Category: Serbia

Samardzic, Oreski, Grbovic has been appointed as AiCure’s data protection representative in Serbia by the Commissioner for Information of Public Importance and Personal Data Protection.

Samardzic, Oreski, Grbovic describes AiCure as a “globally recognized AI and advanced data analytics company that monitors patient behavior and enables remote patient engagement in clinical trials.” According to the firm, “this decision by AiCure is made in line with Article 44 of the Serbian Data Protection Act, which requires data controllers or processors processing personal data of Serbian citizens, if not established in Serbia, to designate representatives that will act on their behalf and that may be addressed by the Serbian Commissioner for Information of Public Importance and Personal Data Protection.”

NKO Partners has advised the BizLink Group on its EUR 3.5 million acquisition of a commercial property and production facilities in Prokuplje, Serbia, from Gama Investor Solutions. Attorney-at-law Aleksandar Kuljak reportedly advised the seller on the deal. 

The BizLink Group is a US-based manufacturer of wire harnesses and cables used in industries such as IT and CE, motor vehicle, electrical appliances, and medical equipment, among others. According to NKO Partners, the company entered the Serbian market in 2017 by acquiring the former Leoni. 

This transaction marks the second case NKO Partners has helped the BizLink Group on this year, following its assistance with the group’s internal restructuring in August (as reported by CEE Legal Matters on August 21, 2020). 

The NKO Partners team consisted of Partner Djordje Nikolic and Senior Associate Marina Nikolic.

On November 11, 2020, CEE Legal Matters reported that Karanovic & Partners had helped set-up Ventu.rs, the first Serbian crowd-investing platform. CEEIHM spoke with Luka Pejovic, Director at Ventu.rs, to learn more about the matter.

CEEIHM: Congratulations on the recent set-up! How did this idea come to be and how long was the process of creating Ventu.rs?

Luka: Thank you very much!

Before I started working on establishing a crowd-investing platform, I was a part of the BDO Serbia M&A and Fundraising Team and it seemed that we encounter the same issues over and over in our work. The traditional bank-centric Serbian financial market, with mostly foreign-owned banks, has proven to be extremely conservative, risk-averse, and not interested in local innovative companies and projects. My colleagues and I have encountered this issue more than once while working with MSMEs and startups on fundraising projects.

While banks and investment funds catered to the needs of larger companies, there was a clear funding gap in the smaller segment. We analyzed other markets and the ways this funding gap is addressed and crowd-investing seemed like one of the possible solutions to this issue for Serbia. Furthermore, we noticed the speed with which newly-founded companies go through the early phases of their life cycles. One day they are below our radar, the next day they are so large they become clients of some of the largest competitors of BDO. It seemed BDO could perfectly position itself as a problem solver in the early phases of innovative companies’ lifecycles and capitalize on that relationship once they grow in the later phases.

CEEIHM: As already reported by CEELM, “the platform is a joint project of BDO Business Advisory from Belgrade and CONDA from Austria, supported by USAID’s Economic Development Cooperation Project and the Austrian Development Agency.” Who initiated the project and what was the case put forward towards the other institutional partners?

Luka: BDO Serbia explored the possibilities of establishing a crowd-investing platform in Serbia, but all the research required support, both in terms of funding and expertise. We presented our idea to the USAID Cooperation for Growth Project, which is focused on the improvement of access to finance in Serbia, and they were very interested in the subject. They financed a very comprehensive market study, which, in the end, helped us a lot and that we used as a blueprint for our work afterward. We were tasked by them, together with Karanovic & Partners to conduct the said study.

After all the possibilities were explored, BDO chose to partner with CONDA, an Austrian crowd-investing pioneer and founded the platform as a joint venture. Due to the fact that this was a Serbian-Austrian cooperation, our project received funding from the Austrian Development Agency. Colleagues from BDO Austria were invaluable in the process of securing this funding.

As previously mentioned, USAID was very interested in introducing alternative and innovative finance options, so our cooperation with USAID continued beyond the mentioned study since they financially supported the promotional activities for our platform launch. Furthermore, they are covering part of the costs for the first five campaigns on our platform.

Both ADA and USAID recognized the importance our platform could have in improving the access to finance for micro and small companies and the general economic development in Serbia. We are only a small crowd-investing platform, targeting a niche, but we were the first alternative financing option in Serbia and we believe that we have opened the doors to others who want to do something innovative and progressive in the financial market. I think that was what they counted on when they decided to give us their support.

CEEIHM: What would you say was the most complex aspect of the set-up in terms of legal matters?

Luka: In my opinion, the most complex aspect was adapting the crowd-investing business model, established originally in Austria and Germany, to local legislation. Serbian crowdfunding laws are still non-existent so our lawyers hat to find the foundation for our business in existing laws, which was not always easy.

Furthermore, drafting the loan agreements and other contracts, needed for such a platform to work, was a task that goes beyond only legal matters. One has to keep in mind what is customary to the local market and which solutions, although legal, might not work in Serbia. This also required a lot of creative work from both our team and our colleagues from Karanovic & Partners.  

CEEIHM: What was Karanovic & Partners’ mandate specifically? What were the aspects you asked them to advise on? And, while on the subject, why did you opt to use them in particular as your legal counsel?

Luka: Originally, USAID mandated both of our firms to conduct the study, which was aimed at clarifying if and how crowd-investing is viable in Serbia from both business and legal point of view. Since they were very cooperative, professional, and, above all, very good lawyers, it was only logical to continue this partnership in later phases.

After the study, they helped us with establishing the platform from a legal perspective, drafting the relevant contracts, and even formalizing some of our business processes with us, such as legal checks of applicants on the platform. At every step of the way, they have proven their expertise, but much more importantly shown that they are true partners with their client’s interest in mind. This did not surprise us, since we were aware of their great reputation, which was one of the reasons why we opted to use them as our legal counsel.

Originally reported by CEE In-House Matters.

Jankovic Popovic Mitic has advised BASF on the sale of its Construction Chemicals business in Serbia to an affiliate of private equity firm Lone Star. 

According to JPM, BASF and an affiliate of Lone Star signed an agreement in 2019 for the acquisition of BASF’s Construction Chemicals business worldwide. With around 7,500 employees, the Construction Chemicals business operates in more than 60 countries, including Serbia.

The Serbian part of the transaction closed on November 30, 2020.

JPM’s team was led by Partner Jelena Stankovic Lukic.

BDK Advokati has advised Affidea Diagnostic B.V. on the sale of Affideal Special Hospital in Belgrade to Medigroup System. 

BDK Advokati describes Affidea Special Hospital as a “modern and well-equipped diagnostic center.” According to the firm, “Affidea Special Hospital is well known for diagnostic services including MRI, MDCT, mammography, X-ray, ultrasound, EEG, EMNG, gynecological ultrasound, etc.”

BDK Advokati’s team was led by Senior Partner Vladimir Dasic and Junior Associate Sanja Dedovic.

On 06 November 2020 on the website of the National Assembly of the Republic of Serbia is published Proposal for the amendments of the Law on tax procedure and tax administration (hereinafter referred to as: “Proposal”).

Our attention was drawn by part of the Proposal suggestion for amendments of the Law on tax procedure and tax administration  (hereinafter referred to as: ”Law”), precisely by its Article 25 which envisages the amendments of the current Article 173a of the Law which incriminates the criminal offence Ungrounded expression of amounts for tax reimbursement and tax credit.

In this paper we shall attempt to point out the differences between the manner this criminal offence is currently prescribed in the Law and the manner of prescription thereof as proposed in the Proposal, as well as to point out the possible reasons for amendment proposed in the Proposal.

The Law, as already stated, in its Article 173a envisages criminal offence Ungrounded expression of amounts for tax refund and tax credit (hereinafter referred to as: “Ungrounded expression of amounts for tax refund”) which is incriminated in the following manner:

Whoever, with the intent to realize the right to ungrounded tax refund or tax credit, in the last 12 months, files a tax return i.e. tax returns with untrue content, in which an amount for tax refund or tax credit exceeds 1,000,000 RSD, shall be punished by imprisonment from six months to five years and by a fine.

If the expressed amount for tax refund or tax credit, in the last 12 months exceeds 3,000,000 RSD, the perpetrator shall be punished by imprisonment from one to eight years and by a fine.

If the expressed amount for tax refund or tax credit, in the last 12 months exceeds 10,000,000 RSD, the perpetrator shall be punished by imprisonment from three to ten years and by a fine.

To a natural person, an entrepreneur and a responsible person in the legal person – taxpayer, a security measure of prohibition to perform activity, profession, business or duty of from one to five years shall be imposed for a criminal offence from paragraphs 1-3 of this Article.

The Proposal, before all, in its Article 25 suggests amending the name of this criminal offence which would read Tax fraud relating to the value added tax (hereinafter referred to as: “VAT Tax Fraud“), while the proposal for incrimination of this proposed criminal offence is:

Whoever, with the intent that himself or the other person, in the last 12 months realize the right to ungrounded refund of the value added tax (hereinafter referred to as: “VAT”) or tax credit for value added tax, files one or more tax returns for value added tax of untrue content, in which an amount for refund or tax credit exceeds million RSD, shall be punished by imprisonment from one to five years and by a fine.

Whoever with the intent that himself or the other person, in the last 12 months fully or partially avoid payment of value added tax, does not file one or more tax returns for value added tax, files one or more tax returns for value added tax of untrue content or whoever in the same intent in other manner avoids payment of value added tax, while the tax amount which payment is avoided exceeds million RSD, shall be punished by imprisonment from one to five years and by a fine.

If the amount of value added tax from the paragraphs 1 and 2 of this Article exceeds five million RSD, the perpetrator shall be punished by imprisonment from two to eight years and by a fine. 

If the amount of value added tax from the paragraphs 1 and 2 of this Article exceeds fifteen million RSD, the perpetrator shall be punished by imprisonment from three to ten years and by a fine.

To a natural person, an entrepreneur and a responsible person in the legal person – taxpayer, a security measure of prohibition to perform activity, profession, business or duty of from one to five years shall be imposed for a criminal offence from paragraphs 1-4 of this Article.

Comparative analysis of manner of incrimination of the Ungrounded expression of amounts for tax refund from Article 173a of the Law and the VAT Tax Fraud from Article 25 of the Proposal 

Basic and qualified forms

The Law envisages as the basic form of the criminal act of the Ungrounded expression of amounts for tax refund from Article 173a paragraph 1 of this law the submission of tax return/returns for the for tax refund or for tax credit of untrue content. In order to exist this criminal offence, such tax return/returns of untrue content must be submitted by the perpetrator with the special intent to realize right on ungrounded tax refund or tax credit. Therefore, this criminal offence may be committed only with directly, i.e. qualified intent, as the form of guilt. For the existence of criminal offence Ungrounded expression of amounts for tax refund, it is necessary that objective condition for incrimination is fulfilled, precisely that amount for tax refund or tax credit expressed in the tax return/returns of untrue content exceeds the amount of 1,000,000 RSD.

This criminal offence is, by the manner of its incrimination, blanket offence and may refer, or to be more precise, may be committed in respect to any kind of tax envisaged by other law, provided that law which envisages such tax allows the taxpayer right to tax refund or tax credit. The sole linguistic formulation used for prescription of this form of Ungrounded expression of amounts for tax reimbursement may lead to a certain doubt. Namely, as it may be seen, lawmaker envisaged and linguistically formulated part of the operative part of this norm stating “whoever, in the intent to realize the right to ungrounded tax refund or tax credit, in the last 12 months, files a tax return i.e. tax returns of untrue content”. By lingual interpretation, bearing in mind the fact that words “in the last 12 months” are put between two commas, it cannot be concluded with certainty whether the stated time period refers to the period in which the tax return with untrue content is filed, in such case it would be time of commission of criminal offence as separate element of criminal offence, or the lawmaker had in mind time period encompassed by the intent of the perpetrator to gain ungrounded tax refund or tax credit. In such case, it would be sort of intent, as special subjective part of this criminal offence. Our opinion is that, nevertheless, this means the time period covered by the intention of the perpetrator in which he wants to acquire an ungrounded tax refund or tax credit. Such conclusion derives indirectly from the formulation of more serious form of this criminal offence whereby this lingual formulation is used “if the expressed amount for tax refund or tax credit, in the last 12 months exceeds” certain prescribed amount.

Consequence of this criminal offence represents ungrounded tax refund or tax credit to the perpetrator in the amount exceeding RSD 1.000.000. Consequence of this criminal offence is not explicitly stipulated, however it derives from the part of the norm stating “in which (tax returns/return) an amount for tax reimbursement or tax credit exceeds 1,000,000 RSD”. Consequence also derives from the more aggravated forms of this criminal offence, in detail mentioned later in this work, by which are envisaged more aggravated punishments for perpetrators of this criminal offence when, as the lawmaker envisages, “the expressed amount (in tax return/returns) for tax refund or tax credit, in the last 12 months exceeds” certain prescribed amount. Despite non-sufficient precise formulation here as well, due to which it may be concluded that this criminal offence exists solely by fulfillment in the tax return/returns amount prescribed as objective condition of incrimination, and having in mind that, due to the manner of prescription, it is not criminal offence with abstract danger as a consequence, we are of opinion that its consequence is, as stated, ungrounded tax refund or obtaining tax credit. 

Punishment envisaged for the basic form of Ungrounded expression of amounts for tax refund is imprisonment from six months to five years and a fine, cumulatively. Having in mind the special minimum of the imprisonment, according to the general provisions of Criminal Code  (hereinafter referred to as: “CC”), imprisonment may be maximally mitigated, under the conditions prescribed by the law, to 30 day of imprisonment. Furthermore, the prescribed range of imprisonment allows suspense sentence to be ordered.

The Proposal envisages, as a basic form of criminal act of VAT Tax Fraud from the paragraph 1, submission of one or more VAT tax returns of untrue content. As it may be clearly seen from the subject of the proposed criminal offence VAT Tax Fraud, it may be committed only in relation to the VAT, which tax represents its object of protection. This proposed criminal offence may be committed only with the qualified intent, as a sort of guilt, and in order to exist this criminal offence, one more subjective element must be fulfilled by the perpetrator, being the special intent that perpetrator for himself or for other person in the last 12 months realizes right to ungrounded VAT reimbursement, or VAT tax credit. From the manner of prescription of the criminal act of basic form of criminal offence VAT Tax Fraud, as well as prescription of special intent on the side of perpetrator which is necessary for its existence, and apart from the fact that it may be committed only in relation to the VAT, as a type of tax, two more differences are obvious comparing to the basic form of Ungrounded expression of amounts for tax refund. First, this criminal offence may be committed with the intent of the perpetrator to, for himself as well as for other person, being other natural and legal person, in the last 12 months, realize right on the ungrounded VAT refund or VAT tax credit. This is more precise linguistic formulation comparing to one containing the provision of paragraph 1 Article 173a of the Law, given that it leaves no doubt that the period of 12 months refers to the time period in which the perpetrator intends to realize the right to ungrounded VAT refund or VAT tax credit. Second difference is that such manner of prescription of special intent, as a special subjective element of the criminal offence, allows for extension of criminal zone to the perpetrators who submits tax return/returns with the intent that other persons realize right on the ungrounded VAT refund or VAT tax credit. Therefore, this encompasses responsible persons in the legal entities undertaking criminal act with the intent that legal entity unfounded realize stated rights in connection to the VAT. 

The consequence of this criminal offence is, as we consider, linguistically more precisely formulated comparing to the provision of paragraph 1 Article 173a of the Law. It consists of the VAT refund or VAT credit approval, together with the objective condition for incrimination which remains in the same amount, i.e. for the existence of this criminal offence it would be necessary that amount of the reimbursed VAT or the approved VAT credit exceeds one million RSD.

Punishment for the basic form of VAT Tax Fraud is imprisonment from one to five years and a fine, cumulatively. Having in mind the raising of the special minimum of imprisonment, in accordance with the general provisions of the CC, imprisonment may be mitigated, under the conditions prescribed by the law, to three months of imprisonment. Furthermore, the prescribed range of imprisonment allows suspense sentence to be ordered. 

Unfounded expression of amounts for tax reimbursement as well as VAT Tax Fraud envisage more aggravated forms for committing the basic form, and aggravated form exists because of the more serious, i.e. qualified consequence. More aggravated forms of these two criminal offences are slightly different, in respect to the manner of their prescription, as well in respect of the range of the punishment envisaged for their commitment.

The Proposal envisages new, special form of VAT Tax Fraud, unknown to the provision from Article 173a of the Law, about which more word shall be dedicated later in this work.

By the provision of paragraph 2 Article 173a of the Law is envisaged that the perpetrator of the Ungrounded expression of amounts for tax refund shall be punished by imprisonment from one to eight years and a fine if the expressed amount for tax refund or tax credit, in the last 12 months exceeds 3,000,000 RSD, while the paragraph 3 of same Article of the Law envisages that the perpetrator of the Ungrounded expression of amounts for tax refund shall be punished by imprisonment from three to ten years and a fine if the expressed amount for tax reimbursement or tax credit, in the last 12 months exceeds 10,000,000 RSD. In more aggravated forms of Ungrounded expression of amounts for tax refund linguistic formulations used for prescribing more aggravated consequences which gives this criminal offence more aggravated forms, may create same doubts as formulation used for defining criminal act and consequence of its basic form, as in detail explained earlier. Particularly, the question could be asked whether for the existence of more aggravated consequences that would give this criminal offence more aggravated forms, is it sufficient to fill a monetary amount in the tax return/returns, i.e. as stated by the Law “the expressed amount for tax reimbursement or tax credit exceeds” certain prescribed pecuniary amount. We are of opinion that such stance could not and may not be accepted, from the above stated reasons, as well as from the reasons of constitutional law and criminal law nature, which reasons goes far beyond the scope of this paper and therefore would not be further elaborated.

Taking into account prescribed special minimum, imprisonment for the perpetrator of more aggravated form of Ungrounded expression of amounts for tax refund from paragraph 2 of Article 173a of the Law may be mitigated to three months, and from the paragraph 3 of same Article of the Law to maximum of one year. Having in mind the prescribed special minimum of imprisonment, to perpetrators of more aggravated forms of Ungrounded expression of amounts for tax refund who committed more serious forms of this criminal offence after 01 December 2019, when Law on amendments and supplements on the Criminal Code  (“Official Gazette of the RS” no. 35/19) entered into force, it is not possible to order suspense sentence, while before this date, it was possible only for the perpetrator of Ungrounded expression of amounts for tax refund from paragraph 2 of Article 173a of the Law. 

On the other hand, paragraph 3 of Article 25 of the Proposal envisages that the perpetrator shall be punished by imprisonment from two to eight years and a fine for a basic and special form of VAT Tax Fraud if the amount of VAT exceeds five million RSD, and provision of the paragraph 3 of same Article of the Proposal prescribes that the perpetrator shall be punished by imprisonment from three to ten years for either basic or special form of VAT Tax Fraud if the amount of VAT exceeds fifteen million RSD. Having in mind special minimum as well as special maximum of imprisonment envisaged for more aggravated forms of criminal offence VAT Tax Fraud, to perpetrators of this criminal offence cannot be ordered suspended sentence, while the imprisonment may be maximum mitigated to six months for perpetrator who commits the criminal offence from paragraph 3 VAT Tax Fraud, and maximum to one year for perpetrator who commits the criminal offence from paragraph 3 VAT Tax Fraud. Our opinion is that during the prescription of more serious forms of VAT Tax Fraud better and more clear linguistic formulation are used comparing to ones used in the current provision of Article 173a of the Law, which is one of the imperatives when prescribing criminal offences and punishments for such offences. 

In case of Ungrounded expression of amounts for tax refund as well as in case of VAT Tax Fraud, for their basic and more aggravated forms, pecuniary fine is cumulatively prescribed. Such fine may be determined between the general minimum and maximum for this kind of punishment depending on whether fine shall be determined in daily amounts or in particular amount.

Special form of VAT Tax Fraud from Article 25 of the Proposal

As already stated, Proposal in its paragraph 2 Article 25 envisages special form of VAT Tax Fraud, which exists when perpetrator, with the intent that himself or the other person in the last 12 months fully or partially avoid payment of VAT, does not file one or more VAT tax returns, files one or more VAT tax returns of untrue content or, in the same intent, in other manner avoids payment of VAT, while the tax amount which payment is avoided exceeds one million RSD. As already stated, for this form of VAT Tax Fraud punishment by imprisonment from one to five years cumulatively with a fine is proposed.

Criminal act of special form of VAT Tax Fraud is alternatively envisaged, being: 

(i) Failing to file one or more VAT tax returns; or

(ii) Filing one or more VAT tax returns of untrue content; or

(iii) Avoiding VAT payment in other manner.

The consequence of special form of VAT Tax Fraud is avoided VAT payment if the objective condition of incrimination is fulfilled being that avoided VAT amount exceeds one million RSD.

VAT Tax Fraud may be committed only with direct intent as a form of guilt, having in mind that for its existence is envisaged special subjective element being the intent of perpetrator that for himself or other, natural or legal person, in the last 12 months fully or partially avoid VAT payment. 

The following question may be imposed: how to differentiate this form of VAT Tax Fraud as well as more aggravated forms of this criminal offence from the Proposal, from the criminal offence tax fraud from Article 225 of the CC (hereinafter referred to as: “Tax Fraud”) and its more aggravated forms, and furthermore question of reasons of proponent and author of Proposal for proposing such incrimination. 

Namely, by paragraph 1 of Article 225 of the CC, which envisages basic form of Tax Fraud, is prescribed that by imprisonment from one to five years and by  a fine shall be punished whoever with intent for himself or for other person to fully or partially avoid payment of taxes, contributions or other statutory duties, gives false information on legal income, objects or other facts relevant to determination of such obligations, or who with same intent, in case of mandatory reporting fails to report income, objects or other facts relevant to determination of such obligations or who with same intent in other manner conceals information relevant for determination of aforementioned obligations, and the amount of obligation whose payment is avoided exceeds one million RSD. 

Criminal act of Tax Fraud is also alternatively prescribed, being:

(i) giving false information on facts relevant for determination of obligation to pay tax, contribution or other statutory duties; or

(ii) failing to report, in case of mandatory reporting, income, objects or other facts relevant to determination of obligation to pay tax, contribution or other statutory duties; or

(iii) concealing in other manner information relevant for determination of obligation to pay tax, contribution or other statutory duties.

The consequence of Tax Fraud is avoided payment of either tax, or contributions or other statutory duties together with the objective condition of incrimination that avoided amount of tax, contribution or other statutory duties exceeds one million RSD.

Tax Fraud can be committed only with direct intent, as a form of guilt, having in mind that for its existence is envisaged fulfillment of special subjective element being the intent of perpetrator that for himself or other, natural or legal person, fully or partially avoid payment of tax, contribution or other statutory duties.

Tax Fraud also has two qualified forms prescribed in paragraphs 2 and 3 of Article 225 of CC by which is prescribed that the perpetrator of the basic form of Tax Fraud shall be punished by imprisonment from two to eight years and by a fine if the amount of the obligation of tax, contribution or other statutory duties whose payment is avoided exceeds five million RSD, i.e. by imprisonment from three to ten years and a fine if the amount of the said obligation whose payment is avoided exceeds fifteen million RSD. Therefore, pecuniary amounts of avoided tax, contributions an other statutory duties which gives Tax Fraud more serious forms, same as the punishments for such more serious forms, are the same as the avoided amount of VAT and punishments for more serious forms of VAT Tax Fraud. 

As it is clear that VAT is sort of tax and that its avoidance to pay, committed by one of the alternatively prescribed criminal acts of Tax Fraud shall represent this criminal offence as well, provided that all of its other elements are fulfilled. Furthermore, alternatively prescribed criminal acts of Tax Fraud are defined broader comparing to the alternatively prescribed criminal acts of special form of VAT Tax Fraud and they encompass by themselves these other criminal acts as well. Precisely, giving the false information on facts relevant for determination of obligation to pay tax, being criminal act of Tax Fraud, encompass submission of one or more VAT tax returns of untrue content, being one of alternatively prescribed criminal acts of basic form of VAT Tax Fraud. The same case is with the failure to report, in case of mandatory reporting, the income, objects or other facts relevant for determining obligation to pay the tax, being the criminal act of Tax Fraud and failing to submit one or more VAT tax returns, being the criminal act of special form of VAT Tax Fraud. Finally, avoidance in other manner information relating to determining obligation to pay tax, being the third alternatively prescribed criminal act of Tax Fraud, encompass avoidance in other manner VAT payment, being also third alternatively prescribed criminal act of special form of VAT Tax Fraud.

Having in mind all mentioned, further issue arises being which reasons had proponent for proposing in the Proposal special form of VAT Tax Fraud given that all elements of this criminal offence are already encompassed by the criminal offence Tax Fraud, i.e. question is what would be ratio legis for introduction in legal system incrimination which already exists.

In our opinion the reason for such proposal is time period of 12 months which is included in the subjective element of intent of special form of VAT Tax Fraud and that it is attempt to extend incrimination to acts which for now, having in mind the due dates for payments of VAT determined by law as well as constituted court practice in this respect, does not allow criminal prosecution and sanctioning the persons who in the different tax periods (monthly i.e. quarterly) avoid payment of VAT in the amounts which does not exceed one million RSD and which amounts could not be summed in order to pass the census of objective condition of incrimination for the existence of Tax Fraud. However, it is not clear why the VAT is so special among different kinds of taxes which exist in the Republic of Serbia in order to extend the incrimination only for VAT so it could encompass sum of avoided amounts of VAT from the different tax periods within 12 months, i.e. in this manner, for the tax period relating the due date of obligation to pay VAT and in relation to the avoided amounts of VAT which are in this tax periods lower than amount representing objective condition of incrimination for existence of Tax Fraud, will allow the construction of existence of criminal offence for periods and avoided amounts of VAT for which is not possible now.

Introducing period of 12 months in the intent of the perpetrator of the special form of VAT Tax Fraud, the criminal zone would, at least for the obligation of VAT payment, extended for a time period longer than tax period for due date of obligation to pay such kind of tax, and on the other hand would allow summing of lower amounts of avoided VAT in the period of 12 months in order to exceed amount of one million RSD as objective condition of incrimination for existence of Tax Fraud. In support of this intention to enable, by this incrimination, summing the amounts of avoided VAT that would be lower than one million, in order to try to reach this amount of objective condition of incrimination in a period of 12 months, is the fact that when prescribing criminal acts of special form of VAT Tax Fraud is used the term one or more VAT tax returns.

Conclusion

Having in mind all the mentioned in this work, our stance is that amendments of the Law, i.e. solutions envisaged by Article 25 of the Proposal suggestion for the amendments of the Law on tax procedure and tax administration by Ministry of finance may be marked only partially as positive. 

On one hand, scope of criminal offence Ungrounded expression of amounts for tax refund prescribed by paragraph 1 of Article 173a of the Law is narrowed in respect to the subject of its possible committing so that criminal act – instead of the current ungrounded tax refund or tax credit of any kind of tax, the new criminal offence may be committed only in respect to the refund of the amounts of VAT, i.e. right on credit only in respect to VAT. Simultaneously, on the other hand, stated provision is extended regarding the special intent of perpetrator, so instead of current provision which prescribes punishment only in case when criminal act of Ungrounded expression of amounts for tax refund is undertaken by a perpetrator with the intent to realize right on the ungrounded tax refund or tax credit, now is proposed punishment in case when a perpetrator criminal act of criminal offence undertake with intent that other person realize right on ungrounded tax refund or tax credit. 

However, special attention has to be paid to, at first glance unnecessary paragraph 2 of Article 25 of the Proposal, which proposes introduction in criminal law system special form of the proposed criminal offence and which substantially does not differs from the criminal offence Tax Fraud from the CC, except in the time period of 12 months in which creates the possibility to sum the avoided amount of VAT which are lower than one million RSD, and which possibility now does not exist having in mind the tax period in which obligation to pay VAT is due. The question arises whether the only reason for introduction of such extension of punishment for a periods and for the amounts of avoided VAT which are lower than the amount prescribed as objective condition of incrimination for the existence of Tax Fraud is to, by summing the longer periods than the tax periods for obligation of VAT payment are, reach the amount of one million RSD, with additionally unclear reasons for special treatment of VAT fraud in respect to the other types of taxes.

By Jelena Milinovic, Partner, and Nikola Djordjevic, Partner, JPM Jankovic Popovic Mitic

Application of the new Law on Accounting (Official Gazette of RS no. 73/2019) has started on 1 January 2020, with exception of certain provisions whose application was further delayed. This was the case with Article 9, para. 3 of this law, which will start to apply from 1 January 2022.

This provision stipulates that the invoice as accounting document shall be prepared and submitted to legal entities and entrepreneurs in electronic form and it shall be certified by responsible person who certifies its validity by his/her signature or other identification mark. Identification mark shall be defined by a general act whereby a legal entity/entrepreneur regulates the organisation of accounting (rulebook on accounting).

Therefore, starting from 2022, all invoices issued to legal entities and entrepreneurs shall be done in electronic form and submitted electronically.

The issuance of electronic invoices is possible even now, and they are equally valid as paper invoices. In accordance with the joint elaboration of the Ministry of Finance and Ministry of Trade, Tourism and Telecommunications of 12 December 2017, electronic invoice does not have to be signed by electronic signature as it may contain identification mark of the responsible person (i.e. person responsible for issuance of invoice) instead.

The notion “identification mark” represents any mark that unambiguously denotes/refers to responsible person or a person authorized for issuance of accounting documents. Therefore, it can be name and surname, signature, facsimile, e-signature etc., as well as combination of these or other marks. If a legal entity or entrepreneur uses “identification mark” instead of signature during invoice issuance, the internal act – accounting rulebook needs to specify such responsible person/person authorized for issuance of such invoices, as well as to define “identification mark”.

Also, legal entities and entrepreneurs are under no obligation to print and thus keep the invoice originally prepared in electronic form as they are stored in the form in which they were generated.

The Ministry of Finance has recently announced the adoption of the Law on Electronic Invoice what will more closely regulate the issuance of e-invoices. This law will start to apply from 1 January 2022, which corresponds to the outset of application of the quoted provision of the Law on Accounting.

As announced, the new system will imply the exchange of e-invoices through single platform, so as to influence business digitization, to speed up business flow, notification and bring about environmental benefits (e.g. reduced consumption of paper and toners).

This article is to be considered as exclusively informative, with no intention to provide legal advice.
If you should need additional information, please contact us directly.

By Milan Petrovic, Managing Partner, PR Legal

“This was an election year for Serbia, and as a result we had a technical government for a very long time,” says Djordje Novcic, Partner at Jankovic Popovic Mitic in Belgrade, referring to the four-month-long period of deliberation before the new government was finally formed on October 28.

There has not been much legislative activity otherwise, Novcic reports, which he attributes to the slowness of the political process. Still, he says, draft laws reorganizing the judiciary and the administrative sector are expected to be voted on by the end of the year.

In addition to its effects on the legislature, the systematic sluggishness also affected the economy. “Foreign investors have become more cautious about investing in the country,” Novcic says, though he notes that the government is trying to make amends in that department. To that effect, he says, “Serbia signed the Washington Agreement at the end of October, as a result of which the US International Development Finance Corporation opened its office in Belgrade.” The arrival of a new investor was welcome, Novcic reports, adding that the IDFC is expected to invest millions of dollars in the years to come.

The pandemic and the elections notwithstanding, the economic outlook for Serbia is not grim, in Novcic’s opinion. “Our economy did not take a huge hit, and we can see large infrastructure projects are still under way,” he says, pointing to the construction of the Belgrade-Sarajevo highway and the Turkish Stream gas pipeline. “It is also very clear that the pandemic gave rise to the IT, pharmaceuticals, and online retail sectors,” he says.

Another area on the rise in Serbia is arbitration, Novic reports. “There has been a growing interest of business entities to resolve disputes through arbitration,” he says, due in part to the “adaptability of arbitration tribunals, which were able to continue their proceedings via the implementation of new technologies even during the state of emergency.”

Novcic sounds optimistic even about the industry which suffered the most at the hands of the pandemic – tourism — and says that he believes it will reemerge with help from the government. Ultimately, though, Novcic says that “the full effect of the pandemic remains to be seen in the coming years.”

Zivkovic Samardzic has been appointed the representative for Yandex LLC pursuant to the Serbian Data Protection Act, following a decision by the Commissioner for Information of Public Importance and Personal Data Protection of Serbia.

Yandex is a Russian multinational corporation providing Internet-related products and services, including transportation, search and information services, eCommerce, mobile applications, and online advertising.

Zivkovic Samardzic’s team includes Partner Slobodan Kremenjak and Associates Sava Pavlovic and Igor Petronijevic.

Taxes are undoubtedly among the most important components of every state budget. Tax systems vary, of course, as different states have different political and commercial environments. Nowadays, the globalization of economic relations tends to bring these diverse and different systems closer together.

Serbia’s tax system is highly conducive to investment. Apart from tax rates that are among the lowest in Europe, investors can benefit from available tax incentives which create excellent startup conditions. The Republic of Serbia has signed comprehensive Double Taxation Agreements with 60 countries based on the OECD Model Tax Convention.

Nevertheless, the Serbian economy faces many problems and challenges. One of the key problems, most certainly, is the gray economy, which primarily refers to tax evasion: the non-declaration of income in order to avoid tax obligations, with the goal of increasing total earnings.

Unfair competition and inefficient allocation of resources are among the negative consequences of this phenomenon. The tax system in Serbia creates an unjust environment because most funds are poured into the budget through VAT and excise duties, at the expense of citizens, and a much smaller share in the tax structure of Serbia originates from corporate income tax, which indicates that the profits of successful companies actually contributes to the budget less than those of natural persons. This problem can be solved by reducing inequality, by increasing the rate at which corporate profits are taxed, and by reducing the minimum wage tax rate. Also, establishing a transparent and simpler tax system is key to creating a healthier business climate for existing and new businesses.

According to the Corporate Income Tax Law, the corporate income tax rate is proportional and uniform and amounts to 15%. The general VAT rate is 20% and the special VAT rate is 10%. By increasing the income from VAT, which affects every citizen and is easy to collect, the state creates space for itself to reduce the taxes that affect capital and thus sides itself with the wealthy, in the process creating an unequal environment.

Capital gains are taxed at 15%. However, capital gains are subject to a 20% rate for non-resident taxpayers. Other related withholding taxes (e.g., interests, dividends, royalties) are taxed at between 15% and 25%, but different rates may be stipulated in Double Taxation Agreements.

The competent authority in Serbia regarding tax matters is the Tax Administration, while the Law on Tax Procedure and Tax Administration is the umbrella regulation prescribing in detail tax procedures, the rights and obligations of taxpayers, the registration of taxpayers, tax criminal offenses and misdemeanors, procedures for issuing and revoking authorizations for performing exchange operations, control of exchange operations (including foreign exchange operations), and the procedures related to the performance of state administration tasks in the area of games of chance.

On the subject of personal income tax, Serbia finds itself in a peculiar position, together with Chile, with a mixed system instead of the global and cedular systems used by other countries. The 10% tax rate is proportional, but additional taxation of persons whose income exceeds a certain limit is prescribed, with progressive rates depending on income level. For taxable income exceeding the prescribed threshold of between three and six times the average annual salary, the tax rate is 10%; for net income exceeding six times the average annual salary, the tax rate is 15%.

Frequent changes in tax laws and bylaws in Serbia prove the will of the legislator to improve the entire tax system and to harmonize it with European and global systems. Serbia is a signatory to the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting, which is a clear sign that the legislator wishes to prevent double taxation, and thereby eliminate the gray zones which are now present in this area. However, in practice, BEPS measures – which are the core of the said Convention – are not being implemented, and there is a lack of tax transparency, for which Serbia is being criticized.

Taxes can be a tool with which inequalities can at least be reduced, if not eliminated, and while the Serbian legislator has expressed its genuine intent to improve the entire tax system, there remains ample room for further reform.

By Igor Zivkovski, Partner, Zivkovic | Samardzic

This Article was originally published in Issue 7.9 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.