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IFRS and IAS are international financial reporting standards which companies must follow when preparing and disclosing their financial statements. International Accounting Standards Board (IASB) published several new changes and amendments to IAS1, IAS8, IAS12 a IFRS 17.
Hereby, we bring you a summary of the most significant changes valid from January 1, 2023.
New amendments have been issued relating to disclosures in financial standards.
The aim is to aid with decision as to which accounting policies to disclose in financial standards in order to provide more useful information to the users of the standards.The aim is to aid with decision as to which accounting policies to disclose in financial standards in order to provide more useful information to the users of financial standards.Companies are required to disclose information regarding the material accounting policies as opposed to the significant accounting policies. Additionally, guidance has been provided on applying the concept of materiality when deciding on accounting policy disclosures (IFRS Practice Statement 2 includes specific examples).Companies should review or amend their accounting policy disclosures to ensure the consistency with the updated standard.
The Board also issued amendments to IAS 8 to help with distinguishing between changes in accounting policies and changes in accounting estimates.A new definition on accounting estimates was introduced, where accounting estimates are “monetary amounts in FS that are subject to measurement uncertainty “. A change in accounting estimate resulting from new information/developments is not classed as the correction of an error. The effects of a change in an input/measurement technique are changes in accounting estimates if they do not result from the correction of prior period errors.Changes in accounting estimates are applied prospectively only to current or future transactions and other future events.
The aim is to provide clarification on how to account for deferred tax on transaction such as leases. This should reduce the diversity in accounting.Amendments include an additional condition where the exemption for the initial recognition does not apply. A temporary difference arising on initial recognition of an asset/liability is not subject to initial exemption if the transaction gave rise to equal taxable and deductible temporary differences.Companies with significant balances of right-of-use assets, lease liabilities, decommissioning liabilities, etc. are highly affected as the additional deferred tax will have to recognised in financial standards.
The new standard replaces IFRS 4.It applies to all types of insurance contracts regardless of what type of company issues them.The aim is to help companies with the implementation of the standard. It should increase transparency and reduce diversity in the accounting.Not sure if these obligations apply to your business? Read more about who must prepare financial statements in accordance with IFRS in our article.
In this issue of our News Flash, we would like to briefly outline a recent case of the European Court of Justice (ECJ), which concerns the joint and several liability of the indirect customs representative for import of the goods and whether this person could be recognized as being liable for the payment of the import value added tax.
In the case C-714/20 from 12th May 2022 ECJ is dealing with the question whether the Union Customs Code must be interpreted as meaning that the indirect representative is liable not only for customs duties, but also for import VAT merely as a result of being a “declarant” for customs purposes. At the same time, ECJ is dealing with the question, whether the Council Directive on the common system of value added tax must be interpreted as meaning that the liability of the indirect customs representative for the payment of the import VAT, jointly and severally with the importer, can be accepted where there are no national provisions explicitly and unequivocally designating or recognizing that representative as being liable for that tax.
The case concerns Italian company U.I. Srl that represented other importing Italian companies as an indirect customs representative and in this respect executed all necessary customs operations in its name on behalf of those importing companies, and submitted the corresponding customs declarations on the basis of powers of attorney.
The Customs Agency determined that U.I. Srl in its capacity as indirect customs representative of the importing companies was jointly and severally liable for payment of that tax with those companies, specifically under the Customs Code.
However, in Italian legislation, there is absence of the exact specification of the person liable/jointly and severally liable for payment of the import VAT.
In accordance with settled case-law in interpreting a provision of EU law, it is necessary to consider not only its wording, but also the context in which it occurs, and the objectives pursued by the rules of which it is part. Even though the declarant is the debtor and, in the event of indirect representation, the person on whose behalf the customs declaration is made is also a debtor according to the Customs Code, however, the context and objectives of the Customs Code show that it is aimed exclusively at customs debt and not also at import VAT.
Further, Council Directive on the common system of value added tax makes no reference to the provisions of the Customs Code in relation to the obligation to pay that tax, but provides that that obligation is imposed on the person or persons designated or recognized as being liable by the Member State into which the goods are imported.
In those circumstances it is for Member States to designate or recognize the person or persons liable for payment of import VAT using national provisions that are sufficiently clear and precise, in accordance with the principle of legal certainty.
It follows that any liability of the indirect customs representative for the payment of import VAT imposed by a Member State, jointly and severally with the person who has given him or her a power of representation and whom he or she represents, must be established, explicitly and unequivocally, by such national provisions.
ECJ ruled that Council Directive on the common system of value added tax must be interpreted as meaning that the liability of the indirect customs representative for the payment of the import value added tax, jointly and severally with the importer, cannot be accepted where there are no national provisions explicitly and unequivocally designating or recognizing that representative as being liable for that tax.
This ECJ case can potentially reduce the liability of indirect customs representative to pay import VAT by limiting their responsibility only for customs debt but not the import VAT, provided that there are no explicit provisions in national legislation that recognize this indirect representative as being the person liable to pay the import VAT. This case could be considered as positive news for indirect representatives as they are not allowed to claim the deduction of import VAT, if it is payable, because they do not use the imported goods for their own taxable transactions.
Did you know that in EU member states, there is a possibility to carry out business activities also by means of the legal form of Societas Europaea (or SE, in short)? This multinational form of business offers several advantages for companies, even though its establishment process may be quite demanding. Nonetheless, we have got you covered.
Accace offers services ranging from the establishment of an SE to accounting and tax consultancy tailored to this company type. Moreover, our corporate department offers services like selling of shelf companies, provision of registered seat, registration of changes in the Commercial Register, dissolution of companies and others, besides the establishment of different forms of entities and their registration.
SE has a unified form – a joint stock company, whose business is running according to the EU law to simplify free movement of capital and unify the law concerning the companies. The registration is done in the particular member states according to the legal framework of the particular country, and then it is governed by the valid business and tax law of the member state.
SE is established with at least 2 companies originating in different EEA countries and is created in several ways:
Societas Europaea itself can further establish one or more subsidiaries in the form of an SE.
The basic capital of SE shall be at least EUR 120,000.
The founders of SE may choose to organize SE in a two-tier or one-tier system:
Two-tier (dual) system: SE shall be organized by the Board of Directors as the statutory body of the company, and by the Supervisory Body as the executive body with the powers to control the activities of the Board of Directors.
One-tier (monistic) system: It is a simplified and more flexible method of SE organization. In this case, the Administrative Organ shall perform the powers of the statutory body of the company.
The way how the employees participate in SE management plays a significant role in the setting-up process. The issue of employees´ participation has to be solved, otherwise this international company cannot be established. The power of the employees to manage SE includes the right to be informed and to discuss, as well as the right to elect and to be elected, to nominate or recommend or to express their disapproval with the election or appointment of the Administrative Organ or Supervisory Body of SE.
Giving the image of a global player, SE symbolises the international (more precisely, European) approach of the company and is, therefore, attractive to entrepreneurs in Europe who are looking to develop their cross-border business. By adopting the SE structure, the groups can demonstrate their desire to be companies with European roots and global reach.
Some huge companies in the EU have already changed their legal form into SE, for instance Zalando SE, Puma SE, BASF SE, Fresenius SE, MAN SE, SCOR SE, Strabag SE or Porsche SE.
It is possible to remove the seat of SE within the entire EU, without the necessity to wind-up the company in the home member state and establish a new legal entity in the host member state, which entails the loss of legal and business continuity.
SE may change its seat several times per year. Although the registered office of SE should be located in the same member state as its head office, the rule has been weakened by the CJEU case-law (for instance by the case Centros). Frequently chosen destinations are Cyprus or Luxembourg, who offer more flexible legislation from a corporate, tax and labour law point of view.
In member states where no law exists on cross-border transfer of the registered office of the companies, the transfer of the registered office of SE offers the easiest way to do so.
The transfer precedes the accomplishment of all obligations towards authorities, including protection of interests of creditors, the 2 months’ public notice about the intention to transfer and the approval of shareholders.
Societas Europaea enables to organise business activities under a single European brand name and run the business without setting up a network of subsidiaries. Given that the basic requirements for SE are the same in each member state, it may reduce the transaction costs.
The law does not require a newly formed SE to be a commercially operating entity. This means that SE company might be established as a shell company. Thanks to the secure legal basis and simplification of organisational structures, it is easier for companies to undertake cross-border restructurings and establishing holdings.
Thanks to the possibility to choose the seat of the company, it is also possible to choose the most suitable tax system, the so-called country shopping. Taxation of SE follows the applicable national tax system for stock corporations of the member state in which SE is domiciled.
Change of the seat in certain circumstances allows to solve tax optimization of business transactions, e.g., claims trade, goods trade, purchase and sale of business shares, financing and development of software, dividend pay-out, internet services and beyond.
SE may also be used for tax neutral transfer of assets across borders between different permanent establishments of an SE. While transferring the seat, only assets that are allocated to the head office of the legal entity changing its registered seat are subject to taxation; assets that are allocated to a permanent establishment in the original member state are not taxed.
In member states where SE maintains a branch or permanent establishment, SE remains liable for taxation of such branch or permanent establishment.
Societas Europaea gives companies more flexibility on collective co-determination (employment participation) compared to some national laws, such as Germany, Austria or Luxemburg, where nearly half of the Supervisory Board members are employee representatives. Given that the SE negotiates an agreement with the employees on a share in the management of the company, for example the possibility of electing part of the members of the Supervisory Body, it is possible to negotiate the extent of the participation in the management. If no agreement is reached, the standard set of rules applies. In case the SE is established by means of transformation, the agreement shall provide for at least the same level of employee involvement as the ones existing within the transforming company.
In addition, the level of co-determination existing in the company at the time of changing its legal form remains unaffected for the future. The change of the circumstances affecting the co-determination under national laws, especially if the number of employees exceeds certain thresholds, does not affect the level of co-determination in SE. This effect is called the effect of freezing the status quo.
As a result, SE companies might soften or at least freeze participation of the employees in the company. In addition, in some cases the conversion into SE might downsize the Supervisory Body of the company – as a result, it can minimise the influence of the unions.
SE companies benefit from the option of choosing a suitable legal system, which will be more stable, and which will provide higher confidence and option to enforce its right for the company. In addition, the size can ensure a stronger negotiating position when concluding contractual relationships, as well as stronger position during negotiations with banks and in cases of applications for EU financial support.
Moreover, SE companies, unlike national companies, can rely on international agreements for the protection of investments concluded with the particular member state.
The organization and management structure of SE often allows a lower number of members of its bodies. This depends on the member state and its decision to use the possibility to set a minimum and/or maximum number of members of the management organ.
Societas Europaea is also popular in member states where the one-tier system is not available to domestic public limited-liability companies.
An existing SE may create one or more subsidiaries that are also SE companies. They can be further sold as ready-made companies. These might be attractive for future successors due to their fixation of the total absence of employee participation in the management of the company in case of their future growth.
In EU member states, foreigners can be recognized as tax residents and taxed after 183 days of staying abroad. However, due the war in Ukraine, a great volume of citizens were forced to flee abroad. Are refugees exempt from paying taxes when they overstay 183 days, or is their involuntary residency not recognised and they are obliged to pay taxes in both countries? We collected data from 5 European countries to provide more information on the tax residency of Ukrainian refugees.
No exemption after overstaying 183 days in the country
According to the Czech tax legislation, an individual is considered a Czech tax resident if they have a permanent home in the Czech Republic in which they intend to stay permanently or stay for at least 183 days or more in the Czech Republic continuously or intermittently in a calendar year. A permanent home means an apartment, either owned or rented, which is available to the individual at any time.
If an individual would also be considered a tax resident of Ukraine according to Ukrainian regulations, then the determination of tax residence is based on the criteria set out in the Double taxation avoidance agreement between the Czech Republic and Ukraine (hereinafter “DTAA”).
The first decisive factor is the existence of a permanent home. If the person has a permanent home in both contracting states, the criterion of the center of vital interests is used to determine the state of tax residence. In practice, it therefore depends on where the family lives or where the person performs his economic activities. If it would not be possible to determine tax residence even on the basis of the center of vital interests, then the criteria of habitual abode (staying over 183 days), citizenship and agreement between contracting states are decisive.
Currently, many citizens of Ukraine have been staying on the territory of the Czech Republic for more than 183 days. Based on local legislations, they are still considered tax residents of Ukraine. Tax residence in such a case can only be determined according to the above mentioned criteria stated in the DTAA. In practice, however, it is difficult to assess whether an Ukrainian refugee has a permanent home in the territory of the Czech Republic, as it is often a temporary accommodation. Furthermore, the refugee often has social and economic ties in Ukraine where their family and/or employer stays i.e. work is performed remotely in the Czech Republic.
Some countries have already introduced exceptions for Ukrainian refugees working for their employers remotely i.e. Poland. The Czech tax authorities have not issued any information regarding the procedure or introduced exceptions for taxation of Ukrainian refugees.
There is currently no exception for Ukrainian refugees. It is necessary to proceed according to the above mentioned regulations i.e. according to local regulations, especially the Czech Act on Income Taxes and the DTAA. If the refugee is considered a Czech tax resident, then they are obliged to declare and tax their worldwide income in the Czech Republic. Should they be considered a Czech tax non-resident, only income from sources in the Czech Republic are subject to taxation in the Czech Republic to the extent allowed by the DTAA, e.g. employment income for the work performed physically in the Czech Republic when the individual is here more than 183 days is taxable here.
In addition, according to the Czech Act on Income Taxes, the foreign employer becomes a taxpayer if they have a permanent establishment in the Czech Republic or employs employees in the territory of the Czech Republic for more than 183 days. This means that Ukrainian employers will be obliged to register as a taxpayer in the Czech Republic and meet all obligations of a taxpayer i.e. pay tax advances according to Czech legislations. Liabilities in the area of social security and health insurance should be reviewed as well.
No exemption after overstaying 183 days in the country
In Hungary, Ukrainian refugees are considered as tax residents when they stay longer than 183 days in the country and therefore they are obliged to pay taxes in Hungary. However, upon granted a refugee status, Ukrainian citizens do not need a work permit to work in Hungary and companies hiring them receive support from the Hungarian government.
Exemption after overstaying 183 days in the country
The Polish PIT Act prescribes the application of double taxation treaty provisions to determine the taxpayer’s tax residence. According to the Polish-Ukrainian Double Tax Treaty, if an individual is considered the tax resident of both countries, their status is first determined according to their permanent place of residence.
The permanent place of residence is where the person has a fixed and permanent home, which has been arranged and reserved for their use. If there is no such place, the place of residence where the taxpayer has a centre of vital interests is decisive. If it were impossible to establish the taxpayer’s centre of vital interests, the country of habitual residence should be defined and then the citizenship.
Each case must be analysed separately based on the double taxation treaty. For example, if the work is performed in Poland for a Ukrainian employer and the stay in Poland exceeded 183 days and the remuneration is not borne by a permanent establishment of the Ukrainian employer in Poland, the income should be taxed in Poland.
Due to the outbreak of the war in Ukraine, in April 2022, Poland introduced a retroactive provision to the PIT Act on tax residence in Poland for Ukrainian citizens. This provision allows the taxpayer who is a citizen of Ukraine to confirm the transfer of the centre of vital interests by submitting a statement to the employer or another payer, which means that from the first day of their arrival in Poland they will be considered a resident of Poland.
No exemption after overstaying 183 days in the country
In Romania, there have been no amendments to the rules, therefore Ukrainian refugees are obliged to pay taxes in Romania when the stay longer than 183 days in the country.
No exemption after overstaying 183 days in the country
According to the local Slovak legislation, if a person from Ukraine has a permanent residence in Slovakia or a real domicile in Slovakia, or habitual abode in Slovakia*, they are considered a tax resident of Slovakia. In case of conflicts between countries, when a person is considered tax resident also in other country according to the country’s local legislation, they shall proceed according to the tie-breaker rules defined in the international tax agreement between these two countries, if it was concluded. Such agreement between Slovakia and Ukraine is concluded (i.e., double tax treaty between Slovakia and Ukraine). Therefore, when considering whether such person is or is not a tax resident of Slovakia or Ukraine, such agreement shall be considered in case of the conflict (Article 4/2).
*A natural person has his habitual abode in Slovakia, if they are present in Slovakia for at least 183 days in the respective calendar year, continuously or in several periods (except individuals who stay there for the purposes of studying or receiving medical treatment); every day, including the first day of the stay, is included in the period.
The mentioned Article 4/2 of the agreement specifies the following tie-breaker rules: if the natural person is a resident of both Contracting States, the person’s status shall be determined as follows:
On June 23, 2022, the leaders of the European Union have formally accepted Ukraine as a candidate to join the EU. It is not clear yet how long will the joining take, but with the largest land mass in the EU and over 44 million population, Ukraine is prepared to work on the necessary reforms to become a member state.
“For Ukraine, it has been a long journey to receive the candidate status to the EU,” says Anna Magdich, the managing director of Accace Ukraine. “A lot of work needs to be done at both governmental and individual level by each Ukrainian citizen to meet the requirements and become an EU member, but there is no doubt it will be done. Granting this status is a great sign that Europe considers Ukraine as an equal and trusted partner for now and for the future.”
For more information about the latest legislation, support measures and adopted aid, visit our dedicated section in our Newsroom
How much does it really cost to employ someone? For an entrepreneur this is a really tough question, as there is a lot to be considered when you calculate the budget and things will get more complicated if you want to expand your business in more countries.
It is just about the salary? Of course not – you will need to think about cost related to employee recruitment, employee benefits, payrolls, taxes, insurance, retirement benefits, performance bonuses, specific perks considering the country culture and the industry and many more.
For example, did you know that in Bosnia and Herzegovina – Republic of Srpska there are no employer’s social security contributions? Also, in Romania there is a disability tax fund, payable by companies with at least 50 employees, if at least 4% of these employees are not people with disabilities (the fee is determined by the number of employees and the minimum wage provided by the legislation in force).
The list could go on, but let us better show you how statistics look. We were also curious about the True Cost of an Employee in our region and we made a comparison between 22 countries: Bosnia and Herzegovina (Federation of Bosnia and Herzegovina: BA-BIH and Republic of Srpska: BA-SRP), Bulgaria (BG), Croatia (HR), Cyprus (CY), Czech Republic (CZ), Estonia (EE), Greece (GR), Hungary (HU), Italy (IT), Montenegro (ME), North Macedonia (MK), Norway (NO), Poland (PL), Portugal (PT), Romania (RO), Slovenia (SI), Slovakia (SK), Serbia (SR), Spain (ES), Turkey (TR), Ukraine (UA) and the United Kingdom (GB).
Of course, for simplification purposes we calculated the costs (salary and other taxes) for the standard employment conditions. We started from the scenario where a company pays EUR 1000 NET salary to an employee (no meal tickets, no children, full time, excluding all the exceptional benefits) and analyzed how the social and health contributions, as well as income tax varies in all these countries.
You may find below what these amounts are in EUR, what other taxes and deductions are applicable in each country and what are the TOTAL costs in the given scenario.
(Total cost in EUR and equivalent percentage on top of the EUR 1000 NET)
FEDERATION OF BOSNIA AND HERZEGOVINA
BOSNIA AND HERZEGOVINA/REPUBLIC OF SRPSKA
BULGARIA
CROATIA
CYPRUS
CZECH REPUBLIC
ESTONIA*
GREECE
HUNGARY
ITALY**
MONTENEGRO
NORTH MACEDONIA
NORWAY
POLAND
PORTUGAL
ROMANIA
SLOVENIA
SLOVAKIA***
SERBIA
SPAIN****
TURKEY*****
UKRAINE
UNITED KINGDOM
* Estonia: Depends on tax free amount; ** Italy: Considering the NLCA for Trade and the 7th level; *** Slovakia: Employee does apply so-called tax-free allowance – in case the employee does NOT apply so-called tax-free allowance, the total cost will be: EUR 1927; **** Spain: The legal indemnity for contract termination from the employer is 33 days of salary per year of seniority (or 2.75 days of salary per month of seniority). In case of EUR 1000 NET salary, this represents EUR 107 per month to be accrued in case of severance. If the termination is caused by the voluntary resignation of the employee, the is no severance to pay; ***** Turkey: Monthly average
(for EUR 1000 NET salary)
FEDERATION OF BOSNIA AND HERZEGOVINA
Foreign trade chamber tax – 0.2% of gross salary/minimum EUR 10; Disability tax – 0.5% of gross salary; Environmental tax – 0.5% of net salary; Injury tax – 0.5% of net salary
BOSNIA AND HERZEGOVINA/REPUBLIC OF SRPSKA
Disability tax – 0.1% of gross salary; Solidarity tax – 0.25% of net salary (deducted from net salary)
BULGARIA
CROATIA
Surtax: depends on employee residence (from 0% to 18% on tax, e.g. for Zagreb it is 18%)
CYPRUS
No tax applies for Net Income < EUR 19,500
CZECH REPUBLIC
After application of personal tax relief
ESTONIA
Unemployment insurance (1,6%) EUR 20.75; Funded pension (2%) < EUR 25.93 (depends on employee funded pension)
GREECE
Other taxes: solidarity contribution, which is paused for two years
HUNGARY
ITALY
Taxes due are fully covered by the deductions as per Italian regulations; tax brackets apply as follows: 23% up to EUR 15,000, 25% from over EUR 15,000 up to EUR 28,000, 35% from over 28,000 euro up to EUR 50,000, 43% over EUR 50,000.
As for other taxes, additional regional and municipal taxes apply, based on the place of residence of the individual. However, during the first year regional and municipal taxes are not due.
MONTENEGRO
Surtax company: 15% of tax (percentage depends on municipality); Syndicate: 0.2% of gross salary; Work fond: 0.2% of gross salary; Chamber of commerce: 0.27% of gross salary
NORTH MACEDONIA
NORWAY
POLAND
As for other taxes, the amount is including deductions: old-age pension insurance, pension insurance, sickness insurance
PORTUGAL
ROMANIA
SLOVENIA
SLOVAKIA
SERBIA
SPAIN
N/A
Other taxes are deducted by the employer.
TURKEY
*Monthly average
UKRAINE
Military tax: 1.5% from the gross salary
UNITED KINGDOM
N/A
(for EUR 1000 NET salary)
FEDERATION OF BOSNIA AND HERZEGOVINA
BOSNIA AND HERZEGOVINA/REPUBLIC OF SRPSKA
No contributions paid by the company
BULGARIA
CROATIA
CYPRUS
CZECH REPUBLIC
ESTONIA
Social tax (33%) < EUR 427.90; Unemployment Insurance (0,8%) < EUR 10.37; Funded Pension (2%) < EUR 25.93
GREECE
HUNGARY
ITALY
Company contributions: EUR 316.46 + EUR 10 for EST Fund + EUR 7.42 (INAIL monthly cost)
MONTENEGRO
NORTH MACEDONIA
No contributions paid by employees
NORWAY
POLAND
Employee contribution consists of EUR 191 (the total amount of old-age pension insurance, pension insurance, sickness insurance) + EUR 108 (the amount of health insurance (9% of the calculation basis for health insurance)
PORTUGAL
ROMANIA
The tax due by the company is the Labor Tax
SLOVENIA
SLOVAKIA
SERBIA
SPAIN
TURKEY
*Monthly average
UKRAINE
No contributions paid by employees
UNITED KINGDOM
(for EUR 1000 NET salary)
Additional deductions apply only to certain countries:
To help you calculate the net income of your employees, our experts have prepared payroll calculators for the Czech Republic, Hungary, Poland, Romania and Slovakia. Get a quick indicative reference of your employees’ gross and net earnings in 2022.
On 11 May 2022, the European Commission issued a Proposal on DEBRA, a Directive on laying down rules on a debt-equity bias reduction allowance and on limiting the deductibility of interest for corporate income tax purposes (DEBRA) (COM/2022/216 final). This proposal follows up the Communication on Business Taxation for the 21st century (COM(2021) 251 final), which was adopted by the European Commission on 18 May 2021 and which we informed you about in our Flash News here.
Tax systems in the EU allow for the deduction of interest payments on debt when calculating the tax base for corporate income tax purposes, while costs related to equity financing, such as dividends, are mostly non-tax deductible. This asymmetry in tax treatment is one of the factors favouring the use of debt over equity for financing investments.
With a view to addressing the tax-induced debt-equity bias across the single market in a coordinated way, this directive proposal on DEBRA lays down rules to provide, under certain conditions, for the deductibility for tax purposes of notional interest on increases in equity and to limit the tax deductibility of exceeding borrowing costs. These rules should apply to all taxpayers that are subject to corporate tax in one or more Member State, except for financial undertakings. Since small and medium enterprises (SMEs) usually face a higher burden to obtain financing, it is proposed to grant a higher notional interest rate to SMEs.In the light of the different objectives between this proposal on DEBRA and the ATAD rule on interest limitation, the two rules on limiting the deductibility of interest should apply in parallel.
If this proposal on DEBRA is adopted as a Directive, it should be transposed into Member States’ national law by 31 December 2023 and come into effect as of 1 January 2024.
Below we summarize in brief the key information on two measures covered by the proposal.
Under the proposal on DEBRA, the allowance on equity is computed by multiplying the allowance base with the relevant notional interest rate (NIR).
The allowance base is calculated as the difference between the level of net equity at the end of the tax period and the level of net equity at the end of the previous tax period. The relevant NIR is based on two components: the risk-free interest rate and a risk premium.
The risk-free interest rate is the risk-free interest rate with a maturity of ten years, as laid down in the implementing acts to Article 77e(2) of Directive 2009/138/EC, in which the allowance is claimed, for the currency of the taxpayer. Risk Premium is set at 1% (or 1.5% for SMEs).
An allowance on equity is deductible, for 10 consecutive tax periods, from the taxable base of a taxpayer for corporate income tax purposes up to 30% of the taxpayer’s EBITDA. If the deductible allowance on equity is higher than the taxpayer’s net taxable income, the taxpayer may carry forward the excess of the allowance on equity without a time limitation. Taxpayers will also be able to carry forward their unused allowance on equity which exceeds the 30% of taxable income for a maximum period of 5 tax years.
The base of the allowance on equity does not include the amount of any increase which is the result of:
However, this is not applicable if the taxpayer provides sufficient evidence that the relevant transaction has been carried out for valid commercial reasons and does not lead to a double deduction of the defined allowance on equity.
Other measures set specific conditions for equity increase from contributions in kind and target the re-categorisation of old capital as a new capital.
The proposal on DEBRA also introduces a reduction of debt interest deductibility by 15%, to better mitigate the debt-equity bias. In particular, a proportional restriction will limit the deductibility of interest to 85% of exceeding borrowing costs (i.e. interest paid minus interest received).
Given that interest limitation rules already apply in the EU under Article 4 of the ATAD, the taxpayer will apply the rule of Article 6 of this proposal as a first step and then, calculate the limitation applicable in accordance with article 4 of ATAD. If the result of applying the ATAD rule is a lower deductible amount, the taxpayer will be entitled to carry forward or back the difference in accordance with Article 4 of ATAD.
By way of example, if company A has exceeding borrowing costs of 100, it should:
In the field of accounting, there are two financial reporting standards – International Financial Reporting Standards (IFRS) and US Generally Accepted Accounting Principles (US GAAP).
Convergence between IFRS and US GAAP is one of the bigger issues in the global implementation of IFRS. At present, all US entities have to file accounts prepared under local US GAAP except for the overseas issuer of securities, they have option of using IFRS from 2010.
IFRS is the most commonly used system in the world, and this method of accounting for publicly traded companies is used by more than 100 countries.
FASB and IASB continues work collaboratively in adoption of new standards. But do you know the difference between them? We have compiled a clear table of basic differences between IFRS and US GAAP for you, which will help you with that.
| IFRS | US GAAP | |
| Comparative information | Statement of financial position is required for the previous period for all amounts reported in the financial statements | Statement of financial position requires comparatives for 2 most recent years |
| Value in use | Discounted cash flow | Undiscounted cash flow |
| Cash flow statements | Bank overdrafts are included in cash and cash equivalents | Bank overdrafts are treated as part of financing |
| Extraordinary items | For IFRS they are prohibited | For US GAAP they are not used anymore |
| Revaluation | May be applied | Prohibited |
| Development costs | Capitalisation as assets | Costs in period when occurred |
| Component depreciation | Required if components having different patterns of benefit | Permitted but not common |
| Borrowing costs – interests | Can include more components | Exchange rates are excluded |
At Accace, we focus mainly on accounting according to IFRS, and we also covered the topic in our latest IFRS News Flash. However, it can be challenging to become familiar with this topic, so our experts in International Financial Reporting Standards are ready to give you an advice.
International Financial Reporting Standards, or IFRS, are a set of accounting standards that provides guidance on how companies should prepare and disclose their financial statements. The aim of the IFRS is to create a common accounting language so that companies’ accounts are consistent, comparable and understandable across more countries. However, keeping control of all obligations across multiple countries can be quite a challenge for international business. When does a company become qualified for IFRS reporting? What affects the IFRS obligations? Hereby we summarize whether you are required to file the individual or consolidated financial statements according to IFRS.
Financial statements in accordance with IFRS must be prepared by:
Financial statements in accordance with IFRS may also be prepared by:
It can be difficult to navigate through extensive IFRS guidelines and follow their frequent updates to correctly apply them. Our in-country experts offer both the best-practice compliance and complex IFRS advisory while also dedicated consultancy on various aspects of IFRS – addressing the specific needs of your organization.
The European Union has approved a new set of sanctions against Russia in response to their aggression in Ukraine. The sanctions are designed to deter the invasion of Ukraine by increasing economic pressure on the Kremlin. The measures were taken in agreement with international partners, especially with the United States.
On 25 February 2022, Regulation (EU) 2022/328 was adopted, amending Council Regulation (EU) No 833/2014 concerning restrictive measures in view of Russia’s actions to destabilize the situation in Ukraine.
On 15 March 2022, the European Union adopts the fourth package of sanctions against Russia prohibiting:
The EU Council extended the list of people linked to Russia’s industrial and defence base and introduced trade restrictions on iron and steel and luxury goods as well as sanctions on several persons and entities.
The EU thus expresses its solidarity with the Ukrainian people and proposes, along with its international partners and continues to offer political, financial and humanitarian support.
More details on all the restrictions implemented by the European Union, as well as the chronology of the measures taken, can be found here.
About Accace
Accace is a proactive consultancy and outsourcing partner who bridges the gap between needs and solutions. Combining smart and streamlined technology with a holistic approach, we provide an all-round care to clients and consider their matters as our own. With over 800 experts and approximately 2,000 customers, we have vast experience with facilitating the smooth operation and growth of small to large-scale, global businesses.
About Accace Circle
Accace operates internationally as Accace Circle, a co-created business community of like-minded BPO providers and advisors who deliver outstanding services with elevated customer experience and erase the borders of service delivery. Covering over 60 jurisdictions with more than 7,000 professionals, we support over 80,000 customers, mostly mid-size and international Fortune 500 companies from various sectors, and process at least 800,000 pay slips globally.
