Law on Determining the Origin of Property and the Special Tax, the law which attracts a lot of public attention for two reasons, begins to apply on 12 March. General public attention is attracted given that this law was announced from time to time by various political parties which were in power during the last 20 years, while attention of competent public is attracted given the solutions provided for in the law.
The Law was adopted and entered into force in the beginning of 2020, but its application was postponed for one year. During this period, law was subject to critics of the competent public, and the Ministry of finance tried to remedy its deficiency through amendments which have been adopted by The National Assembly of the Republic of Serbia last week.
Main reason for the critics of this law is that it seems that intention of proponent was initially directed to regulate two similar and connected concepts, which still have differences. However, while drafting the law, the lawmaker has focused on only one of them, without consistently and completely excluding other concept from the solutions envisaged by the law.
First concept is establishing mechanisms for control whether material situation of a certain natural person corresponds to realized income of that person in the previous period taking into account submitted tax returns. Therefore, goal is to check whether some of income were not reported, i.e., whether tax evasion occurred.
Second concept is establishing mechanism through tax control of comparability of assets and reported income of a certain person, to obtain information and evidence for the need of conduction of eventual criminal procedure against that person, if it is established that such person realized income and acquired assets through illegal activities, i.e., by committing criminal offences.
Regarding the first concept, it should be noted that the Law on Tax Procedure and Tax Administration recognizes it for almost 20 years and in its Article 59 envisages the so-called “cross-assessment of the tax base”, and it is not clear why it was necessary to pass a special law that would regulate essentially the same issue, i.e., why it was not possible to regulate the same issue by amending the Law on Tax Procedure and Tax Administration. The only essential difference between this law and the Law on Determining the Origin of Property and the Special Tax is the special tax rate of 75% on reported income provided by the new law. In this regard, we can recall the Law on Extra Profit, which was rendered in 2001 with a similar goal - the collection of special tax, but whose results were evaluated as modest.
Answer to this question is more important from the reason that Law on Determining the Origin of Property and the Special Tax did not in detail define manner on establishing the value of the assets, income and expenditures for private needs, but by Article 11 it is prescribed that the Government should regulate these mechanisms, which was not done so far, although Article 26 prescribes deadline of six months from the entering into force to render bylaws. Having this in mind, questions arise when and how exactly this law will be applied.
Regarding the second concept, especially after amendments, law contains auxiliary provisions whose sense may be understood only through assumption that second concept has initially coexisted with the first as a reason for rendering the law. Additionally, inconsistent deleting of second concept through amendments of the law is better than to keep parts which lead to various doubts and illogicality. However, it seems that in this sense law even after amendments may be criticized again, given that such auxiliary, remaining provisions become additionally purposeless.
For example, although the term “illegally acquired property” has been replaced by the term “property subject to special tax”, this has not been done consistently throughout the legal text. Therefore, Articles 3 and 14 of the law still speak of the legality of acquiring of property, whereby, the fact that this term can be interpreted differently from the point of view of general legal norms, the law does not give a definition of what, in the sense of this law, would be considered as lawful acquiring of property. Even the name of the law no longer corresponds to its subject, having in mind that the origin of assets will not be determined on the basis of this law, but only whether the value of a person’s property indicates that such person earned income that he did not report and for which did not pay taxes.
The decision from the mentioned Article 3 is also disputable, according to which the Tax Administration bears the burden of proof that the increase of the assets of a natural person in relation to his reported income, while such natural person has the burden of proof that he legally acquired property in the part where increase thereof does not correlate with the reported income, whereby it remains undefined what exactly is meant by the legality of the acquiring of property. If this provision is interpreted in practice by the Tax Administration as obligation of a natural person to prove that his increased property does not originate from a criminal offense, this would be a drastic deviation from the constitutional guarantee of legal certainty in criminal law.
Apart from that, even after amendments the Articles 9 and 19 remain. Article 9 contains general provision that public prosecution and other competent bodies shall be notified if during procedure of application of this law is determined that facts indicate existence of basic suspicion that criminal offence is committed, which obligation Tax Administration, as a body of state administration, already has in the existing criminal legislation.
Special doubt causes absurd Article 19 of the law which contains order to criminal court that in the amount of material gain acquired by criminal offence, which amount is determined by final and binding verdict, calculate amount of special tax paid on this basis. It is completely unclear how lawmaker intends that final and binding verdict in any part, including the one determining material gain acquired by criminal offence, is amended or can be amended in any manner after verdict become final and binding.
The possibility of including a special tax in the amount of material gain acquired by criminal offence, even if this calculation is not envisaged as completely impossible and inapplicable as done in Article 19 of this law, is disputable and inconsistent with a numerous provisions of both criminal material and procedural law, especially with those relating to the return to the damaged party material gain which offender acquired by committing criminal offence to the detriment of that damaged party. However, comment on these inconsistencies is superfluous given the fact that such provision of Article 19 is completely inapplicable.
Having in mind that from second concept is given up, it is especially disputable that by amendments and supplements is not deleted possibility envisaged by Article 12 of the law that previous procedure for determining the base for determining special tax is initiated upon report of natural person or legal entity. Such solution opens possibility for classic denunciations, i.e., that one person files criminal complaint against another person from his personal, and not public interests.
Even the question of the meaning of Article 23 may be raised, since it is not entirely clear why special security checks of employees in the unit of the Tax Administration competent for the application of this law would be performed (special in terms of security checks of civil servants provided by other regulations), when the purpose of the law alone is to establish a special tax.
Finally, a particularly problematic issue is the solution from Article 18, which prescribes that in the procedure of application of this law, the Law on Tax Procedure and Tax Administration is applied in a subsidiary manner, except with regard to the provisions on statute of limitation. It is unclear what was intended to be achieved and whether this opens the possibility for a special tax to be determined for an unlimited period of time in past. This would be neither constitutional nor legal even if it is a matter of committing criminal acts, considering that the Criminal Law knows clear statute of limitation deadlines, both for conducting criminal proceedings and for executing criminal sanctions, and it certainly cannot be constitutional and legally for the simple collection of taxes, even those provided as special.
Taking into account all the above, already detected problematic solutions from the Law on Determining the Origin of Property and the Special Tax leave uncertainties in respect to the practical solution of these issues and whether the application of the law will contribute to fulfilment of its purpose and the goal set out the proponent as the reason for adoption of the law.
By Jelena Milinovic, Partner, Nikola Djordjevic, Partner, and Marko Mrdja, Senior Associate, JPM Jankovic Popovic Mitic