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Decision of the Constitutional Court on Taxability of dividends and shares

2014-07

After bringing Decision in September 2013 on abolition of Article 16 of Amendments to the Personal Income Tax Act from February 2012 (“PIT Law 2012”) relating to taxation of dividends and shares in profit, after which the PIT Law was amended in September 2013 (“PIT Law 2013”), in middle June 2014 the Croatian Constitutional Court again brought the Decision on initiating constitutional review of the PIT Law 2013 and abolished Articles 6 and 8 of the stated Law, prescribing taxation of dividends and shares in profit.

In PIT Law 2013 the legislator prescribed the condition under which dividends and shares in profit relating to the tax periods in which these were not subject to tax, could be paid tax-free. The condition was that the decision on the dividend/share in profit payment was adopted in those tax periods (in which dividends/shares in profit were not subject to tax).

In the new procedure, the Croatian Constitutional Court stated that by introducing Articles 6 and 8 of PIT Law 2013 (i.e. by taxation of dividends /shares in profit realized before the Law entered into force), the legislator again unequally treated taxpayers of the same type in a comparable situation. Furthermore, the Court found that Articles 6 and 8 of the PIT Law 2013 have the same effects as those that Article 16 of PIT Law 2012 had. For the later the Court previously determined that it led to the retroactive taxation of the receipts that were paid after the Law has been introduced, and which relate to the tax periods in which these receipts were not taxable.

Authors

Picture of Tamara Jelic-Kazic
Tamara Jelić-Kazić
Partner
Zagreb