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Infocourier - October 2020

Infocourier - October 2020

InfoCourier provides a monthly overview of the latest changes in legislation.

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Joel Zernask

Partner, Head of Tax Services

KPMG Baltics OÜ

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This issue of InfoCourier covers the following topics:

  • Green light for the pension reform
  • Proposals to modify the bill on amendments to the Tourism Act and Consumer Protection Act
  • Proposed amendments to the Value-Added Tax Act for 2021
  • Summaries of court judgments: Failure to declare VAT on sales

Please feel free to contact KPMG’s tax advisers with any queries you may have.
We hope you are enjoying reading it!
 

Green light for the pension reform

On 20 October, the Supreme Court ruled that the bill on the reform of the mandatory funded pension was not unconstitutional. President Kersti Kaljulaid signed the bill into law on the same day and the reform will go ahead as planned.

Once the reform comes into force, membership of the so-called second pension pillar (the statutory funded pension scheme), which was until now mandatory, will become optional, and people can withdraw their money accrued in the pillar. People wishing to exercise this option will have to submit an application to this effect. The first application period runs from the beginning of 2021 until the end of March, and the funds from the pension pillar will be paid out in September 2021. The second application period runs from April until the end of July, and the funds will be paid out in January 2022. From then on, there will be payouts three times a year and the people who wish to leave the pillar must give at least six months’ notice. The payment will be made in a lump sum and all the money accrued in the second pillar will be paid out, subject to 20 per cent income tax. Should a person later wish to join the second pillar again, they can do so in ten years’ time.

The amount accrued in the pension account can be calculated here.

Withdrawing the money, however, is not the only option: people can continue collecting in the second pillar as before. It is also possible to suspend payments but to leave the accrued money in the fund. As a third option, a person can open a pension investment account with a bank and start investing the money on their own. A dedicated investment account is required for transferring funds from the second pillar. Applications for transferring pension money into the investment account can be filed as from April 2021, and the transfer will be made on 1 September. No income tax is charged on the funds transferred into the investment account but any amount taken out of the account is taxed at the full rate.

The people who have reached retirement age can terminate their existing pension insurance contracts and withdraw all the money from the second pillar at once as a lump sum payment. If they wish to go for this option, they must submit an application to the insurance company by the end of March 2021. They cannot terminate their contracts after this deadline has passed. The money will be paid out by the end of September, subject to a reduced income tax rate of 10 per cent.
Irrespective of the reform, the state has suspended its 4 per cent payments made from social tax into the second pillar from July this year until 31 August 2021, in the aftermath of the COVID-19 crisis. In October 2020, people can file an application for the temporary suspension of their 2 per cent payment, which will be suspended from 1 December 2020 until 31 August 2021.

Further information: Tax Advisor Einar Rosin erosin@kpmg.com.

Proposals to modify the bill on amendments to the Tourism Act and Consumer Protection Act

A bill on the amendments to the Tourism Act and the Consumer Protection Act passed the first reading in the Riigikogu. The principal aim of the amendments is to update the requirements relating to the provision of accommodation services. The Ministry of Finance has proposed further amendments to the bill, concerning revisions to the Income Tax Act.

According to the proposed amendments to the Income Tax Act, all digital platforms based on the sharing economy concept would have to report data on the persons who use the platforms to provide their services in Estonia and earn income. The data should be submitted electronically by both Estonian and foreign platforms. The reporting obligation would not apply to platforms advertising but not directly mediating the services. The data would be submitted to the Tax and Customs Board once a year, by 1 February of the following year. These amendments would grant the tax authority the power to check if the income earned from digital platforms has been properly declared and taxed.
If the amendments enter into force, the platforms would need to submit their first data file by 1 February 2022, with respect to the income received in 2021. Non-compliance with the requirement may lead to the imposition of fines or the blocking of the domain in Estonia.

More information on the bill on amendments to the Tourism Act and the Consumer Protection Act is available here (in Estonian).

Further information: Tax Advisor Einar Rosin erosin@kpmg.com.

Proposed amendments to the Value-Added Tax Act for 2021

A bill on the following amendments to the Value-Added Tax Act passed the first reading in the Riigikogu:

  • introduction of new VAT rules on e-commerce, including the taxation of online marketplaces and services provided to customers based in another EU member state. These amendments concern business-to-consumer (B2C) transactions;
  • the threshold for intra-community distance sales of goods is replaced by a new EU-wide threshold of EUR 10,000. If this threshold is exceeded, the tax must be paid in the member state of destination. The current annual thresholds range from EUR 35,000 to 100,000. All the related formalities can be carried out in the country of residence;
  • abolishment of the current VAT exemption for imports of small consignments with a value of up to EUR 22;
  • introduction of a simplified procedure for importing goods from a non-EU country if the value of the imported goods is up to EUR 150.

In addition to these amendments deriving from EU legislation, further revisions have been proposed as follows:

  • introduction of the option of bad debt relief, provided that all the conditions for claiming bad debt relief are satisfied (e.g. the debt has been written off in the financial accounts, the debt is not older than three years and the person from whom the debt is due is not a related party);
  • repeal of the provision granting VAT exemption to certain grants provided in the state or municipal budget.

All the amendments in the first section should apply as from 1 July 2021 and the rest in 2022. 

More information on the bill on amendments to the Value-Added Tax Act and the Customs Act is available here (in Estonian). 

Further information: Tax Advisor Merike Oja moja@kpmg.com

Summary of court judgments

Summary of judgment no. 3-17-1646 (5 October 2020) by the Administrative Law Chamber of the Supreme Court

Failure to declare VAT on sales

The Administrative Law Chamber analysed a situation where a company had issued VAT sales invoices to the buyer but failed to declare the sales on their VAT return. The applicant did not agree with the tax assessment claiming that the transactions subject to taxation did not in effect take place. The applicant claimed that the invoices concerned had been signed by third parties using the ID and the PIN numbers of a member of the board, and that consequently it is not the applicant but the third parties who should be held responsible for VAT compliance.

Based on earlier case law, the Supreme Court took the view that where permission has been granted on a person’s behalf to use their ID and PIN numbers, it is assumed that the permission has been granted by the person to whom the ID and the PIN numbers have been issued. If a person has not granted the permission to sign on their behalf, they have to submit proof to this effect, which was not done. Referring to the Value-Added Tax Act, the Supreme Court further noted that if a seller receives money from a buyer but the goods are not transferred, the seller is permitted to cancel the calculation of VAT on such goods if the seller refunds the amount to the buyer, which the applicant had not done.

The Supreme Court found that the fact that the invoices had been signed by a third party was not relevant as the invoices were paid in the applicant’s bank account. As the payment received was not refunded to the buyer, the fact whether the transaction subject to VAT in effect took place was not relevant. In accordance with the Value-Added Tax Act (§ 38 (1)), any amount of VAT indicated in an invoice or other sales document must be paid by the date of submission of the VAT return.

More information on the judgment is available here (in Estonian).

Further information: Tax Advisor Einar Rosin erosin@kpmg.com.
 

© 2021 KPMG Baltics OÜ, an Estonian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

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