january 2010

Amendment acts effective from January 2010

Amendment to the Land Tax Act

On 29 December 2009, the Riigi Teataja (State Gazette) published the Amendment Act of the Land Tax Act.

From 2010, two deadlines are set for paying land tax – 31 March and 31 October. At least half of the annual tax amount, but not less than 1,000 Estonian kroons has to be settled by 31 March. Land tax has to be paid by a person who is the owner, superficiary or usufructuary of the immovable as at 1 January according to the land register. Those who have made their email addresses available to the Tax and Customs Board receive electronic land tax notices. Land tax notices are not delivered and land tax is not charged if the tax payable remains below 50 Estonian kroons. Land tax notices should be delivered by 15 February. If a taxpayer has not received a tax notice by 25 February, he or she has to inform the Tax and Customs Board department of the region where the land is located thereof.

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

Amendments to the Alcohol, Tobacco, Fuel and Electricity Excise Duty Act

According to the Amendment to the Alcohol, Tobacco, Fuel and Electricity Excise Duty Act, from January 2010, the rates of excise duty on the following excise goods were raised:

From 1 March 2010, the rate of excise duty on electricity will rise to 70 kroons per one megawatt-hour of electricity. Higher-rated excise duties on cigarettes, cigars, cigarillos, smoking tobacco and chewing tobacco will become effective on 1 January 2011.

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

Amendments to the Value Added Tax (VAT) Act

Amendments to the VAT Act effective from the beginning of this year were outlined in November and December 2009 issues of our InfoCourier. 

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

Amendments to provisions based on the VAT Act

Based on the Amendments to the VAT Act effective from 2010, the VAT returns form, forms for reporting on intra-Community supply of goods, and the forms for applying to be registered as a VAT group or as a taxable person with limited liability have also been changed.

Form for reporting on intra-Community supply of goods, form for reporting on amendments to intra-Community supply of goods, and instructions for the completion thereof (available in Estonian)

VAT returns form and instructions for the completion thereof (available in Estonian)

The procedure for registering a VAT group and the application form, the form for tax authority’s decision concerning the registration of a VAT group, and the procedure for deleting a VAT group from the register (available in Estonian)

Application form for registering as a taxable person with limited liability and the form for tax authority’s decision concerning the registration of a taxable person with limited liability (available in Estonian)

The procedure for the refund of VAT to foreign taxable persons, the application form for refunds of VAT and the procedure for the refund of VAT to persons who export goods as humanitarian aid (available in Estonian, except for the application form for refunds of VAT to foreign taxable persons which is in two languages: Estonian and English)

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


Withholding mandatory funded pension contributions

From 1 January 2010, employers have to withhold funded pension contributions of 2% from the remuneration paid to those who have submitted an application for continuing with contributions to their 2nd pension pillar. Information on employees who have subscribed to continue with the contributions is available on the website of Pensionikeskus (the Pension Centre) www.pensionikeskus.ee.

If an employee has not submitted the above application, the employer does not have the obligation to withhold funded pension contributions from the employee’s remuneration for 2010.

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


Boat tax in Tallinn

From 1 January, boat tax has been established in Tallinn. The tax at the rate of 500 Estonian kroons per each half metre per calendar year is imposed on all 4- to 12-metre-long small ships which are subject to technical inspection. Small ship owners have to pay boat tax by 1 May of a current year. If a small ship is registered after the beginning of a taxable period, tax is imposed on it as of the month following the registration in proportion to the number of months remaining until the end of the taxable period. In that case, the tax has to be paid by the last day of the month following the registration.

In addition to boat tax, Tallinn City Government has decided to impose sales tax as from 1 June 2010 on goods and services sold within the territory of Tallinn, which will be outlined in greater detail in our next issue of InfoCourier.

Regulations on boat and sales taxes are available on the website of Tallinn: www.tallinn.ee.

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

Supreme Court judgements

Salary versus sole proprietor’s business income

The Administrative Law Chamber of the Supreme Court gave their judgement in case 3-3-1-67-09. The issue of litigation was the fees paid to Eesti Post (Estonian Post) postmen operating as sole proprietors being reclassified as income from employment. The Law Chamber agreed that according to the substance over form principle, a tax authority may reassess a transaction performed between parties and impose tax charge payable based on the economic substance of the transaction. However, cases of such interference with transactions between parties are limited. Reclassification of an agreement is not sufficient for imposing tax; transaction parties’ intention to receive tax advantage has also to be identified. If AS Eesti Post entered into a fictitious transaction without receiving any tax advantage, imposition of tax does not have legal grounds.

The Administrative Law Chamber found that as the notice of assessment issued to AS Eesti Post may also impact the tax liability of sole proprietors whose income from business will be reclassified as income from employment, the sole proprietors should also have been involved in the tax proceedings. The Court decided that failure to involve sole proprietors in the tax proceedings is a violation of procedure rules that can result in cancellation of the disputed notice of assessment.The Court agreed that in material terms, employees’ position may improve; however, this can be ascertained only after the tax authority has verified the accuracy of calculation and payment of taxes by sole proprietors. In reclassifying transactions between AS Eesti Post and sole proprietors, the proportional aspect of the applied measure was not analysed since in addition to AS Eesti Post, submitting the tax claim will result in changed tax liabilities for all sole proprietors involved. Based on the principle of investigation stipulated in section 11 of the Estonian Taxation Act, the tax authorities have to ascertain a decrease in one person’s tax liability automatically arising from an increase in another person’s tax liability and this has to be made within a single proceeding by involving all relevant persons in the proceeding.

The Court also pointed out the importance of the principle stipulated in section 100 subsection 2 of the Estonian Taxation Act. Under the above principle, a tax authority has the right not to assess or collect an amount of tax if the tax authority has ascertained that the expenses related to making an assessment of and collecting the amount of tax exceed the amount of tax or that collection of the amount of tax is hopeless due to the insolvency of the taxable person and the tax authority does not consider it expedient to submit a bankruptcy petition.

For further information on the above Supreme Court judgement, please contact: Liina Mauring lmauring@kpmg.com
 

The concept of income

The Supreme Court discussed case 3-3-1-72-08. The issue of litigation was whether or not compensation paid for damage caused by unjust deprivation of liberty may be deemed as an individual’s income subject to income tax.

An individual who had unjustly been deprived of liberty submitted an application to the Ministry of Finance in order to receive compensation for damage caused by unjust deprivation of liberty. The Ministry of Finance paid compensation and withheld income tax from the entire payment. The issue of litigation was whether or not the above compensation can be regarded as income that is subject to income tax.

The Court found that in order to decide whether or not income tax can be charged on the above compensation, it should be determined if the compensation can be considered income as defined in section 12 subsection 1 of the Income Tax Act. In one of the earlier cases, the Supreme Court decided that only such monetarily appraisable, non-repayable and realisable income may be deemed as an individual’s taxable income that is earned through economic activities which are performed with the aim of gaining profit. Accordingly, the Court judged that income of incidental nature that has not been earned in the course of an individual’s ordinary business cannot be deemed income that is subject to income tax.

Pursuant to the Compensation for Damage Caused by State to Person by Unjust Deprivation of Liberty Act, loss of profit as a result of unjust deprivation of liberty and non-proprietary damage caused thereby are compensated. According to the Court, in order to define the concept of income it is essential to distinguish between compensating for loss of profit and compensating for non-proprietary damage. The Court explained that by its nature, compensation payable for loss of profit is income which is subject to income tax because if the individual hadn’t been unjustly deprived of liberty, he or she could have been free to earn income which would have been subject to income tax. However, compensation for non-proprietary damage is incidental income by its nature since similar income cannot be earned in an ordinary situation where an individual has not been caused damage. Therefore, the Court found that the compensation paid to the individual for unjust deprivation of liberty is taxable income as defined in the Income Tax Act only to the extent that corresponds to compensating for loss of profit. The Court explained that since the Compensation for Damage Caused by State to Person by Unjust Deprivation of Liberty Act does not specify what portion of the entire payable compensation is allocated to compensating for loss of profit and what portion to compensating for non-proprietary damage, it should be assumed in such cases that compensation is divided into two equal portions and income tax can be imposed on the compensation only to the extent that corresponds to half of the entire compensation. Based on the Court’s decision, the Ministry of Finance has to refund to the individual 50 percent of income tax withheld. 

For further information on the above Supreme Court judgement, please contact: Liina Mauring lmauring@kpmg.com

Does accepting or signing an invoice mean that the person who accepts or signs the invoice agrees to the terms stated on the invoice?

Accepting an invoice with or without signing it does not mean agreeing to the new terms stated on the invoice. A signature on an invoice need not be deemed as agreeing to the content of the invoice (e.g. in the case of interest on arrears stated on the invoice which the parties have not agreed on previously). In exceptional cases, accepting or signing an invoice may denote agreeing to the terms of the invoice, for instance, in cases where prior behaviour of the person who accepts the invoice has referred to the acceptance of the terms stated on the invoice, e.g. by paying interest on arrears stated on a previous invoice, etc.

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

What is a reasonable period for submitting a claim for payment of a contractual penalty?

A claim for payment of a contractual penalty has to be submitted within a reasonable period after becoming aware of the non-performance. When estimating the reasonableness of the period, the nature of the obligation relationship between the parties including the terms and conditions agreed in the contract, first of all the length of the period established for performance of the obligation, should be taken into consideration but also the parties’ behaviour upon and after the performance of the contract.

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

InfoCourier does not cover all amendments to Estonian legislation. 

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