Банкеръ Weekly



The Chairman of the parliamantary Budget Commission Ivan Iskrov has promised that when the new tax laws are discussed, provisions regulating the tax transparency of special purpose investment companies, will be approved as well. Such a commitment was undertaken by the Finance Ministry still when the Special Purpose Investment Companies Act was passed in May 2003. But for unknown reasons, the promised new taxation regime for them was missed during the traditional autumn amendments (the draft was moved to the National Council on Taxation Policies on September 26).Mr. Iskrov's statement is the first public commitment for the settlement of this problem, which if not solved would deprive of meaning the establishment of special funds. There is political will to encourage business and not to create loopholes for evading taxes, Mr. Iskrov was adamant. If it turns out that these companies' foremost purpose is to evade taxes, I guarantee that the new regime will be revoked as of January 1, 2005, he said at the roundtable called Special Purpose Vehicles - Opportunities and Regulatory Issues. The forum, which gathered on September 30 represenatatives of banks, investment intermediaries, and pension insurance funds, was organized by the Institute for Market Economics, and was sponsored by the BANKER weekly.During the discussions, two options for avoiding double taxation were offered. One of them was proposed by the Finance Ministry, and the other - by the Institute for Market Economics. Both of them accept that the companies will not be paying a profit tax and that only their shareholders will pay taxes. As the act's author - the deputy Ralitsa Again - explained, the aim is that the tax should be paid by the end investor, and not to accumulate a separate tax liability because of the establishment of a special purpose company. The differences are in the mechanisms for levying taxes on the shareholders. According to the Finance Ministry, investors in a special purpose investment company should pay a 15% tax on the dividend. Let's remind that these companies mandatorily distribute at least 90% of their profit in dividend. The proposal of the Institute for Market Economics is somewhat different. It projects that the received dividends should go into the total amout of shareholders' proceeds and then levy a tax on them. This means that the received dividends would be included in the taxable profit of juristic persons (now they are deducted from it). The shareholders - natural persons will respectively declare them in their annual tax declaration. Thus, the citizens who presently pay 15% withholding tax on the received dividends, under that special regime will pay taxes in the year-end too (the dividend is added to their other incomes, e.g. from fees), and the paid 15% will be deducted from the entire liability. There will be no substantial change for shareholders - juristic persons, as even now they do not pay taxes on the dividends they get. However, there will be a problem for the pension funds when they are founders of special purpose investment companies. Currently, they are exempt from taxes and if a decision is made for levying taxes on the dividends they receive, they will be in a more disadvantageous position than if they invest directly, e.g in real estates. This problem should be settled by the experts of the Finance Ministry and the Budget Commission prior the conclusive passing of tax laws.

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