particular case, the individual was the sole shareholder of the company. Therefore, it should be found out whether the payment made to the shareholder could be classified as a dividend or some other profit distribution that is not subject to social tax. When levying social tax, the tax authorities have to explain explicitly in their notice of assessment why and on which grounds they have come to the conclusion that the payment made was the management board member’s remuneration. When assessing the nature of the payment, the following issues may have to be addressed: what the management board member’s assignments in the company were; what jobs are made by employees working under employment contracts and what the management member’s job is; how many other payments has the management board member received from the same company or from other sources; what the scope of his work is, how complicated the work is and what qualifications it requires; the overall financial performance of the company. The frequency of payments has also to be considered. In addition, the Supreme Court decided that from the tax legislation point, classifying a payment either as a dividend or a management board member’s remuneration does, in general, not depend on whether the company has followed the rules for profit distribution stipulated in the Commercial Code.