Tax changes package finally ready

The Riigikogu Finance Committee tied up loose ends of the government’s tax package and sent it to the floor yesterday. The parliament’s time is short as all manner of tax changes need to be passed at least six months before their entry into force.

The committee agreed on the final form of the long-winding income tax pledge idea. The committee proposed dropping the tax deposit obligation and complementing the income tax act with a few sections instead.

According to the new solution, subsidiaries that loan their parent companies money for a period longer than 48 months will be subject to tax board control and obligated to prove loans are really loans and not attempts to take profits out of the country without paying tax. In cases where the subsidiary fails to prove it has issued a loan, the board will be entitled to collect income tax on the sum.

“Tax administrators will have a more versatile toolbox, and I believe they will be up to the task,” said committee chairman Mihhail Stalnuhhin (Center).

The committee also agreed on the sweetened beverages tax that will not cover juices, yoghurts, and milk-based drinks. While Stalnuhhin admitted the European Commission might be less than enthusiastic about these exceptions, he said he hopes the finance ministry will prove successful in convincing the EC. “The risk is clearly there; however, there is also hope as the ministry is working on an exception application,” he added.

The system of joint income tax returns of spouses was also given its final form. Draft legislation would see spouses able to transfer €180 a month of their basic exemption to each other. The solution was criticized sharply by committee member Aivar Sõerd (Reform) who said that the amendment will not in fact restore joint returns. “Far from it; only a small part of the exemption can be transferred, not the entire €500 as it should be,” Sõerd said.

The opposition has sharply criticized proceedings, saying that draft legislation has been put together helter-skelter, and that delegates have not been given enough time to work through the content of changes. Stalnuhhin’s answer to critics was that he, too, has been in the opposition.

“I’ve spent far longer in the opposition than I have in the coalition. I understand where the critics are coming from. Without it they would serve the function of a rug,” Stalnuhhin said. The MP did not, however, agree with critics in that too little time has been allowed for proceedings.

“We have spent the past six months debating these things. We have gone over them in the committee on numerous occasions,” the chairman said.

Aivar Sõerd is dissatisfied with the entire package. “It is not quite what the finance ministry would have wanted, while it is also not the preferred option of enterprise organizations,” he explained.

Concerning taxation of intra-group loans, Sõerd said he cannot understand how the amendment ensures collection of tax on earlier loans that were in fact attempts to smuggle profits out of the country.

“The 48 months requirement is proactive, and loans are treated as hidden profit distribution only proactively,” he explained. “The taxpayer’s attorney will be able to say that he is not obligated to turn over data as burden of proof will only be created in case of loans issued after the entry into force of the bill.”

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