On 23 November 2016, the Serbian Parliament adopted amendments to the Criminal Code. Changes made include, among other, criminal offence of tax avoidance. Prosecution of tax avoidance was a matter of much controversy in the recent practice, and some of the changes made by the latest amendments are aimed to address these controversies. Though generally welcome, the scope of changes made are unlikely to bring significant improvements in the prosecution of tax avoidance.
The first, long awaited change is the increase of the threshold for criminal prosecution of tax avoidance. For more than a decade this threshold was set at only RSD 150,000 (less than EUR 1,500). Such a low threshold allowed criminal investigations of minor cases of failure to pay tax, which were often the result of a mere mistake, rather than an actual intent to avoid tax. At the same time, the low threshold exhausted the resources of both the Tax Police and the Office of the Public Prosecutor who have a legal obligation to investigate all cases which may fall under legal definition of tax avoidance however small, instead of concentrating on high-profile cases of tax avoidance.
After much debate and lobbying, the threshold for criminal prosecution of tax evasion was increased by the latest amendments, but only symbolically: from RSD 150,000 to RSD 500,000 (app. EUR 4,000). Such a low threshold may be a part of Government's strategy to combat grey economies with more rigorous sanctions in 2017. Nevertheless, this is not very likely to contribute to neither the efficiency nor to the fairness in the prosecution of tax evasion.
The thresholds for the two qualified forms of tax avoidance are not changed and remain at the same level (at RSD 1,500.000 and RSD 7,500.000).
Another important change is that tax avoidance now also includes avoidance to pay tax on illegally earned income. Before the latest amendments tax avoidance could have been committed (and prosecuted) only with respect to legally earned income. Cases in which a person avoided to pay tax on illegal income were outside the scope of the legal definition of tax avoidance. The result was that the most blatant cases of tax avoidance could not have been prosecuted (such as for avoidance to pay tax and social contributions on salaries paid to illegal workers and similar). The removal of reference to "legal income" from the legal definition of tax avoidance is a welcome change which should result in a better and fairer prosecution of tax avoidance.
Finally, the legal definition of tax avoidance now includes a clear rule whereby this criminal offence may be committed both in cases in which the offender avoids his/her own taxes, as well as in cases in which the offender's intent was aimed at the avoidance of someone else's taxes.
The sanctions for tax avoidance for the most part remain the same: a fine and imprisonment of six months to five years. Sanctions for the most severe cases of tax avoidance have been slightly increased to a minimum of three years of imprisonment (instead of the previous two). The maximal sentence remains the same – ten years of imprisonment.
The amendments to the Criminal Code enter into force on 1 June 2017 whereas the provisions on tax avoidance shall enter into force on 1 March of 2018.