TAX PAYMENT IN SPECIAL CIRCUMSTANCES (COVID – 19)

At its session on Tuesday, March 17, 2020, the government adopted a total of 66 measures to assist the economy during the coronavirus epidemic. The measures concern a total of 8 ministries, many of which relate to the protection of the liquidity and jobs of business entities within the scope of Ministry of Finance.

In order to maintain the liquidity, the Ministry of Finance proposed an interest-free postponement of payment and / or instalment payment of tax liabilities incurred during and due to special circumstances.

In the amendments to the General Tax Law (Official Gazette 115/16, 106/18 and 121/19) published in the Official Gazette no. 32/20 it is prescribed what it means to “Pay taxes in special circumstances”.

“Special circumstances” means an event or a condition which could not be predicted and could not be influenced, which endangers the life and health of citizens, property of greater value, significantly damages the environment, disrupts economic activity or causes significant economic damage, and in which circumstances we now find ourselves. In such circumstances, which affect the ability to settle tax liabilities, the maturity of tax liabilities incurred and / or due in accordance with special regulations may be postponed and / or may be granted to be paid in instalments, and in that time interest is not accrued and the statute of limitations does not apply.

In accordance with the amendments to the General Tax Law, Official Gazette no. 35/20, the Ordinance on the Implementation of the General Tax Law (Official Gazette 45/19), “IMPLEMENTATION OF THE TAX PAYMENT PROCEDURE IN SPECIAL CIRCUMSTANCES”, was amended and extended.

This part of the Ordinance defines what is considered a due tax liability, who is considered to be an applicant for the use of tax payment measures, indicators of inability to pay due tax liabilities, the method of filing a claim, tax payment measures and other provisions.

Due tax liability

A tax liability is considered to be an obligation of taxes and other public charges, except for customs duties and excise duties.

Due tax liability is any liability that is due before the expiry of the period of three months after the entry into force of Article 107a of the Act, that is, from March 20, 2020 to June 20, 2020.

Exception is that value added tax obligation is considered due if it is due within three months after the entry into force of Article 107a of the Act, starting with obligation that is due in the month that follows after the month in which the Article 107a is in force, in other words starting from VAT obligation for 03/2020 (or for 1Q2020) that is due in April. It ends with VAT obligation for 06/2020 (2Q2020) that is due July.

If the special circumstances last longer, the period may be extended by three months.

Applicant for tax payment measures

An applicant for the use of a tax payment measure is considered to be an entrepreneur who makes it probable that he or she is unable to pay due tax obligations and who has no unpaid tax debt at the date of application.

Exceptionally, for the due tax liability of the value added tax applicant may be an entrepreneur who in the previous year did not realize the value of deliveries of goods and services in the amount of more than HRK 7.500.000,00 without value added tax and who determines the tax base according to the deliveries in accordance with a special regulation on value added tax.

An entrepreneur will be considered to have no overdue tax debt if the amount of the tax debt is less than HRK 200.00.

Indicators of inability to pay due tax liabilities

The applicant will be considered unable to pay the tax due:

– if there is a decrease in income / receipts in the month preceding the month of application for tax measures at least 20% compared to the same month of the previous year, or

– if he / she makes it probable that his / her income / receipts will fall at least 20% in the next three months from the month of submission of the application as compared to the same period of the previous year.

In addition to fulfilling the indicators, the applicant should demonstrate that the due value added tax liability arises from the issued invoices that have not been paid and / or other indicators that affect its liquidity.

Applying for tax payment measures

The applicant for the application of the tax payment measures shall submit a written and reasoned request to the competent tax authority according to the place of residence or seat.

The request shall state the facts on the basis of which the tax authority will be able to assess whether the applicant has made it probable and / or proved that there is an indicator of the inability to pay the due tax.

A written and reasoned request will be considered to be an electronic filing requests submitted to the tax authority through the ePorezna electronic tax system, and exceptionally, taxpayers who are not users of the ePorezna tax system may file in another way that the Tax Administration enables and publishes on its website.

Deciding on a request to use tax payment measures

The tax authority will decide on the application for the use of the tax payment measures in a simple and expeditious procedure and inform the applicant electronically about the result.

Tax payment measures

On the basis of substantiated claims, a deferred payment without interest will be granted for arrears of tax liabilities, for a period of three months, counting from the statutory due date of each individual tax liability.

In the event of an extension of the special circumstances, an additional period of three months may be granted for already deferred tax liabilities and extended deferred tax liabilities to tax liabilities that fall due in the period of additional three months, excluding interest, for which new written and reasoned request is to be filed.

Repayment of deferred tax liabilities

An applicant who is unable to pay a deferred tax liability on its deferred maturity may apply for a repayment in instalments, without interest.

The instalment repayment may be approved in monthly instalments, up to a maximum of 24 months.

A written and reasoned request for instalment repayment of a deferred tax liability may be filed within five days of the due date of the liability that the applicant is unable to pay.

In the application for instalment repayment, the applicant indicates to which of the deferred tax liabilities the claim relates, where he can choose one of the following options:

– instalment repayment only for the matured deferred liability, whereby the approval of the request excludes the possibility of granting a instalment repayment for deferred tax liabilities that are due later, or

– instalment repayment for all deferred tax liabilities, due and not due at the time of filing the claim, in which case the deferred tax liabilities are due and instalment repayment is approved for their payment, instead of further deferral.

In case of non-compliance with deadlines for payment of tax liabilities for which instalment repayment is approved, it will be abolished.

Subsequent treatment by the tax authority of the applicant who has been granted tax payment measures

The tax authority may carry out a subsequent verification of the facts stated in the request submitted by the applicant in accordance with this part of the Ordinance on the basis of which the tax payment measure was approved. If the tax authority subsequently determines that it is not probable that the conditions for the tax payment measure have been fulfilled, it will determine the termination of the tax payment measure whereby the tax liabilities are due in accordance with special regulations.

If the tax authority subsequently determines that the applicant has in the course of special circumstances:

– misrepresented the facts explaining the claims and / or

– acted contrary to tax regulations and / or

– misused tax payment measures to obtain unlawful material gain

will notify the applicant of the failure to meet the indicators of inability to pay arrears of tax liabilities and will charge statutory default interest for the tax liabilities for which the tax payment measure was approved.

This Ordinance shall enter into force on March 24, 2020.