At today’s plenary sitting, the Riigikogu heard the Government’s report on Estonia’s participation in the European Stability Mechanism (ESM). The Minister of Finance Martin Helme, who made the report, highlighted that no new payments were being made from the ESM, and the ESM reform was reaching its final stage.
Helme said that the active stage of all ESM assistance programmes was over, that is, for the first time since the establishment of the ESM, new loan payments were no longer being made. The minister added that a total of three countries had been supported with ESM assistance programmes: Greece, Spain and Cyprus. Helme confirmed that, when the active stage of the programme ended, supervision continued, in order that the countries could repay the funds borrowed from the ESM. “So far we have no signals that any of the abovementioned countries might have difficulties with payments,” the minister said.
As another issue, Helme pointed out the planned ESM reform which was reaching its final stage after the recent years’ discussions. “The essence of the reform is that the mandate of the ESM will be broadened. If up to now the ESM supported only Member States who had got into difficulties, in the future the intention is that the ESM would also be the anchor for the euro area in the reorganisation of systemically important financial institutions,” the minister explained. In addition, in his words, the ESM will have a greater role and say in the preparation of assistance programmes supported from ESM funds.
The Minister of Finance also noted that, at present, the ESM has 410 billion euro worth of reserves, that is, 82% of its lending capacity that could be used in crisis resolution if necessary. In Helme’s words, Estonia’s participation in the ESM has remained unchanged since the establishment of the ESM. Helme said that the paid-in capital amounted to 148.8 million, and the capital callable on demand amounted to 1.15 billion euro.
A Bill passed the first reading
The Bill on Amendments to the Income Tax Act and Amendments to Other Associated Acts (106 SE), initiated by the Government, will solve several mismatches that have arisen in taxation. In particular, the amendments concern maternity benefit and redundancy payment, benefits for families with many children, and the increased basic exemption starting from the third child. The Bill will also resolve the mismatches in taxation involving third countries.
The persons who receive maternity benefit or redundancy payment in the fourth quarter will have the option of postponing part of their benefit to the following year for taxation purposes, so that they can use their basic exemption at the current level. When the benefit is partially transferred to the following year, the situation achieved in terms of taxation is similar to the situation where the maternity benefit or redundancy payment is paid monthly. The supports to improve the living conditions of a family with many children and to increase the energy efficiency of a small residential building paid from the state budget will be exempt from income tax. According to the Bill, the increased basic exemption for a child will not decrease when the child receives survivor’s pension or national pension in the event of loss of a provider. The increased basic exemption for a child will increase by 100 euro per month starting from the third child.
The Bill will also transpose the European Union directive on mismatches in taxation involving third countries. The aim is to avoid double taxation resulting from differences in the characterisation of financial instruments, payments and entities in different jurisdictions, or from the allocation of payments between the head office and permanent establishment or between two or more permanent establishments of the same entity. Since such mismatches in taxation could lead to a double deduction or to a deduction without inclusion, the Bill provides for provisions under which, depending on the situation, tax is charged on payment, expenses or losses that can be deducted in another country or that are exempt from income tax in another country, or alternatively it is not allowed to apply income tax exemption on income that has been deducted or is exempt from income tax in another country.
In light of the objective of the directive to avoid double taxation and to ensure taxation of profit of companies, in the future, dividends received from abroad will be exempt from income tax in Estonia only in the case when income tax on the dividend has been withheld or income tax has been paid on the share of profit which is the basis therefor. In addition, it will be ensured that, if a resident natural person receives income, including pension, from abroad, deductions from taxable income will be equivalent to deductions from income received in Estonia. The same will be provided for for residents of the Contracting States of the European Economic Area who receive income in Estonia. At present, deductions from income taxable in Estonia are restricted in proportion to the share of the income taxable in Estonia in the total taxable income received in the period of taxation. As a result of an amendment, it will be possible to make all deductions to the full extent regardless of how large an amount of the income is earned in Estonia.
The deadline for submitting income tax returns will be extended to 30 April and the deadline for the payment and refund of income tax will be extended to 1 October for natural persons, non-residents, management companies of common investment funds, and public limited funds. Also, the limit for making advance payments will be increased from 64 euro to 300 for sole proprietors.
Video recordings of the sittings of the Riigikogu can be viewed at https://www.youtube.com/riigikogu
(The recording will be uploaded with a delay.)
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