ANALYSIS
Recent Tax Law Changes –
For Better or Worse?
provide a tax exemption for dividend income at
the shareholder level, if such dividends are already taxed upon their distribution.
CIT on Loans: Preventing Unintentional
Impacts on Companies
Author: Ana Shajnoska, Senior Tax Consultant,
PricewaterhouseCoopers Skopje
A recent move to address tax evasion in Macedonia
may inadvertently and unfairly impact many taxpaying and law-abiding companies working here. From
December 2013 – January 2014 several changes were
made to Macedonia’s tax legislation. Among them,
the Corporate Income Tax (“CIT”) Law was amended, a change which entered into force in late January
2014. Although seemingly small changes, they touch
on two major issues from a tax perspective: granting
loans and distributing dividends.
New CIT on loans: Outstanding receivables related to the transfer of loans – or any funds which
are considered loans – are now subject to CIT, unless the funds are returned in the same year when
the loan was made. Taxpayers will be entitled to
tax credits to recoup taxes paid in previous years
when the loan is fully repaid.
New CIT on distributed dividends: The latest legal changes basically eliminate the tax exemption
given since 2010 to encourage local reinvestment
of profits. This means that when local companies
decide to distribute profit, it will now be subject
to CIT, regardless of the residency of the shareholder. To avoid double taxation, these changes
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These changes were primarily aimed at decreasing
tax avoidance by limiting the period for which loans
can be granted “tax-free”. The expected response to
this change is that local companies will be discouraged from transferring excess funds without expecting any returns. This measure may also contribute
toward closing the loophole through which profits
could be effectively distributed to shareholders or
controlled entities as long term loans, rather than
as dividends. It's important to note that CIT now applies to both standard loans and any transfer of funds
deemed to be a loan "in essence". Thus, the current
approach could result in taxation of every long-term
loan granted by local companies to any other entity.
While decreasing
CIT now applies to both
tax avoidance is
an admirable goal,
standard loans and any
since it will lead to
transfer of funds deemed
greater consistento be a loan “in essence”.
cy and transparency of the country's tax system, steps should also be taken to avoid
unreasonably burdening companies that are not attempting to avoid taxation. It is quite common for
different entities within a single holding structure to
finance each other whenever possible to avoid entering into unnecessary and costly external financing arrangements. Therefore, it would make sense to distinguish outstanding receivables from loans granted
to related parties (especially between parents and
subsidiaries) from those granted to non-related parties. Even for those loans granted between related
parties, a threshold loan amount could spare many
reasonable and operationally justified loans from illogical taxation.
Emerging Macedonia Winter 2014 Issue 40