THE LAW ON SPECIAL MODALITIES FOR TAX DEBT SERVICING 1

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1 THE LAW ON SPECIAL MODALITIES FOR TAX DEBT SERVICING 1 Article 1 This Law shall govern special modalities and procedure for tax debt servicing. Article 2 This Law aims to alleviate the financial position of companies affected by economic crisis, to maintain current solvency, and stimulate employment. Article 3 The tax debt servicing procedure prescribed under this Law shall be respectively subject to provisions of the laws governing tax procedure and general administrative procedure. Article 4 (1) The terms used herein shall have the following meaning: a) tax debt constitutes taxpayer s debt pertaining to taxes and surtaxes due for payment accordingly to deadlines prescribed under this Law, b) tax constitutes any payment obligation, the taxpayer is obliged to pay to the Budget of Republic of Srpska, to budgets of cities, municipalities, and funds, which is deemed irrecoverable, and shall include taxes, social contributions, fees, and charges, c) surtax constitutes any form of payment to the Budget of Republic of Srpska, municipality, city, and funds ensuing from obligation to pay tax, including tax related interest, and costs of procedure, d) share in ownership constitutes stocks, i.e. member s share in a company. (2) Other terms used in this Law shall have the same meaning as that in the Law on Tax Procedure of Republic of Srpska. Article 5 In pursuance of this Law, tax debt can be serviced as follows: a) byway of one-off deferral of payment of tax debt, for a period of up to one year, or for the period of up to 60 months maximum, applying equal monthly installments, b) byway of conversion of tax debt into share in ownership in a company, and c) byway of payment of the entire amount of principal debt, with interest write-off. 1 Published in the Official Gazette of Republic of Srpska no 66, dated 06 August 2013

2 Article 6 (1) Deferral of payment of tax debt referred to in Article 5, Item a) of this Law can be approved to tax debtor whose debt has been established byway of tax declaration or tax decision document, given the following terms have been met: a) that tax debt was due for payment no later than in the year preceding the year in which deferral request is being filed in line with Article 7 of this Law, b) that tax debt is secured, and c) that individual and due obligations pertaining to retirement and disability insurance have been serviced for employees who shall become eligible to enjoy specific rights arising from retirement and disability insurance during the deferral period. (2) One of the following means shall be used to secure tax debt: a) mortgage to the taxpayer s real-estate or mortgage of a third party, b) lien on movable assets of a taxpayer or the lien of a third party, c) irrevocable bank guarantee payable upon first call, and d) vouch of another party, owner of property used as security for tax debt. (3) Security referred to in Paragraph 2 of this Article shall be, at least, of the same value as the total tax debt, which, in addition to principal debt, includes the interest incurred. Article 7 (1) Payment deferral procedure shall be initiated byway of a payment deferral motion submitted to the Ministry of Finance (hereinafter: the Ministry), no later than 30 days as of the day of delivery of the final decision document for payment of tax liabilities to the taxpayer in reference to liabilities established under Tax Administration s decisions document. (2) Along with the motion referred to in Paragraph 1 of this Article, the taxpayers shall supply the following: a) a decision document establishing tax liabilities, or tax declarations recorded by Tax Administration of Republic of Srpska (hereinafter: the Tax Administration), if the motion filed is pertaining to tax debt established under tax declarations, b) proof of security provided as referred to in Article 6, Paragraph 2 of this Law, c) statement confirming the terms referred to in Article 6, Paragraph 1, Item d of this Law have been met, and d) a photo-copy of financial statements for the last completed business year. (3) Minister of Finance (hereinafter: the Minister), shall prescribe the form of the tax debt payment deferral motion. Article 8 (1) The Minister shall issue a decision document in regards to tax debt payment deferral motion. (2) The summary administrative procedure shall apply to the motion referred to in Paragraph 1 of this Article, and it shall not exceed 30 days following the day of receipt of a proper motion.

3 (3) The decision document referred to in Paragraph 1 of this Article, in addition to mandatory elements prescribed under the law governing administrative procedure, shall also contain the payment schedule including interest calculated up until the final date of payment of the respective tax debt. (4) The Ministry shall calculate the interest to the total amount of tax debt subject to a decision document referred to in Paragraph 1 of this Article, in pursuance of the law governing tax procedure. (5) The decision document referred to in Paragraph 1 of this Article shall be regarded as definitive in an administrative procedure without right to appeal. Respectively, an administrative dispute can be initiated before the competent court. (6) The Ministry shall deliver the decision document referred to in Paragraph 1 of this Article to Tax Administration no later than five days following the date of its issue, for the purpose of record keeping and monitoring of performance of obligation rendered under the decision document. (7) Notwithstanding the provisions of Paragraph 1 of this Article, the Tax Administration Director shall decide upon deferral motion for tax debt not exceeding BAM, in view of conditions and methods prescribed under this Law. (8) Tax Administration shall calculate interest to the total amount of tax debt subject to a decision document referred to in Paragraph 7 of this Article, in pursuance of the law governing tax procedure. (9) An appeal can be filed to the Ministry against Tax Administration Director s decision document referred to in Paragraph 7 of this Article, within 15 days following the day of delivery of the decision document to the tax debtor. Article 9 (1) Tax Administration shall monitor the enforcement of the decision document on approval of deferral and shall inform the Ministry immediately if it establishes that the taxpayer is not adhering to the conditions and deadlines set out in the decision document. (2) If taxpayer fails to adhere to conditions and deadlines referred to in the decision document on deferred payment of tax debt, the Minister, i.e. the Director of Tax Administration shall repeal the respective decision document ex officio, after receiving the information referred to in Paragraph 1 of this Article. (3) In cases referred to in Paragraph 2 of this Article, the Tax Administration shall, bearing in mind the efficiency of collection, collect the unpaid tax debt byway of: a) means of security, or b) enforced collection procedure. (4) Taxpayer for whom the decision document has been repealed as set out in Paragraph 2 of this Article, shall not be entitled to payment deferral for the same tax debt.

4 Article 10 Statue of limitation for tax liabilities shall stay during the tax debt payment deferral period. Article 11 (1) All tax debtors established as companies and fulfilling the terms prescribed under this Law and the law governing the establishment and operations of companies shall be entitled to service their tax debt in line with Article 5, Item b) of this Law, namely through conversion of tax debt into share in ownership. (2) Tax debt which was due no later than 31 December 2012 can be serviced in line with Paragraph 1 of this Article. Article 12 (1) The procedure for servicing of tax debt byway of conversion into share in ownership shall be initiated through a motion for initiation of procedure of conversion of debt into share in ownership. The motion stating the basic information about the debtor shall be submitted to a ministry competent for the filed pertinent to the line of business of tax debtor. (2) Along with the motion referred to in Paragraph 1 of this Article, the taxpayers shall supply the following: a) a Decision of the tax debtor s competent body on intention of converting tax debt into share in ownership, b) competent court s Decision on registration of tax debtor, c) proof of ownership structure, respectively the structure of the tax debtor s capital, d) a photo-copy of the set of financial statements of the tax debtor for the last completed business year along with notes to financial statements, e) a photo-copy of the audit reports to financial statements for the last completed business year in case the tax debtor is subject to audit in line with regulations, and f) Tax Administration s Certificate of debt of the tax debtor. (3) Following initiation of procedure referred to in Paragraph 1 of this Article, Tax Administration shall issue an interim measure of interdiction over property of the tax debtor, only after receiving the information from the competent ministry on initiation of the procedure for conversion of tax debt into share in ownership. Article 13 (1) The Government of Republic of Srpska (hereinafter: the Government), shall issue the Decision on approval of conversion of tax debt into share in ownership following a proposal of the ministry competent for the filed pertinent to the line of business of the tax debtor subject to the procedure of conversion of tax debt into share in company s ownership. (2) The Government, at the proposal of the competent ministry, shall deny the proposal to initiate the procedure for conversion of debt into share in ownership in case it finds the procedure unsupportive of the aim referred to in Article 2 of this Law, and primarily if: a) the founder, i.e. responsible person with the tax debtor had been convicted of crime or is subject to criminal proceedings due to evasion of taxes and contributions, and

5 b) it establishes that tax debtor or its related person disposes with assets sufficient to service the tax debt without threat to its solvency and payment of employee wages. (3) The law governing tax procedure shall serve as basis to establish the relation of the tax debtor with another person. (4) Following the Decision referred to in Paragraph 1 of this Article, the managerial structures of the tax debtor shall organize the shareholders, i.e. members assembly to issue a decision on capital increase through conversion of tax debt into share in ownership, in line with regulations governing this field. Article 14 (1) Based on tax debtor s motion, and following a Decision referred to in Article 13, Paragraph 1 of this Law, the Minister shall issue a decision document on servicing of debt through conversion of tax debt into share in ownership in the tax debtor (company), with precisely determined amount of converted tax debt, the share of the Republic in the capital based on conversion, i.e. the share of extra-budgetary funds ad local communities in the capital. (2) Along with the motion for servicing of tax debt through conversion into share in ownership referred to in Paragraph 1 of this Article, the tax debtor shall supply the Decision on recapitalization. (3) The Ministry shall deliver the decision document on servicing of debt through conversion into share in ownership to the tax debtor who will forward it to the competent court of registration along with other documentation required for registration of increase of the basic capital accordingly to regulation governing registration of companies. (4) Tax debtor shall also submit the decision document referred to in Paragraph 1 of this Article to the Central Registry of Securities (hereinafter: the Central Registry), for the purpose of registration of ownership over shares in line with regulation governing the securities market. The Central Register shall issue a certificate respectively. (5) The registration decision document and the Central Registry certificate shall be submitted to the Ministry by the tax debtor, no later than five days following the take over of these documents from the competent body. Article 15 The book value (price to book ratio), shall apply to conversion of tax debt into share in ownership using the data from the financial statement of the tax debtor for the last completed business year. Article 16 The Ministry, on behalf of the Government, shall be the creditor for the entire tax debt in the procedure of conversion of tax debt into share in ownership.

6 Article 17 Beneficiary of public revenue in converted tax debt shall be established in line with regulation governing the budget system of Republic of Srpska. Article 18 (1) Stocks, i.e. member s share acquired by Republic of Srpska in the procedure for servicing of tax debt through conversion shall become part of the portfolio of the joint stock company Share Fund of the Republic of Srpska Banja Luka, accordingly to debt arising from taxes pertaining to the Budget of Republic of Srpska. (2) Stocks, i.e. member s share acquired by extra-budgetary funds and local self-governance units, based on their outstanding receivables, shall belong to them. Article 19 (1) Changes to tax records shall be made based on decision document referred to in Article 14, Paragraph 1 of this Law, which the Ministry shall forward to Tax Administration, along with the Central Registry certificate. (2) After changes have been made to tax records, Tax Administration shall issue a certificate on end balance of liabilities after the tax debt servicing, and shall forward it to the tax debtor. Article 20 Conversion of tax debt into share in ownership in shareholding companies shall be made only in case where shareholders assembly issues a decision on acquisition of voting shares without obligation to publish the takeover bid accordingly to regulation governing the takeover of shareholding companies. Article 21 (1) Servicing of tax debt in line with Article 5, Item c) of this Law byway of payment of the principal tax debt with interest write-off shall be available to all tax debtors in case that by 30 June 2014 they will have paid the entire principal tax debt which was due for payment no later than 30 June (2) In case of servicing of tax debt along the lines of Paragraph 1 of this Article, the entire amount of interest calculated to debt shall be written-off. (3) Tax debtors who fail to service the entire principal debt by deadline referred to in Paragraph 1 of this Article, shall not be entitled to interest write-off referred to in Paragraph 2 of this Article. Article 22 (1) The procedure pertaining to rights referred to in Article 21, Paragraph 2 of this Law shall be initiated through tax debtor s motion.

7 (2) Tax Administration shall be deciding on the motion referred to in Paragraph 1 of this Article in line with the laws governing tax and general administrative procedure. (3) Following a decision document confirming the fulfillment of conditions referred to in Article 21 of this Law and approving the interest write-off, Tax Administration shall without delay make appropriate entries in tax accounting and in tax card of the respective tax debtor. Article 23 The Ministry and Tax Administration shall supervise the application of provisions of this Law. Article 24 This Law shall enter into force eight days following its publication in the Official Gazette of Republic of Srpska No: /13 CHAIRMAN 18 July 2013 OF THE NATIONAL ASSEMBLY Banja Luka MSc Igor Radojičić s.r.