Caretaker Finance Minister Zdravko Maric said on Saturday that a letter about the conversion of Swiss franc loans which Italy's UniCredit had sent the Foreign Ministry was the announcement of a lawsuit, and that the European Commission had extended until September 30 the deadline by which Croatia should reply to it about the conversion.

UniCredit owns Zagrebacka Banka, one of eight banks in Croatia which offered loans denominated in Swiss francs.

"We had a meeting with the prime minister" about a possible lawsuit at an international court, Maric told reporters. "If arbitration and an international dispute are launched, the first intention is to protect national interests and taxpayers."

He said it was still possible to find a compromise solution that would satisfy all parties and avoid international legal proceedings. "The letter says that they are launching the process. It's an announcement of a lawsuit."

As for the deadline by which Croatia should respond to a letter which the European Commission sent in June about the conversion, specifically the fact that the bulk of its cost was shifted onto banks, Maric said the Commission extended the deadline until September 30. "Our reply must pass through the coordinating body for foreign affairs, which will happen next week. By September 30 we will reply to the letter we received from the EU because of the announcement of a lawsuit by one of the eight banks."

Speaking of a tax reform, he said the idea had always been to make a comprehensive analysis of the tax system which would provide guidelines and suggestions. He said "some steps and activities were delayed" because of the government's fall, "but all the effort that has been made won't remain a dead letter, it's expected to take hold."

The idea is to create a stable tax framework that will be attractive to businessmen, citizens and investors, Maric said. "It should be simple."

He said tax breaks for kept family members and children had never been in question.

Maric said the idea was also to reduce the tax burden. "The HDZ has embarked on the formation of a new government. Talks are going in a positive direction. On the other hand, the projection of the state budget for 2017 will also have an influence. If the government is formed within a reasonable time, we will finish these changes by the end of the year. All changes would go into force on 1 January 2017. Those two elements will affect the tax reform."

"In the VAT system, there is a series of illogical things resulting in unfairness in the tax system which we plan to reduce with this tax reform. Croatia has the second highest general VAT rate in Europe and the idea is to lower it. By cutting the general VAT rate, we will significantly redefine the existing VAT system," Maric said.

As for the 2017 budget, he said the intention was to continue to keep the expenditures side in check and use the surplus from a more efficient tax collection to cut the deficit. "We will cut the highest income tax rate and raise the threshold and the non-taxable income," he said.

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