Income tax advance – Changes in the amount
Dynamic operating conditions, especially during the last year and a half amid coronavirus pandemic, have direct impact on the level and scope of business from which tax liabilities arise. In the unstable operating conditions, one parameter that affects current liquidity, which is related to the scope of activity of the previous period, is definitely the income tax liability paid as monthly advances on the grounds of previous year results.
The legislator has foreseen potential oscillations and regulated potential changes in the amount of monthly income tax advances by the Article 68 of the Income Tax Law. This means that this article stipulates the possibility to submit Periodical Tax Basis Balance Sheet in order to consolidate the income tax for the current period as adequately as possible. Tax Basis Balance Sheet and Tax Return can be amended one year after the submission of the Final Tax Basis Balance Sheets and Tax Returns for the previous year. Taxpayers, who submitted their Tax Return before the final date (this year the deadline was June 29), can also submit the amended Tax Returns for the current year. This possibility exists regardless of whether they have opted for the set of economic measures for the mitigation of the consequences caused by the coronavirus pandemic. This is extremely important for those who operated or still operate under trying conditions caused by the pandemic and experienced the reduction of the scope of business in comparison to the previous period. Besides, this also relates to all taxpayers expecting poorer performance results as well as poorer expected results and the income tax liability for the current year.
When it comes to the deadline for the submission of the Periodical Tax Basis Balance Sheet and Tax Return, it is 30 days after the expiry of the period for which the Periodical Tax Basis Balance Sheet and Tax Return are made. For example, for the period from January to August, the deadline is September 30.
The amended Tax Basis Balance Sheet i.e. Periodical Tax Basis Balance Sheet and Tax Return as well as the final versions are submitted only via the Tax Administration portal. The taxpayer himself determines the amended income tax advance amount in compliance with the Article 86 Paragraph 2 of the Law. Taxpayers have to bear in mind that the changes in the advance payment amount refers to the next period, not to the previous one, which means that after the introduction of changes, the advance tax liabilities will relate to the period that comes after the date of the period for which the return is submitted, while the advanced payments for which the liability has already been created will not be changed. For the period from January to August, the changes will apply to the advance payment for September, deadline of which expires on October 15, while the tax advance liabilities up to that period will not be changed.
Determining advance payment changes and the submission of Periodical Tax Basis Balance Sheets means that Periodical Financial Statements, Balance Sheets and Income Statements need to be created. The Law has not foreseen the obligation to submit Periodical Financial Statements, while the Law on Accounting does not stipulate the obligation to submit Periodical Financial Statements to the Business Registers Agency. It is obvious that Tax Basis Balance Sheets and Tax Return cannot be created without previous creation of financial statements. There is no obligation to submit them to the Business Registers Agency but the Tax Administration can require the submission of the Periodical Financial Statement for information and review.
When creating Periodical Financial Statements, it is necessary to have in mind that it is not essential to carry out all the procedures required for the creation of the Annual Financial Statement. Which procedures do not have to be carried out when creating Periodical Financial Statements:
– only Balance Sheet and Income Statement need to be created
– the assessment of accounts receivable recoverability
– receivables and liabilities coordination
– comparative data is not shown
– deferred tax assets and tax liabilities do not have to be determined
When creating Periodical Tax Basis Balance Sheet and Tax Return, it is necessary to properly calculate and differentiate capital gain, impairment charges, transfer prices, accounting and tax depreciation calculation for the period of the Periodical Tax Basis Balance Sheet and Tax Return.
The taxpayer who decides to change the amount of income tax advance has to carefully consider all the aspects of his business and analyze them thoroughly because the Tax Administration, in accordance with the facticity principle and in compliance with the Article 9 of the Law on Tax Procedure and Tax Administration, determines all the facts that affect the tax liability amount for every taxpayer. In reality, it often happens that the taxpayers who have pronouncedly seasonal business believe that there are grounds for the introduction of changes related to income tax advances due to the income inequality during a calendar year, which does not reflect significant changes of the operating conditions anyway but it represents their way of doing business.
For these and similar questions, Creative Finance team is at the disposal of all parties concerned.