august 2010

New tax conventions 

This summer, two new agreements for the avoidance of double taxation entered into force. The conventions will be applicable from the beginning of 2011.

Convention between the Republic of Estonia and the Republic of Serbia
Convention between the Republic of Estonia and the Republic of Korea
 
For further information, please contact: Einar Rosin erosin@kpmg.com

Court judgements

Supreme Court judgment on charging VAT on transfer of debt obligations  

On 12 August, the Supreme Court passed judgment in case 3-3-1-47-10. The issue of dispute was whether or not assumption of an obligation arising from a loan contract can be regarded as providing a service subject to VAT. In brief, OÜ Järve Varad (the appellant) acquired real property from OÜ Rexy at the cost of 6,669,308 kroons. The contracting parties agreed that the selling price would be settled by the buyer taking over the seller’s debt obligation of 6,669,308 kroons to OÜ Kõrve Arendus. The tax authority decided that on taking over the obligation, OÜ Järve Varad provided OÜ Rexy with a service which is subject to VAT.

The Supreme Court explained that upon assignment of a claim or transfer of a debt, a new person assumes a position in the debt obligation whereas the nature and content of the obligation remain unaltered. A mere change of a party in a debt obligation is not regarded as provision of benefits in the course of business activities. According to the Supreme Court Chamber, upon assignment of a monetary claim or transfer of a debt a service for consideration is deemed to be provided only in the cases where the consideration paid or received for the monatary claim differs from the nominal value of the claim at the time of the transfer of the claim or obligation (for instance, if upon assignment of the claim, the acquirer of the claim pays the assignor less than the value of the claim or upon transfer of a debt, the amount paid by the original obligor to a new obligor exceeds the value of the claim). The claim or obligation transferred from one person to another during the assignment of a claim or transfer of a debt is not deemed to be taxable supply to the amount which equals the value of the claim since a monetary claim is not regarded as a separately consumable benefit. As according to the Supreme Court the transaction discussed in this particular case met the above criteria, the Court found that the tax authority’s conclusion concerning a service fee subject to VAT was unjustified and has to be repealed.

For further information: Einar Rosin erosin@kpmg.com

 

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