Slovak tax news 3/2016

1. The draft amendment to the Income Tax Act

On 11 July 2016 the draft amendment to Act no. 595/2003 Coll on Income Tax (hereinafter the „Amendment”) was published. From the Amendment we choose the most important changes:

• Reduction of the corporate income tax rate

There is suggested to reduce the corporate income tax rate to 21%. The lower tax rate shall be used for the tax period beginning on 1 January 2017 and later. For the tax period of 2016 will be used the tax rate of 22%.

• The introduction of taxation on profit shares (dividends) and cancellation of health insurance contributions from these revenues

The profit shares (dividends) paid from the profit of trading company or cooperative after the taxation paid after 1 January 2018 will no longer be tax – exempted, not even with an employee participation in a company or cooperative.

Dividends paid to the domestic individual person, as well as to the foreign individual person in abroad will be taxed with 15% withholding tax rate or tax rate according to Double Tax Treaty.
If the dividends will be paid to the legal person – taxpayer of non-contracting state (identified as tax heaven as well), the revenue will be taxed with 35% withholding tax rate.

The dividends from the foreign sources will be included to the particular tax base of the individual and legal person, while for the individual person will be taxed with the tax rate of 15%. For the legal person will be taxed just in case of revenues from the tax payer of non-contracting state and with the tax rate of 35%.

The dividend paid between the legal persons within Slovak republic should not be subject to tax.

Following the taxation of the dividends there is is introduced the term „the beneficial owner of the dividends” – is the receiver of these revenues who has the right to use these revenues (gains) without an obligation to transfer them forward to another person.

Please note that, based on the Amendment to the Health Insurance Act, the dividends paid on 1 January 2018 and later will not be the subject to insurance on public health insurance.

• Changes in transfer pricing

The Amendment introduces the term „controlled transaction”, which is the relationship or transaction between two or more dependent persons, while one of the persons is taxpayer with revenues according to Art. 6 or legal person, which has the revenue (gain) from activities or disposal of assets.
Further, the Amendment proposes not to apply the process based on which the tax authority allowed the coresponding adjustment of the tax base. The taxpayer in domestic transfer pricing can realize adjustment of the tax base by himself, in some cases the taxpayer will be obliged to adjust the tax base.

It also clarifies the application process of approval of the valuation methods, if the taxpayer applies for approval of the method.

2. The draft amendment to the VAT Act

On 11 July 2016 the draft amendment to the Act no. 222/2004 Coll on value added tax as amended (hereinafter the „Amendment”) was published. From the Amendment we choose the most important changes:

• Deduction of input tax

The Amendment should unite the process of enforcement of VAT refund of foreign person, who realizes deliveries with the transfer of tax liability (Art. 69 Sec. 12 of the VAT Act) and is registered as a VAT payer. This person has a prior right to apply for VAT refund via application for a foreign person for VAT refund from another Member State, not in the VAT declaration filed with the Slovak tax authority.

• Compensation for retention of excessive VAT deduction

The new provision about the payment of compensation for retention of excessive VAT deduction during the tax audit is suggested, in the form of interest from excessive VAT deduction at the rate of 1,5% from the amount of excessive deduction for each day of the expiry of six months from the day after the deadline for excessive VAT deduction return to the date of its actual payment.

• Import from the third countries

The term VAT reverse charge in import from the third countries will be determined by the result of formula, which will compare the maximal state debt determined by constitutional law with the actual amount of debt.
The amendment shall be effective from 1 January 2017, except provisions modifying application of the VAT in import from the third countries, which shall be effective from 31 December 2016.

3. The draft amendment to the Tax Administration Code

On 11 July 2016 the draft amendment to Act no. 563/2009 Coll on tax administration (Tax Code) as amended (hereinafter the „Amendment”) was issued, which provides modification of precaution for ensurance of fullfilment of future obligations of taxpayers and modification of censure proceedings.

In case of request for postponement or tax payment in installment will not be necessary to ensure the owed amount by lien, if the amount will be less than EUR 3.000. The amendment to the Tax Code shall be effective from 1 January 2017.

4. Criminal responsibility of legal persons Act

On 1 July 2016 came into force the Act on criminal responsibility of legal persons , which introduces the direct criminal responsibility of legal persons – in contrast with present indirect criminal responsibility.

5. Judgement of the Court of Justice C-128/14

On 28 July 2016 the European Court of Justice (hereinafter the „ECJ”) has decided in case no. C-128/14 – Het Oudeland Beheer BV., regarding to taxable event for purposes of VAT regarding to immovable property. The decision relates to determination of a tax base in case of delivery, which the company realized, specifically to questions if the amount of right in rem, which authorizes its holder to use the immovable property, and costs of completition of administration property built on particular land included to the tax base in case of delivery, unless the taxable person paid the VAT related to this amount and this costs, but this VAT also immediately and fully deducted. The second question which was setted is if in the case of acquisition of land with building under construction on the basis for establishment rights in rem, is the amount of right in rem which needs to be included in the tax base yearly paid as equivalent during the entire duration of long-term lease or the amount which needs to be paid during the remaining duration of this lease.

ECJ declares in its decision that an Article 11 A Sec. 1 letter b) Council Directive 77/388/EEC on harmonization of the laws shall be in the case of the first question interpreted in the meaning that the amount of right in rem and costs can be included in the tax base. In the case of the second question shall be interpreted in the meaning that the amount of right in rem should be equal to amount of sums which need to be paid as the equivalent during the remaining duration of this lease conferring this right in rem.

Renáta Krajčírová, Manager
+421 2 3211 6920
renata.krajcirova@ecovis.sk

Soňa Jankovičová, Manager
+421 2 3211 6920
sona.jankovicova@ecovis.sk