We present some of them below.
Changes in transfer pricing
An amendment to the definition of the economic connection of dependent persons is proposed. According to the proposal, the shares of related persons are added up. If the sum of the shares of related persons exceeds 25%, the relevant persons or entities are considered to be economically connected.
It is expected to introduce a limit for the so-called significant controlled transaction. This is proposed in the amount of EUR 10 000 per transaction or credit or loan with a capital of over EUR 50 000. Transactions below the specified value should not be subject to mandatory adjustment of the transfer price setting between dependent persons.
It is proposed to add to the law the right to a corresponding adjustment of the tax base, as long as the primary adjustment is made in a Slovak legal entity and the counterparty is a Slovak permanent establishment.
The amendment also introduces a proposal according to which the tax administrator will be able to determine the profitability of the subject at the level of the median value during the tax audit. If the taxpayer proves that, given the circumstances, an adjustment to a different value within the range of values is more appropriate, the tax base will be adjusted according to this value.
The amendment also allows the transfer pricing documentation to be submitted to the tax administrator in a state language other than Slovak.
Introduction of restrictions on the tax deductibility of the interest rate also in relation to independent persons
The government’s amendment to the Income Tax Act introduces a limitation of net interest costs for legal entities in order to prevent the artificial reduction of the legal entity’s tax base through debt financing. Effective 1.1.2024, it is proposed to introduce a new rule on the limitation of net interest costs, which will be applied in preference to the existing rule according to § 21a (thin capitalization rules) and will also apply to independent persons.
The new limitation will be applied if the net interest costs exceed the amount of EUR 3 million. In that case, the taxpayer will be obliged to increase the tax base by interest that exceeds 30% of the value of the EBITDA indicator (profit before taxes, interest and depreciation). In contrast to § 21a, interest that is part of the purchase price or own costs of the property (so-called capitalized interest) is also included in the net interest costs. A taxpayer may carry forward unapplied net interest costs for a maximum of five immediately consecutive tax periods.
Determining the tax base of a permanent establishment
The amendment to the Income Tax Act introduces the possibility of basing the determination of the tax base on the difference between the income and expenses of the permanent establishment as reported in the founder’s accounting records, which are attributable to the PE. In § 17 par. 7, the draft also regulates the procedure for including income (revenues) and expenses (costs) incurred before the establishment or reported after the termination of the PE. The change will enable tax expenses for the PE, even if the condition for their application occurred after the termination of the PE (e.g. with the condition of payment). These expenses (costs) can be used by the PE after its dissolution by the additional tax return for some of the last two tax years in which it was still in existence.
Introduction of the customer’s obligation to correct the deducted VAT
The amendment to the VAT Act introduces the obligation to correct the tax base and the tax, i.e. to return the deducted tax to the state if the invoices on which the taxpayer has deducted the tax have not been paid within 100 days after their due date. The correction of the tax base and the tax refund of the state will have to be carried out in the tax period in which 100 days have passed since the due date of the obligation.
Reciprocally, there is an adjustment of the conditions for the possibility of correction of the tax base due to irrecoverable receivable. The claim will be considered unenforceable if 150 days have passed since the due date (it was 12 months before the amendment). In addition, for receivables that can automatically be considered uncollectible after 150 days, the lower limit has been increased from EUR 300 including VAT to EUR 1 000 gross (including tax).
Cancellation of the VAT registration obligation for exempt activities
The amendment abolishes the obligation of domestic registration for VAT if the subject has achieved a turnover of EUR 49 790 only from exempted activities in accordance with § 37 to § 39 of the VAT Act. Entities that are already registered and meet the conditions can apply for the cancellation of their registration.