Mini-annual tax law passed in the short term

An adjustment law with primarily editorial character has become a real tax amendment law shortly before its adoption.

Originally, the "Act on the Adaptation of National Tax Law to Croatia's Accession to the EU and on the Amendment of Further Tax Regulations" was only supposed to contain editorial adjustments and the necessary changes to tax law for Croatia's accession to the EU. However, what the Bundestag and Bundesrat have now passed shortly before the parliamentary summer break is a veritable mini-annual tax law that contains several important changes to tax law.

• Tax liability for construction services: The most important change is the reversal of the procedure for the tax liability of the service recipient for construction services to property developers, which was only changed in February by a ruling of the Federal Fiscal Court. The change comes into force on October 1, 2014.

• Tax liability for other deliveries: From October 1, 2014, the tax liability of the recipient will be extended to the supply of precious metals, base metals, tablet computers and games consoles.

• Audiobooks: From January 1, 2015, the reduced VAT rate of 7 % will apply to audiobooks as well as printed books. However, as it is difficult to imagine a new rule in tax law without exceptions, audio plays and audio books purchased via download are exempt. The tax rate of 19 % continues to apply to these.

  

• Mini-One-Stop-Shop: From January 1, 2015, the place of performance for electronic services will be the customer's registered office. Telecommunications services, broadcasting services and services provided electronically will then always be taxed in the country in which the customer is based, regardless of whether they are a business or a consumer. So that providers do not have to submit tax returns in all EU countries, a so-called mini-one-stop store will be created, through which all returns to be submitted in the EU countries can be submitted to the Federal Central Tax Office and the taxes due can be paid.

• Minimum assessment basis: In the case of a discounted supply of goods or services to employees or other related parties, the VAT due is based on the costs incurred by the company if these are higher than the consideration paid. In future, the costs will be assessed at no more than the normal market rate, unless the consideration actually paid is higher.

• Tax exemptions: Various services are exempt from VAT. These include certain labor market services, child support services and the provision of staff for spiritual assistance. Outpatient rehabilitation facilities are exempt from trade tax. There is also a marginal extension of the tax exemption for income tax, namely for accident compensation for civil servants and for state expense allowances.

• Payroll tax filing: From 2015, the limit for an annual wage tax declaration will be raised from 1,000 euros to 1,080 euros. Employers who employ temporary staff with a monthly wage of 450 euros and pay the flat-rate wage tax of 20 % can then also use the annual tax return.

• Payroll deduction: Minor changes have been made to the regulations for wage tax deduction, which mainly serve to better align wage tax deduction with the result of a possible subsequent tax assessment. Among other things, minor deviations from the specified program flow chart for automatic calculation are permitted and the rate reduction for compensation and remuneration for multi-year activities will in future already be taken into account when deducting income tax.

• Limitation of the favorable treatment test: Employees only have to submit a tax return if they have more than EUR 410 in taxable income in addition to their salary. If an employee with lower additional income submits a voluntary tax return, the tax office deducts this de minimis limit from their total income. In effect, employees with capital income were able to use the de minimis limit in addition to the saver's allowance by applying for a favorable tax assessment and thus having the withholding tax withheld refunded. From 2014, this hardship adjustment will now be excluded for investment income.

  

• Used life insurance: By selling a life insurance policy, the insurance generally loses the purpose of risk provision. The benefits from used life insurance policies are therefore taxable as of this year. Investment models that rely on the purchase of used life insurance policies thus become less attractive. The only exceptions to the tax obligation are the purchase of a policy by the insured person from a third party, for example from the employer on termination of the employment relationship, and transfers for reasons of inheritance or family law.

• Capital gains: Various provisions on investment income and capital gains tax have been amended. For example, the special regulation on capital gains tax refunds from certificated dividend entitlements has been extended to uncertificated entitlements. The provisions relating to contribution-born shares and dividend stripping have also been revised. In addition, the parent-subsidiary directive has been extended to Croatia.

• Trading in foreign currency amounts: The FIFO method will be reintroduced for trading in foreign currency amounts because the average value method, which has been in use for several years, has proven to be difficult to handle.

• Organizations: In the German Corporation Tax Act (Körperschaftsteuergesetz), an application regulation on profit transfer agreements with foreign tax group parent companies will be adapted to the changes resulting from the Act to Amend and Simplify Corporate Taxation and the Tax Travel Expenses Act.

• Restructuring: With regard to the real estate transfer tax exemption for restructuring within a group, it has been retroactively clarified that the tax exemption also applies to contributions and other acquisition transactions based on a company agreement in accordance with the law of another EU or EEA state.

• Withdrawal taxation: An amendment is intended to prevent a structuring model in which shares in a corporation are transferred from private assets to the business assets of a GmbH & Co. KG in order to avoid the taxation of hidden reserves. The amendment applies to conversions from January 1, 2014.

• Riester pension: In future, providers of Riester contracts must report certain data to the central reporting office if the payout begins after December 31, 2016. In addition, regulations on the Riester residential pension will be adjusted. For example, contributions and repayments in the year of an occupational relocation will now also be included.

• Maintenance payments: To prevent abuse in the case of maintenance payments, from 2015 maintenance payments can only be deducted if the tax identification number of the maintenance recipient is provided. The maintenance recipient is obliged to provide the maintenance provider with their tax identification number. If the recipient refuses to do so, the maintenance provider can request the number from the tax office.

• Child support: The catalog of voluntary services that allow entitlement to the child allowance or child benefit will be expanded to include service under the "Erasmus+" program.

• Non-profit status: If a foundation or association does not use funds within the legally prescribed time frame, the tax office can set a grace period for use, after which the actual management is deemed to be proper again. This regulation was deleted by mistake and is now being reintroduced.

• Cigarette import: Since July 31, 2014, private individuals have only been allowed to bring 300 cigarettes tax-free into Germany from Croatia for their own use instead of the previously permitted 800 cigarettes. For cigarettes from Bulgaria, Romania, Hungary, Latvia and Lithuania, the quantity restriction of 300 cigarettes has been in place since the beginning of the year.

• Editorial changes: In addition to the changes mentioned above, the law also contains many smaller changes that are primarily of an editorial nature, for example with regard to travel expenses following the travel expense reform. In addition, one of the longest sections of the Income Tax Act has been consolidated and reworded, which regulates the temporal application of all changes.