• Tax Highlights - December 2018-3

Tax Highlights - Decembar 2018-3

28 December 2018

Application of MLI in Serbia

The entry into force of Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS (Multilateral Convention)

In June 2017, Serbia together with the other 68 jurisdictions, signed the Multilateral Convention. One of the goals of adopting the Multilateral Convention is to prevent tax planning that exploits gaps and mismatches in tax rules for "artificial" decrease of the tax base, or for transferring profits to countries where economic activity does not take place (or occurs on a small scale).

Adopting the Multilateral Convention will enable the modification of certain provisions contained in Double Taxation Treaties (DTT) concluded between Serbia and other jurisdiction in a more simpler way.

One of the major changes made by the Multilateral Convention is the introduction of the so-called Principal Purpose Test (PPT), on the basis of which the benefits of the DTT would not be granted if, taking into account all relevant facts and circumstances, it can be reasonably concluded that acquiring benefits from DTT (e.g. more favorable tax treatment of a particular transaction) was one of the main reasons for concluding that arrangement or transaction.

In order to modify certain provisions of DTT, which Serbia concluded with other jurisdiction, it is necessary for the Multilateral Convention to come into force for Serbia as well as for the other jurisdiction. For Serbia the Multilateral Convention has entered into force on October 1, 2018. In this regard, the entry into force of the Multilateral Convention for both jurisdcitions may have significant implications for the foreign business transactions of Serbian taxpayers.

In addition, it is important to emphasize that the date of entry into force of the amendments made by the Multilateral Convention in relation to a certain DTT varies depending on the type of tax to which such modifications apply (taxes withheld at source or other taxes to which DTT relates).

In other words, the Multilateral Convention will apply with respect to taxes withheld at source from 1 January 2019 for the following DTT:

  • Austria,
  • Poland,
  • Slovenia,
  • United Kingdom.

For other types of taxes covered by the below DTTs, the beginning of the application of the Multilateral Convention is as follows:

  • Austria, from 1 April 2019;
  • Poland, from 1 April 2019;
  • Slovenia, from 1 April 2019;
  • United Kingdom, from 1 April 2019;
  • France, from 1 July 2019;
  • Lithuania, from 1 July 2019;
  • Malta, from 1 October 2019;
  • Slovakia, from 1 July 2019.