In several rulings issued since September of 2015, Administrative Court of the Republic of Serbia has determined unlawful practice of Serbian Tax Authority in regard to determination and collection of "Solidarity Tax" pursuant to the Law on Deduction of Net Earnings of Persons in Public Sector ("Official Gazette of the Republic of Serbia No. 108/2013) (hereinafter: the Law on "Solidarity Tax").

The "Solidarity Tax" comprised a deduction from net earnings and other forms of compensation of public sector employees in the Republic of Serbia. It was determined on the basis of, and collected from earnings of public sector employees that had been earned and disbursed starting from 1 January 2014, until 1 November 2014.

The Law on "Solidarity Tax" has been the subject of numerous controversies among experts; therefore in 2014 an initiative for its constitutional review was submitted to the Constitutional Court of the Republic of Serbia. The Law ceased to be applicable on 1 November 2014, except in respect of income earned until 1 November 2014 that has not been paid out after that date.

Calculation and collection of "Solidarity Tax" is regulated by Article 4 of the Law on "Solidarity Tax", which envisages:

  • In Paragraph 1, the duty of the payer of the earnings to calculate, withhold and execute payment of "Solidarity Tax" for each employee in public sector on the day when net earnings are paid to such an employee;
  • In Paragraph 2, the duty of the Tax Authority to control, at the end of calendar quarter and at the latest by the 15th day of the first month of the subsequent calendar quarter, whether net earnings of employees in public sector for the previous calendar quarter have been reduced in accordance with the Law;
  • In paragraphs 3 and 4, the duty of the Tax Authority to properly determine the amount of "Solidarity Tax" for the preceding calendar quarter if net earnings of a public sector employee have not been reduced in accordance with the Law, and its obligation to order the natural person by virtue of a decision to pay the missing balance within 30 days from the day of receipt of such decision;
  • In Paragraph 5, a term of 30 days, starting from the end of the calendar quarter, is imposed upon the Tax Authority for enacting the decision ordering payment of the missing balance of "Solidarity Tax" determined in accordance with para. 4 of the same Article in respect of the income realized in the course of the pertinent calendar quarter.

Even though the Law on "Solidarity Tax" clearly prescribes the time limit for enacting the decision on calculation and collection of "Solidarity Tax", in practice the Tax Authority has not honored the deadline and a great number of decisions on levying of the "Solidarity Tax" for the earnings from the first quarter were not issued until the fourth quarter of 2014, and even before the beginning of 2015. Since these decisions were final, only an administrative dispute before the Administrative Court of the Republic of Serbia could have been initiated against such decisions.

In the rulings that ensued, the Administrative Court has taken the stance that the terms prescribed by Article 4 of the Law on "Solidarity Tax" are preclusive and that the Tax Authority could not have issued the disputed decisions on "Solidarity Tax" after such terms expired. The disputed decisions were therefore annulled on the grounds of breach of administrative procedure rules.

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Originally published 07 December 2015

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