The Law on Determining the Origin of Property and Special Tax. (“Official Gazette of RS” no. 18/2020)

In mid-March 2021, the Law on Determining the Origin of Property and Special Tax (the Law) will begin to apply. Declaratively, the goal of the law is to improve the distribution of social wealth, i.e. to enable a partial seizure the property for which there is no evidence of legal acquisition.

The subject of the Law is the regulation of the conditions, manner, and procedure under which the property is determined and the increase of the property of a natural person. The Law also envisages a special tax on the increase of property for which a natural person cannot prove that he acquired it in a lawful manner, as well as the authorities responsible for the implementation of this Law. If a natural person cannot prove that he or she has acquired property in a lawful manner, the law stipulates that the Tax Administration will tax “illegally acquired property” at a special tax rate of 75%.

However, the mechanisms for achieving the goal of the law are troublesome. First of all, the Law assumes that the difference between the declared income and the determined property is considered to be illegally acquired property. This means that the legislator suspended the presumption of innocence of the subject of control (natural person) beforehand, and thus put that natural person in a less favourable position. Realizing that the violation of the presumption of innocence can cause numerous problems, one year after the adoption of the Law, the Government of the Republic of Serbia sent to the National Assembly a draft law on amendments to the Law. The key change relates to the phrase “illegally acquired property”, which changes to “property subject to special tax”.

Second, the special tax rate is as high as 75%. Such a high tax rate has all the characteristics of a penalty and that is why its existence in the Law can hardly be defended from the point of view of the purpose of the existence of taxes and the coherence of the legal system.

Third, the Law introduces an exception to the application of the Law on Tax Procedure and Tax Administration (the LTPTA) in terms of statute of limitations, which, again, may violate the coherence of the legal system.

Finally, the Law introduces professional secret as a new category in the tax procedure, despite the fact that the LTPTA already prescribes the principle of keeping secret information in the tax procedure. However, the Law does not provide a definition of professional secret, which violates the coherence of the tax-legal system. Therefore, in the proposed amendments to the Law, the disputed article was completely amended in such a way that the LTPTA is applied to issues of confidentiality.

Having in mind the problems that may endanger the constitutional rights of citizens, our law office, filed an initiative to the Constitutional Court to assess the constitutionality of the Law.