Pledge Income Tax Replaced with a More Reasonable Measure

Instead, a new solution was developed to prevent hidden taking out of profit and the Parliament passed it as the law on Monday. In the Chamber’s opinion, the new measure is much more reasonable and less burdensome on the entrepreneurs than the initially planned pledge income tax.

Pursuant to the passed law, the Tax and Customs Board may tax the loans granted to a parent undertaking and a subsidiary of a parent undertaking if the conditions of the loan allow suspecting that the loan is essentially a hidden profit allocation. If the term for repayment of the loan is longer than 48 months, the taxpayer is obliged to prove, upon the request from the tax administrator, that they are able and intend to repay the loan. This means that after the period of 48 months, the taxpayer must be ready to prove that this is a loan and not a hidden profit allocation.

Pursuant to the law, entrepreneurs are required to declare to the tax administrator loans granted to parent undertakings and subsidiaries, and repayments of such loans. The initial plan was to impose on entrepreneurs a monthly declaration obligation, but the Chamber and Employers’ Confederation proposed to change it to quarterly, which will significantly decrease the administrative burden on entrepreneurs.

In the case of loans that exceed 48 months, the obligation to prove and declare will become applicable for loans granted starting from 1 July 2017, as well as for loans in the case of which the loan sum has been increased, the term for repayment of the loan has been extended or other significant conditions have been changed from 1 July 2017. Other amendments will enter into force on 1 January 2018.

The passed law is available HERE.