The latest amendments to the law have allowed corporate income tax payers to invoice themselves for the costs of weekend homes and vessels, thereby achieving the right to recognize non-taxable expenses.
writes Ivica Grčar
[email protected]
Branka Rameša from the Rijeka accounting service Konto d.o.o. sent us her thoughts on the recent amendments to the Corporate Income Tax Act. These amendments were supposedly intended to prevent entrepreneurs from registering holiday homes and apartments, aircraft, or yachts under their companies or crafts, thus avoiding taxes on that property, while also allowing them to recognize all expenses as tax-deductible.
However, besides entrepreneurs who engage in fraudulent activities, there are those who genuinely operate with such assets, for example, vessels with ten cabins that organize commercial cruises. And as is customary here, tax authorities do not apply the aforementioned latest amendments to the law and regulations on corporate income tax selectively, targeting only those entrepreneurs attempting to cheat, but also those whose revenues fall below the prescribed levels due to unfavorable circumstances.
Non-selectivity The aforementioned latest amendments to the Corporate Income Tax Act and the regulations prescribe the minimum revenue levels that companies must achieve annually with weekend homes and apartments: five percent, and with aircraft and vessels, seven percent of their value. An accountant asked the tax authorities what her client should do if, due to unfavorable circumstances, he did not achieve revenues at the prescribed seven percent of the vessel’s value this year with his boat (ten cabins). Due to lower revenue, this accountant’s client cannot record the expenses incurred with that boat while generating income below the prescribed level, nor can he claim input tax refunds, as tax authorities consider that all purchases related to that boat were not made for business but for private purposes.
Incompetent Tax Authorities
Interpretation cannot correct a bad law
All entrepreneurs who have holiday homes, apartments, aircraft, and vessels for their private use should not have anything recognized as company expenses, and this amendment to the law has actually allowed them to formally ‘pass through’ the required percentage of income by invoicing themselves the necessary level of income and thus achieve the right to recognize the costs of that property. Those who genuinely conduct business activities through agencies or independently face insurmountable problems if they do not achieve the prescribed income.
I cannot believe, writes a reader, that the Ministry of Finance cannot provide an interpretation that would be a compromise between a poorly crafted law and practical action.
And in the previously known ‘manner’ of incompetent Croatian tax authorities, instead of answering the specific question posed, the tax authorities provided the reader with a ‘copy-paste’ of the legal provisions. The reader states that she specifically asked whether an entrepreneur who achieves, for example, 6.8 percent of income instead of the exact seven percent prescribed can recognize a proportional percentage of expenses? The answer was no, as the law did not foresee that. When asked what a company that did not achieve the minimum prescribed income should do, whether it should sell its assets (house, apartments, aircraft, or boat) and deregister its activity, the tax authorities, of course, did not respond.
Unnecessary Regulation The reader also wonders why the aforementioned provision was even adopted in the latest amendments to the Corporate Income Tax Act and regulations. Weekend homes, apartments, aircraft, and vessels were not allowed to be registered as company assets if they were not used for business purposes (generating income from them) even before the adoption of the aforementioned latest amendments to the law and regulations. There were provisions in the regulations even before the latest amendments stating that expenses must be matched against revenues, that all expenses must reflect the acquisition of current or future receipts and income, and that if there is long-term property with which no activity is conducted, depreciation costs cannot be calculated. This means that all of this was prescribed before the aforementioned latest amendment to the Corporate Income Tax Act and that this amendment is unnecessary and misguided due to its non-selectivity.
We invite entrepreneurs to present their problems. Following your writings, by pointing out the absurdities in individual cases, we will highlight the shortcomings of the system as a whole and thus support readers of Lider as individuals in their unequal disputes with the cumbersome state administration.Contact:
e-mail: [email protected]
tel. 01/6333-524
address: Ivica Grčar, Lider,
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