An interesting trend can be noticed recently as the Serbian Tax Administration and Tax Police have raised their level of activity in conducting routine tax inspections in companies across the country. This is not to say that such activities can be labelled as unconventional on its own – seeing as how they present one of the fundamental aspects of the Administration's scope of work – but the ways in which they have been undertaken and their consequences do perhaps give some cause for concern.

More clearly put, routine tax controls increasingly end in criminal investigations against the members of management in controlled companies. Over the last couple of months we have seen a number of directors being questioned by the Tax Police over alleged tax fraud. The inspectors of Tax Administration appear to have developed a practice to forward routine tax cases in which company's opinion over whether tax should be paid or not differs from that of the inspector. In these cases, the Tax Police should investigate whether the case has elements of criminal offence. However, the Police, without conducting any real analysis, simply charges the highest officials of the company (who often have no direct control over the administration of company's taxes) and forwards the case to the Public Prosecutor. The result is that CFO's and CEO's of some of the best companies in Serbia now have the status of a suspect for tax fraud. Our tax team at Karanović & Nikolić, acted as defenders in a number of these cases and witnessed first-hand the absurdity of these investigations.

The consequence of this strange new practice of the Serbian Tax Police have been the raised stress levels among company executives, causing their concern over bringing normal day-to-day decisions in fear that any such decision may expose them to criminal prosecution. Furthermore, these activities began to impede the overall process of doing business, as the newfound confusion has caused companies to start paying the kinds of taxes they otherwise would not have been legally obliged to do, as means of prevention from being prosecuted.

Finally, the atmosphere that has derived from these happenings has made it harder for us to properly advise our clients – some of which are among the biggest companies in Serbia – as both of their executives' personal concerns and professional integrity have been stirred by these inspections, all without any specific legal grounding to speak off. We hope that this trend will come to an end in the near future, especially having in mind Serbia's position of a genuine investment hot-spot in recent years and the many multinational companies that have found their footing here. Efforts should be made to not jeopardise this process through aggressive and ungrounded criminal investigations.

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