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New draft of the CIT and PIT acts amendment

2013-02-24

The Ministry of Finance submitted the next draft of amendments of the PIT and CIT acts. The new draft provides for changes even more unfavourable for the taxpayers than the in draft from the last year. The new law should enter into force as of 2014.

  1. Taxation of limited joint-stock partnerships and limited partnerships as corporate bodies
    The profits of limited joint-stock partnerships and limited partnerships should be taxed like profits of legal persons. This causes a double economic taxation: first on the level of the company and then on the level of the limited partner.
     
  2. Extension of the thin-capitalisation clause
    The amendment changes the scope of limitation of allowable interest deduction. According to the amendment draft in future this limitation would cover the interest on loans/credits granted also by indirectly related persons. At present the thin-capitalisation is applied with respect to loans/credits granted by mother and sister companies.
     
  3. Changing the principle of the computation of allowable expenses in case of the thin-capitalisation
    The taxpayer will calculate the interest covered by the thin-capitalisation clause according to the present rules (Article 16, Section 1 (60) and (61) of the CIT Act) or he can chose to compute the interest amount in relation to the assets of his enterprise (except for intangible assets) taking in account that such amount cannot exceed 50% of the operational profit.
     
  4. Extension of the duty to prepare a transfer pricing documentation to the partners of partnerships
    The partners would have, according to the draft, to justify the rate of their participation in the profits or losses of the partnership. If the articles of partnership were deemed not comparable to usual market conditions the partners would take a risk of the assessment of their income and additional tax payments.
     
  5. Taxations of so called insurance-investment
    At present the profits resulting from the investments paid out in form of a refund of insurance premiums are tax free. As this kind of product is similar to a money investment as of 2014 the insurance-investment shall be treated equally to other financial investments according to the policy of the ‘consolidation’ of the tax system.
     
  6. Taxation of settlement of liabilities by payment of remuneration in-kind form
    The Ministry of Finance intends to tax especially the dividends paid in-kind. The dividends paid in-kind should be deemed – according to the draft – revenue. At present this form of dividend payment was used as an instrument of tax optimisation criticised by the Ministry.