This issue of InfoCourier covers the following topics:

  • Amendments to the Packaging Act
  • Summary of Court judgment
  • Amendments to the tax treaty between Estonia and Germany

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

Amendments to the Packaging Act

Among other amendments, new thresholds and due dates were introduced for audits of packaging reports and stricter penalties were imposed on legal entities for non-compliance.

The packaging audit threshold has been raised from 5 to 20 tonnes. An entity bringing over 20 tonnes of packaging onto the market over the year must order an audit for its packaging report. The new threshold is applied also to 2020 with a view to establishing if an entity is subject to the audit obligation. The due date for submitting the audit report to the packaging register is still September 1 of the following year and the audit is performed as a limited assurance engagement. If an unqualified audit report is issued, the entity will be exempted from the audit obligation for the following three calendar years. The three-year exemption will be first determined based on the report for 2020.

Legal entities now face considerably harsher penalties for non-compliance: a fine of up to 200,000 euros (formerly 32,000 euros) for failure to comply with the obligation of accepting the return of packaging and packaging waste, and up to 100,000 euros for failure to maintain records or to implement a self-checking system.

The act also provides for requirements applying to foreign persons. A packaging undertaking (i.e. any person who packages, imports or sells packaged goods in the course of its commercial or professional activities) whose seat is not in Estonia, but who brings packaging onto the market in Estonia (whatever the method of sale), must appoint a natural or legal person based in Estonia as its authorised representative, who performs on its behalf the obligations arising from the Packaging Act.

A few other provisions were amended as well, including the requirements for record keeping, informing consumers and deposit. The amendments entered into force on 15 May 2021.

Further information: Tax Advisor Merike Oja,

Court judgements

Summary of judgment no. 3-20-575 (25 February 2021) of Tallinn Circuit Court

The circuit court examined a situation where the Tax and Customs Board had charged income tax on gains from transfer of shares. In the tax decision, the tax authority claimed that the taxable person had deliberately avoided paying personal income tax by an arrangement whereby the shares were transferred to a legal entity. According to the tax decision, the proceeds from the sale of shares were received by an entity in fact controlled by the same person, and the entity used the money for buying and developing property and for repaying and granting loans.

The claimant argued that collection of the tax arrears was unfair in the sense of § 114 (3) of the Taxation Act as in comparable situations, where the proceeds from the sale of shares have not been received by a private individual (but are held by a legal entity), the individuals have not been charged income tax, and all taxable persons should be treated equally.

Referring to case law, the court decided as follows:

  • the right to cancel tax arrears granted to the tax authority diverges from the principle of equity in taxation and should be used only with the purpose of eliminating unfairness arising from certain exceptional and unforeseeable circumstances;
  • cancelling tax arrears on the grounds of unfairness would be justified if the taxable person was unable to pay the arrears due to circumstances beyond the control of the taxable person that emerged after the taxable person incurred the tax liability and which the taxable person could not foresee (e.g. force majeure);
  • the unfairness referred to in § 114 (3) of the Taxation Act does not depend on whether the financial distress of the taxable person was brought about by reasons under or beyond the control of the person, but the determining factor is the reason why the tax arrears have arisen;
  • there are no grounds for cancelling the tax arrears if the taxable person has chosen to take increased risks that they should have foreseen and could have avoided.

The court found that although the tax decision did not prove that the proceeds from the sale of shares were received by the claimant for their personal use, it is obvious from the movement of the funds that there was an attempt to conceal the true destination of the proceeds, and it is not possible to claim that the emergence of the tax liability did not depend on the claimant’s intention. In the court’s view the claimant themselves had taken on the risk that the tax authority may tax the sale of shares based on § 84 of the Taxation Act. Consequently, the court ruled that there were no grounds for cancelling the tax arrears.

The report of the case is available here (in Estonian).

Additional information: Tax Advisor Ave Rego,


Amendments to the tax treaty between Estonia and Germany

On 5 May 2021, a protocol was ratified to amend the Estonia-Germany income and capital tax treaty for the avoidance of double taxation.

The purpose of the new protocol was to bring the provisions of the tax treaty into conformity with the minimum standard agreed upon within the framework of the OECD Action Plan on Base Erosion and Profit Shifting, aimed at restricting the use of cross-border tax planning strategies for tax avoidance.

The following amendments were introduced by the protocol:

  • the title and the preamble of the treaty now includes a reference to the objective of preventing tax evasion and tax fraud;
  • the general anti-abuse rule was added to the treaty, providing that a party will not be entitled to the tax advantages granted by the treaty if one of the main purposes of the tax arrangement has been to obtain the tax advantage by exploiting the provisions of the treaty;
  • a provision on the adjustment of tax amounts was introduced to eliminate double taxation. The purpose of the provision is to ensure that where a contracting state has included in the profits of a resident enterprise, and taxed accordingly, profits on which an enterprise of the other contracting state has been charged to tax in the other contracting state, the other contracting state will make a corresponding adjustment to the amount of tax charged on these profits. The adjustment is usually determined based on transfer pricing rules;
  • article 10 was amended to introduce a 365-day minimum shareholding period so that taxable persons could not exploit the reduced tax rate on dividends under the treaty by increasing their holding immediately before dividend distribution. It was further specified that the minimum holding period may be completed after the distribution;
  • article 13 was amended to provide that gains from the transfer of shares will be treated in the same way as gains from the transfer of immovable property if the shares derive 50% or more of their value directly or indirectly from immovable property at any time within 365 days before the transfer. The purpose of the provision is to discourage non-residents from evading tax on gains from the sale of property by instead selling an interest in the entity that owns the property.

Further information: Tax Advisor Ave Rego,