Application of Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI) from 1 January 2019 to WHT in transactions between Serbian residents and the residents of Austria, Poland, Sweden, Slovenia and United Kingdom
Just a quick reminder that starting from 1 January 2019 Serbia will apply the rules set by MLI in determining the right to tax transactions among Serbian residents and the residents of Austria, Poland, Sweden, Slovenia and United Kingdom. This means that the existing Double Taxation Avoidance Treaties (DTTs) concluded between Serbia and the countries mentioned may be applied in a different manner, to comply with the MLI rules.
Serbia has signed MLI, however, due to right to reservations i.e. possibility of choice whether some rule prescribed through MLI will apply or the existing DTT solution with a particular country will remain unchanged, hereby we are presenting only the short overview of the changes in existing rules (applicable by 31 December 2018) and notification on the rules that will not be applied by Serbia at all and might of interest for the foreign investors:
|Taxable event/Residency determination matter||Treatment under the existing DTTs in compliance with MLI||Treatment under MLI||Change in the DTT application with the following countries|
|Dividend taxation – minimum shareholding period||Minimum shareholding period per DTTs (Article – Dividends) concluded with:
– Austria – none;
– Poland – none;
– Slovenia – none;
– Sweden –
– United Kingdom – none
|Dividends will enjoy beneficial treatment under the relevant DTT if the beneficial owner of the income prove that it met ownership conditions provided by DTT throughout a one year period||Serbia has decided to keep the existing rules in DTTs concluded with Austria, Poland, Slovenia, Sweden and United Kingdom.|
|Capital gains from the sale of RE entities||The RE company clause is already existing in DTT signed with Austria||Capital gains from the sale of shares in entities which derive more than 50% of their value from immovable property, located on the territory of a contracting party, shall be taxable on the territory of that contracting party in cases when a 50% threshold is applicable at any time within previous year (at any time during the 365 days preceding the alienation)||The RE company clause not existing in DTTs with: Poland, Sweden, Slovenia, United Kingdom. Hence, Serbia shall apply the MLI rule and change the approach for RE companies ownership change.|
|Permanent establishments (PE) – anti-avoidance measures||The artificial avoidance of PE status protection clause is is already existing in DTT signed with Austria, Poland, Slovenia, Sweden, United Kingdom and the application shall not change.
Serbia has chosen not to apply at all the rule on splitting-up the contracts avoidance measures relating to exploration for or exploitation of natural resources. For other activities (e.g. services related to builiding site, construction site, installation project, supervisory and consultancy activities in connection with such place, if not relating to exploration or exploitation of natural resources) anti-abusive rules set out in MLI shall apply.
|Anti-abusive rules for PEs and mechanisms against the avoidance of the PE status, in order to prevent avoidance of the PE status through commissionaire arrangements, specific activity exemptions or by splitting-up of contracts. Splitting-up the contract rules refer to identification of periods in which the entity/closely related partner is deemed to have a PE in the country where the place of activity, under splitted contract, is identified:
– Entity, a resident of contracting countries, caries out activities during one or more periods in the aggregate exeeding 30 days;
– Closely related partner, caries out activities during different periods of time, each exeeding 30 days.
Closely related partner is a person or an entity possessing 50% or more of voting rights or ultimate ownership in the entity, or being connected through 50% or more beneficial interest of a third entity/person.
|Anti-avoidance measures referring to splitting-up contracts (except for exploration and exploitation of natural resources) shall affect the existing DTT rules for: Austria, Poland, Slovenia, Sweden, United Kingdom.
This shall affect all the projects where so far splitting-up contracts were used and the construction crews from Serbia were sent by the mother-companies to execute projects in Austria, Poland, Slovenia, Sweden, United Kingdom with interrupted periods of stay/activities or where separate activities of related parties carried out in the same country when combined exceed “preparatory” and “auxiliary” activities that would, on a separate entity level, been taken out of PE identification framework.
Secondly, a purchasing office merely performing purchasing functions would constitute a PE where that purchasing function forms an essential and significant part of the enterprise’s overall activity.
|Mutual Agreement Procedure (MAP) – jurisdiction in charge||Serbia has chosen to keep the obligation of a tax payer to turn to the tax residency country authorities to initiate MAP, continuing to apply the existing rules on MAP in DTTs concluded with Austria, Poland, Slovenia, Sweden and United Kingdom.||The entity that considers that the actions of one or both of the contracting parties to the DTT result in taxation which is not in accordance with the DTT, to present its’ case before the competent authority of any contracting jurisdiction||There will be no change in MAP initiation procedure for the residents of Serbia in the case of dispute with the tax authorities of Austria, Poland, Slovenia, Sweden and United Kingdom (and vice versa).|
We shall keep you up to date to effective date and structure of changes in application of DTTs concluded between Serbia and other countries on our blog.