Even a cursory look at the latest list of tax debtors issued by the Tax Administration reveals that it mostly contains the same names as the previous annual lists — figures from the sports, entertainment, media and hospitality industries, and attorneys. Only the sums change. The debts are getting bigger. Thus, the question is, what steps are taken by the Tax Administration against biggest and most chronic debtors? Many of them, if not all, are actually just waiting for the six-year term of the statute of limitations to pass and their debt burden to expire.
The Tax Administration tells us it took 219,147 actions towards collecting the tax debt between the end of October 2017 and the end of last October. It also said that 157,705 of those acts were warnings. If a tax debtor fails to pay after being warned, the Tax Administration initiates the distraint procedure, choosing the method it thinks will be the shortest and least costly.
Distraint and seizing of assets
In the period mentioned, the Tax Administration issued 53,562 distraint orders for funds on bank accounts, 6.000 repossessions of movable assets and securities, and initiated 1.253 foreclosures over property. The final item on the list of measures against tax debtors is 556 foreclosures over debtors' claims against their creditors.
As we have learn from businessmen with experience in tax procedures, who wanted to remain unnamed due to ongoing litigation with the Tax Administration, the "processing" of a debtor begins with the summons to the Tax Administration, where they are informed of the procedure and the legal avenues available if they wish to avoid distraint and repossession.
— As far as I know, repayment in installments is generally granted because the state gains nothing by immediately seizing, for example, production machinery, facilities, computers etc. of the debtor — says one of the businessmen we have talked to. — In that case, the insurance instrument the Tax Administration demands is a promisory note, or a bank guarantee if the debt is big.
Enforced collection of tax debt most often starts with distraint over the a vista and time deposits in banks. This raises the question of how the Tax Administration enforces the payment by debtors who have meanwhile stashed their money somewhere out of reach.
— If the tax debt is not covered by funds seized on bank accounts, or the debtor does not have open accounts — explains the Tax Administration — the debtor is asked to submit information on his other property. At the same time, data on the debtor's assets is collected from official records of other public bodies that may have it. When deciding on how to continue the enforcement over debtors who do not have funds on bank accounts, care is taken that only the distraint actions proportionate to the size of the tax debt are used.
— The distraint procedure is carried out to the extent necessary to settle the tax debt from debtor's total assets: receivables, vehicles, vessels, real property etc. — says our contact at the Tax Administration, pointing out that the tax debtor's situation is constantly monitored so that the appropriate measures at disposal for collection can be employed.
Grace for crisis victims
Tax debtors can also make use of the beneficial provisions of the special Tax Debt Caused by Economic Crisis Act of 2013, adopted at the time of the Social Democrat-led government of Prime Minister Zoran Milanović. The law offers certain benefits such as a partial debt and interest write-off, and rescheduling of the principal. Within those provisions, the Tax Administration may make a specific agreement on debt repayment with a debtor. As the Administration explains — it allows the repayment of the overdue tax fully or partially in the maximum of 24 monthly installments with the associated default interest on the rescheduled principal.
The receptive approach towards tax debt should not only be seen in the light of social sensitivity but also as a recognition of the fact that the state — not only the central government, but also the municipalities, cities and counties — is also tardy in fulfilling its obligations towards businesses. It is part of the reason why it agrees to extend the distraint deadline when it comes to tax debt, as in the case of the biggest debtor in the Istrian County, attorney Asja Piplović, who owes HRK 8.8 million in overdue tax.
Different approaches
— The Tax Administration blocked all my assets over the 2006 tax debt — says Piplović. — I asked for a postponement of distraint, citing a lawsuit in which I lay claim to HRK 15 million in compensation from the state. It was granted, with the stipulation that the distraint order be suspended until the court issues the ruling in my lawsuit.
Her tax debt, as she explained, is based on the revenue billed to the City of Poreč but not yet paid by the city. The billing was for the work done on registration of some 8 million square meters of city-owned land in the area.
— The then city administration in Poreč refused to pay the invoiced sum of HRK 3.5 million — says Piplović — even though the work on land registration took two and a half years and required me to employ five additional people at the office. In the meantime, a legal investigation was launched against me in 2007, in connection with the so-called Maestro scandal, which ended in a legally effective acquittal. I have sued the state for HRK 15 million in compensation for being held in detention for 15 months under false charges, and consequently suffering enormous person and professional damage. [The 2007-2008 Maestro scandal involved a number of high-profile people, including officials of the State Privatization Fund, under charges of major corruption.]
Piplović's lawyer says he is currently awaiting a court ruling on his case.
Given that the "tax list of shame" only gives the name of the debtor and the amount, omitting details such as possible stay of distraint, agreement on payment in installments or some other type of rescheduling, the actual treatment of the debtor by the Tax Administration must be determined case by case before any judgment is made.
The overall indicators given by the Tax Administration show that 4.767 debtors on the 2017 list have paid HRK 564 million in debt in the meantime. The entire debt was paid by 2.882 debtors, who were dropped from the list for 2018, while 1.885 paid it partially — to the extent sufficient to be let off the "list of shame". The Administration manages to reduce the annual tax debt by forced collection and write-offs by about HRK 2 billion. When the first list of tax debtors was published in 2012, individuals and companies owed the state about 50 billion.