At the end of November 2021, the National Assembly of the Republic of Serbia adopted a set of tax laws, including the Law on Amendments to the Law on Corporate Income Tax.
The only amendment to the Law on Corporate Income Tax (hereinafter: the “CIT Law”) refers to the Article 30, which already stipulates that taxable profit includes 20% of capital gains generated by transfer of property rights in its entirety on the basis of: (i) copyright or related rights; (ii) invention rights under patent law; (hereinafter: the “Intellectual Property Rights”).
On the other hand, new provisions within Article 30 of the CIT Law provide the taxpayer with the possibility not to include capital gains in the corporate income tax base, which are realized from transfer of the Intellectual Property Rights as a non-monetary contribution in the share capital of a resident legal entity.
In order that the taxpayer does not lose its right to this tax benefit, certain conditions are prescribed in this regard. Namely, the resident legal entity (i) cannot dispose acquired Intellectual Property Rights within a period of two (2) years from the date of acquisition, and (ii) cannot transfer them for usage in its entirety or partly during the same period for price that is lower than price determined in accordance with “arm’s length” principle, if such assignment is made to a related person or a person whose owner is his related person.
In case the resident legal entity acts contrary to determined conditions, the taxpayer loses the right to exempt capital gains from corporate income tax base, therefore it is obliged to calculate and pay taxes for the tax period in which the Intellectual Property Rights were disposed or ceded.
It should also be noted that the CIT Law stipulates by new provisions of the Article 30 that the market value of Intellectual Property Rights, during a non-monetary contribution to the share capital of a resident legal entity, is determined by a certified appraiser, and that any capital losses incurred on this basis cannot be offset against capital gains.
What is the effect of described change in the CIT Law in relation to public revenues?
Given that taxpayers in this case may achieve tax convenience and potential tax savings, reduction in public revenues can be expected consequently, but it is difficult to predict the in which scope and period, because it is a completely new measure. On the other hand, the positive effect of this measure is the expectation that it will encourage the acceleration of technology transfer and the introduction and application of business innovations, which will affect the international competitiveness of local companies, thus increasing public revenues on other bases.
Start of application:
The new provisions of the CIT Law apply to the determination, calculation and payment of tax liabilities starting in 2022, i.e. for the tax period starting in 2022.
Author: Goran M. Ćiraković, attorney-at-law
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