Tax news - August 2024

I.    INCOME TAX

Deadline for settling the income tax liability expired

31 July 2024 was the deadline for settling the income tax liability for taxpayers who have received informative annual tax calculation with a mailing date of 31 May 2024. Taxpayers could choose different payment methods (Flik, card transactions) via the eTaxes mobile application or prepare a payment order in eTaxes.

Taxpayers who have lodged an appeal against the informative annual tax calculation, the deadline for which expired on 1 July 2024, do not have to pay the amount, as the appeal suspends the execution.

Payment of dividends to non-residents

In the 7/24 issue of publication IKS, an article entitled "Complications in dividend payments to certain countries" was published in which the RFR Federation highlighted the problem of claiming benefits under the Convention with KIDO 1 form. It was pointed out that it is difficult to prove that the 365-day capital link between the payer and the recipient of dividends is met.

In response to these complications, Financial Administration (FURS) explained the new procedure for claiming Convention benefits in its publication "International Taxation, Dividends, Interest and Property Rights"[1]. FURS clarified that the minimum 365-day capital participation requirement, which includes the dividend payment date, is formally verified on the payment date. However, the reduced rate from the Convention can be claimed before the income is paid, provided that this condition is already met when the claim is made using KIDO 1 form.

The recipient of the dividend must also attach to the KIDO 1 form a declaration that the condition will also be met on the date of payment of the dividend. The actual fulfilment of this condition will be verified by the Tax Authority during the subsequent tax audit of the withholding tax return (the ODO-1 return).

II.    VAT

Case law – Commission with organizations for collective management of copyright and related rights

In judgment C-179/23[2] (Credidam), the Court of Justice of the EU clarified 2/1c, 24/1 and 25/-/c of the VAT Directive. These provisions regulate the scope of VAT taxation and what constitutes a supply of services for the purposes of this tax. It decided that an organization for the collective management of copyright and related rights provides taxable services within the meaning of these provisions. The organization receives and distributes, based on the law, the remuneration owed to the rightsholders by certain users defined in the law. A management fee is deducted from this remuneration. The latter is owed to the organization by the rightsholders. The decision that the commission is subject to VAT is not affected by the fact that the fees collected are not subject to VAT. 

III.    CIT

Case law – Tax (non) recognition of litigation provision expenses

The Supreme Court of the Republic of Slovenia, in its judgment X Ips 38/2023[1], has ruled on the issue of tax (non) recognition of litigation provision expenses in the corporate income tax return.

The plaintiff in the case operated the Port of Koper and carried out some its activities by hiring external contractors. During the relevant tax period, the work of the outsourced workers had all the elements of an employment relationship. Because of that, the workers' trade union claimed that it was therefore entitled to claim payment of the resulting personal income from the claimant. By the end of the relevant tax period, two of the workers had taken legal action, but the plaintiff had nevertheless made provisions in its accounts in an amount which, in its assessment, corresponded to the amount of the claims which it would have had to pay to all the outsourced workers who had performed work on the basis of the legal basis described - if they had been successful in their claims.

The decision of FURS additionally assessed the plaintiff's CIT, which was confirmed by the Ministry of Finance, and the plaintiff filed a lawsuit against the decision of FURS, which was upheld by the Administrative Court of the Republic of Slovenia and the defendant's decision was annulled. FURS then filed an appeal to the Supreme Court of the Republic of Slovenia, which was upheld by the Supreme Court.

The Supreme Court's decision followed established case law, according to which it is acceptable to interpret the term provision using IAS 37 (which is not defined in CITA-2), which refers to provisions, contingent liabilities and contingent assets. Thus, interpreting IAS 37, the Supreme Court has held that costs incurred by taxpayers in making provisions in their accounts can be tax deductible only if the provisions relate to pre-existing liabilities that are no longer in doubt, the only uncertainty being the timing of the maturity of the liability or its exact amount, which should also already be estimable. The Supreme Court adds that it is premature to make a provision for the costs that would be incurred if the employees' claims were to be brought, since the provision could at most be considered an expense if the claims had already been brought against the applicant, which was not the case in the present case.

IV.    OTHER CHANGES

Case law – Revocation of the retroactive effect of interest

The Constitutional Court of the Republic of Slovenia, in its decision U-I-150/21[1] of 5 June 2024, partially annulled the provision of the Act on Amendments and Additions to the Tax Procedure Act (ZDavP-2J), which, among other things, increased the interest rate for interest in the tax audit procedure. The provision required that the procedure for tax rulings revoked because of appeals should continue under the new regime, which resulted in interest being charged at the (higher) rate of 7% per annum. This means that the Tax Authority has been charging taxpayers interest again, even if the taxpayers have already paid the tax liability under the tax assessment decision that was subsequently revoked.

The Constitutional Court found that this provision interfered with legal situations that had already been concluded and gave rise to retroactivity, which is prohibited in principle by Article 155 of the Constitution. The Constitutional Court judges found that there was no demonstrable public interest in retroactively increasing the interest burden where the tax liability had already been paid. The public interest in increasing the interest burden lies in the tendency to preserve the real value of the tax claim, taking away the liquidity advantage, which is at least potentially obtained by taxpayers who are unjustifiably late in paying tax, as well as in encouraging taxpayers to pay tax as soon as possible. Neither of these objectives can be achieved by increasing the interest burden where the tax liability has already been paid. The Court therefore annuls the provision allowing for a retroactive increase in interest in those respects.

On the other hand, the Court finds that there is a public interest in retroactivity in cases where the tax liability has not yet been paid after the annulled decision. In such cases, the new assessment decision must limit the interest charge to the sum of the interest on the annulled decision and the default interest.

Draft amendment to the Companies Act

On 26 June 2024, the Government of the Republic of Slovenia received the Draft Law on Amendments and Additions to the Companies Act, which transposes four directives of the European Parliament and the Council into Slovenian legislation. The proposal harmonizes Slovenian and European legislation in the following areas:

1.     Corporate sustainability reporting – The amendment updates the existing rules on non-financial reporting, including the extension of reporting requirements to all large companies and all medium and small listed companies, except for micro-enterprises. It also expands the scope and content of the information that companies are required to report. Another important change is the increased scrutiny of the content of reporting by auditors. The sustainability report will now replace the obligation to prepare a statement on non-financial operation.

2.     Transparency in reporting by larger companies – The proposal introduces an obligation for taxpayers to publicly report income tax information for the largest companies. The reporting obligation will apply to parent companies and non-group companies with a turnover exceeding €750 million in each of the last two consecutive financial years and which operate on a multinational basis. Their medium-sized and large companies and subsidiaries are also required to report. The Companies Act provides that the income tax information report must be prepared in accordance with a common template and in electronic form. The income report will become an integral part of the annual report and will therefore be available for public inspection at AJPES (Agency of the Republic of Slovenia for Public Legal Records and Related Services). Companies are also required to make the income report in Slovene language available to the public on a website within 12 months of the end of the financial year, where it must remain accessible free of charge for at least 5 years.

3.     Adaptation of the criteria for micro, small, medium and large companies or groups – The draft amendment adapts the criteria for classifying enterprises or groups as micro, small, medium or large. It is proposed to increase the asset value and net turnover criteria by approximately 25%. The change in the criteria for determining the size of a company will reduce the scope for preparing, auditing and publishing reports and will also reduce the number of companies required to report.

4.     Ensuring gender balance among company directors – The proposed changes require listed companies and large companies in which the state or a local authority has a majority stake to achieve gender balance in management roles by 2026. Companies will have to ensure that the under-represented gender reaches at least 40% of the members of supervisory bodies (non-executive directors) or 33% of the members of management and supervisory bodies combined (executive and non-executive directors).

5.     Other changes – In addition, the draft amendment requires all companies and sole proprietors (s.p.) to prominently display their business identification details at their business address. The amendment also redefines "public interest entity". According to the proposal, medium-sized companies in which the State or a local community holds a majority stake will no longer be public interest entities.

Amendment to the Market in Financial Instruments Act

The National Assembly recently adopted an amendment to the Markets in Financial Instruments Act, which incorporates the amendments to the European Markets in Financial Instruments Directive into Slovenian law. In particular, the amendment expands the definition of financial instruments to include those based on distributed ledger technology (DLT), including blockchain technology and crypto assets.

The main objective of the amendment is to implement the changes contained in the EU Directive, which allows for the safe trading of financial instruments issued on the basis of distributed ledger technology. Platforms using this technology will be supervised by the competent authorities.

The amendment also introduces changes to the procedures for the admission of securities to official listing on a stock exchange and requires companies to report on sustainability issues. The rules on central securities depositories, their legal forms and supervision will also be updated, which will contribute to greater security and good governance.

Subsidies for the purchase of electric vehicles for natural persons

From 15 July 2024 until the end of the call, natural persons may submit applications for a subsidies for the purchase of electric vehicles (call published in the Official Gazette of the Republic of Slovenia on 12 July 2024). This call is part of the Recovery and Resilience Plan (RRP), within the development area "REPowerEU" (C5K17), Investment E, which aims to support the deployment of infrastructure for alternative fuels in transport.

The Ministry of the Environment, Climate and Energy, in cooperation with Borzen, as the outsourced technical and administrative contractor, grants subsidies for the purchase of electric vehicles with zero CO2 emissions. The aim of this call is to support individuals in their transition to zero-emission mobility and to promote the development of the market for alternative fuels in transport in Slovenia.

The call provides for subsidies for the purchase of new or used road transport vehicles in the following categories M1, N1, L7e, L6e, L5e, L4e, L3e, L2e and L1e-B. The subsidies cover the purchase of electric vehicles with a battery or the leasing of a battery for at least two years from the date of purchase. Details of the call and application instructions are available on the Borzen website[5].

High tariffs on Chinese electric vehicles

The European Union is imposing additional tariffs on electric vehicles from China. The additional duties, which were previously 10% and will now be significantly higher, will be temporary for four months. During this period, negotiations are expected to take place between Brussels and Beijing. If there are no changes after four months, they will become regular for another five years from the autumn. The higher tariffs are the result of an investigation by the European Commission, which has accused Chinese producers of receiving heavy state subsidies and thus undercutting the market. 

The amount of additional duties to be paid by EV manufacturers will depend on the level of cooperation of each brand in the investigation. SAIC received additional duties of 37.6%, BYD 17.4%, Geely 19.9%. Tesla, Dacia (Spring model) and BMW (iX3 model) will receive additional duties of 20.8%.  

Updated list of countries at risk of money laundering or terrorist financing

The Office for the Prevention of Money Laundering of the Republic of Slovenia has updated the list of countries at high and increased risk of money laundering or terrorist financing[1]. Monaco, Namibia and Venezuela have been added and Barbados, Gibraltar, Jamaica, Turkey, Uganda and the United Arab Emirates have been removed.

[1] Document available at: https://fu.gov.si/fileadmin/Internet/Davki_in_druge_dajatve/Podrocja/Mednarodno_obdavcenje/Opis/Dividende_obresti_in_premozenjske_pravice.docx

[2] Case available at: https://curia.europa.eu/juris/document/document.jsf?text=&docid=287891&pageIndex=0&doclang=EN&mode=lst&dir=&occ=first&part=1&cid=10448895

[3] Case available at: https://sodnapraksa.si/?q=&database[SOVS]=SOVS&doc_code=&task_code=&source2=&us_decision=&ecli=&meet_dateFrom=&meet_dateTo=&senat_judge=&areas=%22davki%22%20&institutes=&co

[4] Case available at: https://www.us-rs.si/documents/f4/23/u-i-150-212.pdf

[5] More info about this call: https://borzen.si/sl-si/podpore-za-mobilnost/subvencije-za-nakup-elektricnih-vozil-fizicne-osebe

[6] Updated list: https://www.gov.si/teme/preprecevanje-pranja-denarja/#e186030