Tax and Legal News Changes in the Slovak tax legislation and other topics In the newest issue of our Tax and Legal News we outline information on the following topics: Amendment of the VAT Act ATAD Anti Tax Avoidance Directive Amendment of the Tax Code Amendment of Act on international assistance and cooperation in tax administration Information on Amendment of Act on excise tax on tobacco products Information on Amendment of Act on special levy of selected financial institutions We wish you pleasant reading. KPMG in Slovakia October 2016
Amendment to the Slovak VAT Act In October 2016, during the second reading, the parliament should discuss proposed amendment to Act No. 222/2004 Coll. on VAT as amended. The major changes to be effective from 1 January 2017 are summarized below. Compensation for unremitted VAT excessive deduction If the Tax Authorities open a tax audit on excessive deduction prior to its refund and the excessive deduction is not remitted within 6 months of the deadline for its refund, the VAT payer is entitled to receive a compensation (interest). This interest will be calculated as two times the base interest rate of the European Central Bank valid as at 1 January of the calendar year for which the compensation is calculated for; however, at least 1.50 % p.a., from the amount of excessive deduction refunded to the VAT payer. The interest should be paid for each day of the period which starts with the day following the day on which the above mentioned 6-months period elapsed up to the day of refund of the excessive deduction. A VAT payer who will during the tax audit i.a. repeatedly not be fulfilling his obligations and not be cooperating, will not be entitled to receive the compensation. Further, the interest will not be paid should the tax audit be finalized by 31 December 2016. Domestic reverse-charge mechanism upon supply of construction works Currently, many suppliers as well as customers have difficulties with the determination whether or not the respective supply is subject to domestic reversecharge mechanism. Thus, it is proposed that if the supplier performs a supply of construction works or supplies goods with its installation and assembly and he is reasonably convinced that the reverse-charge mechanism applies and the respective invoice issued contains an information reverse-charge, the customer as the recipient of the supply is liable to pay output VAT. Reverse-charge mechanism upon importation of goods entry into force to be postponed indefinitely Based on the Draft amendment, the entry into force of the provisions related to application of the reversecharge mechanism upon importation of goods should be postponed again; however, for an indefinite period depending on the amount of public debt. Other proposed changes: Non-seated Slovak VAT payers will be entitled to deduct input VAT applied by them with respect to goods or services received where they are liable to pay VAT via their Slovak VAT return; Taxable persons seated outside Slovakia will be entitled to file an application for VAT refund also if they supply goods or services which are subject to domestic reverse-charge mechanism; Suppliers of construction works which are subject to domestic reverse-charge will be obliged to report the respective invoices in the VAT Ledger Statement. We will keep you informed on the next steps within the legislative process. We remain at your disposal for any further information on how the legislative changes may affect your VAT obligations in Slovakia in your particular situation. Please contact your KPMG Slovakia contact person. A: Zuzana Šidlová T: +421 2 5998 4346 M: zsidlova@kpmg.sk The Anti-Tax Avoidance Directive (ATAD) One of the most significant problem in the area of international taxation is that corporates, mostly bigger international groups, may try to reduce their tax bills by taking advantage of disparities between national tax systems. That s why political priorities nowadays accent the need for ensuring that tax is paid where profits and value are generated. These requirements have been translated into specific action recommendations in the context of the initiative against base erosion and profit shifting (BEPS) by the OECD. 2
Based on OECD recommendations, EU highlights that it is essential for the good functioning of internal market that, as a minimum, Member States implement their commitments under BEPS. On 28 January 2016, the European Commission published an anti-tax avoidance package, as a part of the Commission's ambitious agenda for fairer and more effective corporate taxation in the EU. One of the key element of this package is the Anti-Tax Avoidance Directive. The Anti-Tax Avoidance Directive (approved by the Council on 12 July 2016) was published in the Official Journal of the European Union on 19 July 2016. The Directive entered into force on the twentieth day following that of this publication. Directive contains legally binding anti-avoidance measures, which all member state should implement in order to shut off major areas of aggressive tax planning. It will also ensure that OECD s BEPS rules are implemented in a coordinated manner within the EU, including by member states which are not OECD members. The Directive lays down anti-avoidance rules in the following five specific fields: Deductibility of interest - The Directive sets out to discourage practice of shifting debt to jurisdiction with more generous deductibility rules by limiting the amount of interest that the taxpayer is entitled to deduct in a tax year by so called earning stripping rules. Exit taxation - Exit taxes have the function of ensuring that where a taxpayer moves assets or its tax residence out of the tax jurisdiction of a State, that State taxes the economic value of any capital gain created in its territory even though that gain has not been yet realized at the time of the exit. General anti-abuse rule (GAAR) - GAARs should be applied to arrangements that are not genuine, while the target of these transactions is to gain a tax advantage. Controlled foreign company rules (CFC rules) - The CFC rules allow the Member State where the parent company is located to tax certain profits that the company parks in a no or low tax country. The CFC rules will be triggered if the tax paid in the third country is less than half of that which would have been paid in the Member State in question. Rules to tackle hybrid mismatches - Some companies exploit the fact that Member States treat the same income or entities differently for tax purposes (hybrid mismatches). The Directive lays down that in the event of a double deduction, the deduction will only be given in the source country. In situations where a deduction is given, but the corresponding income is not taxed, the deduction shall be denied. Slovakia, as a member State of the EU, will have to transpose these rules into national law until 31 December 2018. The Directive says that we also shall apply those provisions from 1 January 2019. Exit taxation rules will have to be implemented until 31 December 2019 and applied from 1 January 2020. A: Zuzana Blažejová T: +421 2 5998 4331 M: zblazejova@kpmg.sk The Amendment of the Tax Code The Amendment of the Act No. 563/2009 Coll. on Tax Administration as amended (the Tax Code) was approved by the Slovak Parliament at its first reading. The next steps of the legislative process are planned for October 2016. The respective amendment adjusts the provisions on preliminary measure which represents an effective tool used in order to ensure the fulfillment of the future obligation of the taxpayers. The aim of the proposed amendment is to strengthen the usage of the preliminary measure in cases where the Tax Authorities have certain evidence of unassessed or incorrectly assessed tax. In case that the Tax Authorities would have the reasonable concern that the undue or unassessed tax will not be paid once due or will not be enforced or the amount set will not be deposited; the issued decision on preliminary measure will become effective once issued. The Amendment of the Tax Code also defines different implications in case that the taxpayer fails to abolish the objections against the filed tax return as required by the notice issued by the Tax Authorities: in case of objections without impact on the amount of tax, the Tax Authorities 3
would be entitled to abolish such an objection by virtue of authority provided they have the respective information at their disposal; in case of objections impacting the amount of tax, the Tax Authorities will perform the tax audit or assess the tax in the shortened levy proceeding (by levy decree); in case of the tax return which was not signed or was signed by an unauthorized person such a tax return will be considered as not filed unless corrected as requested by the notice of the Tax Authorities. In accordance with the respective transitional provisions the above provisions will apply only to notices delivered after the effective date of this amendment. The proposed amendment further introduces a shortened levy proceeding which will be used to assess tax in case that the taxpayer fails to abolish the objections having an impact on the amount of tax within the deadline as requested by the notice of the Tax Authorities and the Tax Authorities have not initiated the tax audit. The taxpayer will be entitled to file an appeal against the levy decree which has to contain factual reasons thereof within 15 days following its delivery date. Filing of an appeal initiates the standard levy process (tax audit and levy proceeding). The levy decree will become effective if the taxpayer does not use the legislative right to file an appeal or if the filed appeal is rejected by the Tax Authorities due to the insufficient factual reasons. In case that the tax is assessed by the levy decree the Tax Authorities will only be entitled to perform the tax audit upon the request of the Financial Directorate or the Ministry of Finance. A: Marianna Dávidová T: +421 2 5998 4353 M: mdavidova@kpmg.sk Amendment of Act on international assistance and cooperation in tax administration The European Commission in January 2016 introduced a new package of non-legislative and legislative initiatives and actions under the title of 'anti-tax avoidance package'. This package is result of long-term effort of the Commission aimed at combating tax avoidance and enabling fairer, simpler and more efficient taxation of companies - legal entities. Part of these efforts is also the Council Directive 2015/2376 of 08 December 2015 (hereinafter Directive ), which, along with other legislative initiatives are intended to strengthen and improve administrative cooperation in tax administration. The Directive has been transposed in a government bill amending and supplementing Act no. 442/2012 Coll. on international assistance and cooperation in tax administration. Governmental legislative proposal was discussed on 6 September 2016 in the Parliament and currently is in second reading of the legislative process. The proposed law regulates the scope and conditions of automatic exchange of information on an advance cross-border rulings. Within the meaning of bill the subject of automatic exchange of information in the Slovak republic is extended by: an advance cross-border ruling issued under Article 53a to 53c of the Tax Code (i.e. the rulings that relate to cross-border transactions); a decision on approval of the specific method of determining the tax base of permanent establishment issued in accordance with Article 17(7) of the Income Tax Act, which becomes an advance cross-border ruling for purposes of this bill; a decision on approval of the transfer pricing method, issued in accordance with the Article 18 (4) of the Income Tax Act which also becomes an advance cross-border ruling. The rulings are issued by Financial Directorate of SR for particular taxpayer who requested it and are issued in advance before realization of the respective transaction(s). These rulings are related to interpretation or application of tax law. The object of automatic exchange are only crossborder rulings, i.e. rulings that relate to cross-border transactions. The competent authority of the Slovak Republic is obliged in terms of the amendment to send to all other EU Member States information on an advance cross-border rulings. The deadline for sending is within 3 months after the end of the 4
calendar half-year in which the advance cross-border rulings were issued, renewed or changed, twice a year within 30 September and 31 March. The first exchange of information on an advance cross-border rulings will be carried out within 30 September 2017. The Government bill also regulates the content of the data that will be the subject of mandatory automatic exchange of rulings and included in the standard form issued by the European Commission. A government proposal imposes an obligation to provide additional information on the advance crossborder ruling, including the full text of a ruling to the competent authority of the Member State of the EU. At the same time bill allows the competent authority of the Slovak Republic to request another member state for additional information, including the full text of advance cross- border ruling. A: Martin Zima T: +421 2 5998 4348 M: mzima@kpmg.sk In one sentence EU Commission takes first steps to create common EU list of non-cooperative list of tax jurisdictions. On September 15, 2016 the European Commission released a set of scoreboard indicators which provide an objective overview of the tax systems of third-country jurisdictions and will help Member States to identify which countries may require further screening as regards tax good governance issues. The EU Commission further specified that it is aiming for this screening process to be completed by summer 2017 so that a definitive list of noncooperative jurisdictions can be released by the end of 2017. Proposed amendment of the Act No. 384/2011 Coll. on Special levy of selected financial institutions stipulates rate of the levy in the annual amount of 0,2% applicable for the period of 2017-2020 and it also proposes cancelation of the provision on degression of the rate depending on the amount of accumulated bank levy and the indicator defined as ratio between the accumulated levy and total amount of assets of the Slovak bank sector. The government Amendment of Act. 106/2004 Coll. on excise duty on tobacco products, as amended is in the Slovak Parliament. The main aim of the Amendment is a gradual increase of the tax rate of tobacco products and taxation of non-harmonized tobacco products, which are smokeless tobacco products. Contacts Tomáš Ciran, Partner T: +421 2 5998 4306 M: tciran@kpmg.sk Branislav Ďurajka, Partner T: +421 2 5998 4303 M: bdurajka@kpmg.sk Robert Kolár, Director T: +421 2 5998 4314 M: rkolar@kpmg.sk KPMG Slovensko Advisory, k.s. Dvořákovo nábrežie 10 811 02 Bratislava T: +421 2 5998 4111 M: kpmg@kpmg.sk kpmg.sk The information contained is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. 5