Major Issues for Developing Countries in Protecting Base

Serbian Experience Note: The views and opinions expressed herein are those of the discussant and do not necessarily reflect those of

the Republic of Serbia (MoF) Dejan Dabetić, L.L.M. Senior Counsellor, Head of Tax Treaties Division Department for Fiscal System (Ministry of Finance - Serbia)

New York, 4 June 2014 1 Serbian experience in protecting tax base ______

Introduction: General rules on corporate income taxation in Serbia

 All forms of legal entity (including partnerships) are subject to CIT, where the legislation does not provide for any general look-through norms.

 Tax payers under the Serbian Corporate Income (SCITL):

- Serbian residents (taxation on a world-wide income basis); - Non-residents (taxation on a source based taxation)aretaxedonthe profit generated through their Serbian PE(s).

2 Serbian experience in protecting tax base ______

Introduction (continuation):

 With respect to determination of the SCITL applies two alternative criteria:

- the place of incorporation of a legal entity; - the place of its effective management and control.

 Taxe rates applicable to non-residents:

- 15 per cent (taxation by way of assessment) - general , or - to gross basis 20 per cent withholding taxation on certain types of income (dividends, interest, roylties, etc.), unless otherwise provided by an applicable convention, or - 20 per cent in the case of capital gains - if the income in question cannot be attributed to non-residents, Serbian PE (taxation by way of assessment). 3 Serbian experience in protecting tax base ______

The Serbian GAARs: (cover both purely domestic and cross-border situations)

. The law on Tax Procedure and Tax Administration (LTPTA) lays out the principle of „substance over formˮ in tax matters, which gives broad discretionary powers to the Serbian Tax Administration (STA).

. The scope of its true impact is yet to be determined, as neither the STA nor the Serbian judiciary has a developed practice in its application.

. The practical value of the Serbian GAAR is relative, as in the opinion of the discussant, it depends greatly on the willingness and capacity of the STA to apply it.

4 Serbian experience in protecting tax base ______

The Serbian SAARs:

. In SCITL we can designate two groups of provisions which could be deemed to fall under the SAAR concept, namely:

- the norms (rules, in principle adhere to the OECD „arm,s lengthˮ standard); - the thin capitalization norms.

. Essentially, in Serbian law there is considerable space for the interaction between the GAARs and SAARs but the boundaries are yet to be determined in practice.

5 Serbian experience in protecting tax base ______

The Serbian SAARs (continuation):

Note: Serbian law does not contain CFC rules (suprisingly, discussant can find traces of provisions leading to an essentialy CFC regime in the Serbian non-tax laws which were in force in the past)!

Note: Minister of Finance published a list of 51 jurisdictions with preferential tax regimes (so-called „black listˮ) to which specific rules apply!

Note: At present, Serbia has not concluded with any state a convention in line with the OECD Model Agreement on the Exchange of Information on Tax Matters, and is not a signatory to the Convention on Mutual Administrative Assistance in Tax Matters!!!

6 Serbian experience in protecting tax base ______

General issues:

. At present, Serbia applies DTTs with 54 countries (17 treaties still pending) while the network contains solutions from the both the OECD and the UN MTC.

. As regard the interpretation of DTT provisions the approach applied in Serbian practice so far testifies to very high level of adherence to the Commentary of the OECD MTC (this, despite the fact that Serbia is not an OECD member country)!

. With respect to the relations between domestic law anti-avoidance rules and DTTs, the discussant consider paragraph 9.2 of the Comentary on Article 1 of the OECD MTC to be applicable in Serbian circumstances - therefore, Serbian GAARs can be used in both purely domestic and double taxation convention situations (see Art. 11 of the Protocol to the 2009 Serbia-Spain DTT).

7 Serbian experience in protecting tax base ______EU law issues:

. Serbia is a candidate for EU membership and its journey towards potential EU membership status is governed by a Stabilization and Association Agreement (SAA) with EU Member States (the SAA, in the case of Serbia was signed on 29 April 2008).

. The stabilization and association process should shield Serbia from the potential exposure to anti-avoidance rules of EU Member State, by virtue of its adherence to the Code of Conduct, implementation of the prohibited state aid provisions of the „acquisˮ into its domestic legislation, the extended possibilities for cooperation between tax administrations and the conclusion of bilateral tax conventions dealing with double taxation and the exchange of information with EU Member States, all of which may be important bearing in mind that,

. SERBIA REPRESENTS A LOW-TAX JURISDICTION (which is good 8 for the potential investors), ALTHOUGH NOT A ONE!!! THANK YOU

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

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