Tax News, February 2024

 In February edition of tax news, we inform you about the novelties in tax legislation brought by OECD final guidance on Pillar One Amount B on baseline distribution, about the minimum wage increase, about the extension of temporary protection for displaced persons from Ukraine, about the introduction of Mandatory Health Contribution (OZP), about the implementation status of the three directives, DAC7, CESOP and ATAD in the Slovenian legislation and about the amendments to Slovenian Corporate Income Tax Act.

OECD RELEASES FINAL GUIDANCE ON PILLAR ONE AMOUNT B ON BASELINE DISTRIBUTION

On 19 February 2024, the OECD published the final report on Pillar One Amount B (“the Report”), which is intended to simplify and streamline the application of the arm's-length principle to baseline marketing and distribution activities, with a particular focus on the needs of low-capacity countries (Amount B approach).

Unlike other BEPS 2.0 measures, Pillar One Amount B is not subject to a revenue threshold and can be applicable to many multinational businesses. Jurisdictions can choose to apply the Amount B approach for in-scope transactions of tested parties in their jurisdictions for fiscal years starting on or after 1 January 2025. The list of jurisdictions that can choose to apply amount B will be published by OECD.

In addition to the impact on the OECD Model Tax Convention, the possibility that these rules will affect some jurisdictions that do not participate in the Inclusive Framework, is noted, as the Pillar one amount B has been also incorporated into the OECD Transfer Pricing Guidelines.

The Report provides that the Amount B qualifying transactions are:

• Buy-sell marketing and distribution transactions where goods are purchased from associated enterprises for wholesale distribution to unrelated parties,

• Sales agency and commissionaire transactions that contribute to wholesale distribution of goods to unrelated parties carried out by associated enterprises.

Because Amount B is not subject to a revenue threshold (in contrast to both Pillar One Amount A and Pillar Two), it is widely applicable. It is therefore recommended that companies that are part of a multinational group consider and analyze whether they have transactions that may be in scope of Amount B and evaluate the potential impact of the Amount B approach on their transactions.

For more information regarding the Release of Amount B, click here.

MINIMUM WAGE INCREASE

In accordance with the Minimum Wage Act (ZMinP), the Ministry of Labour, Family, Social Affairs and Equal Opportunities (MDDSZ) published the new minimum wage for 2024 in amount of EUR 1.253,90 in the Official Gazette 006/2024, dated 26 January 2024. The adjustment of 4.2% follows the annual inflation rate for 2023 as reported by the Statistical Office of Slovenia (SURS).

The minimum amount of annual holiday allowance, that must be paid out by 30 June 2024, has also increased to EUR 1.253,90.

THE EXTENSION OF TEMPORARY PROTECTION FOR DISPLACED PERSONS FROM UKRAINE

In the February Tax News, we inform you about the extension of temporary protection for displaced persons from Ukraine.

On 19 October 2023, the Council of the European Union adopted an implementing decision extending temporary protection for displaced persons from Ukraine. The Government of the Republic of Slovenia therefore adopted on 18 January a Decision amending the Decision on temporary protection for displaced persons from Ukraine. This decision extended temporary protection for persons displaced from Ukraine until 4 March 2025. The extension procedure remains the same as for the first extension in 2023. Administrative units will ex officio issue new cards to persons with recognized temporary protection, which will be served in person or by mail, depending on the individual's wishes.

INTRODUCTION OF MANDATORY HEALTH CONTRIBUTION

As of January 1st , 2024, a Mandatory Health Contribution (OZP) has been introduced, which has replaced the voluntary supplementary health insurance and is set at a fixed monthly amount of € 35. The new OZP was first included in calculations and deducted from the payments of salaries related to January 2024, regardless of the payment date.

UPDATE ON IMPLEMENTATION STATUS OF THE THREE DIRECTIVES, DAC7, CESOP AND ATAD, IN THE SLOVENIAN LEGISLATION

In this article we are providing a short summary on recent implementation developments of the three directives DAC7, ATAD and CESOP, in the Slovenian legislation. They all have brought some new reporting obligations or new rules that apply from the start of the New Year.

Declaration of Income to the Financial Administration based on implemented provisions of DAC7 Directive

31 January 2024 marked the deadline for the first DAC7 report to be filed with the Tax Authorities. The new reporting obligation arose due to the adoption of the Council Directive (EU) 2021/514 ('DAC7'), which defined the reporting obligation for digital platform operators. The provisions of the directive were transposed into Slovenian Law by amendments to the Slovenian Tax Procedure Act (ZDavP-2N). According to the Tax Procedure Act, digital platform operators must communicate to the competent Tax Authorities the information on the business activities of sellers who conduct business through digital platforms. Business activities for which reporting is necessary are:

• rental of real-estate,

• personal services,

• sale of goods, and

• rental of transportation.

Reporting of payment data from payment service providers and transmission to the Central Electronic System of Payment Information (CESOP Directive)

European Union’s aim on centralization of databases has been further enhanced in the start of 2024 with the implementation of Central System of Payment information (CESOP). With CESOP, payment service providers will be required to provide to the home Member State the information on cross-border payments from Member States and on the beneficiary of those cross-border payments. In addition, payment service providers offering payment services in EU must monitor payees and provide information on those who receive more than 25 cross-border payments per quarter. All of the provided information will be centralized in European data base for Central System of Payment Information (CESOP), where they will be combined and cross-checked with other European data bases. The aim of the directive is to combat against fraud in electronic commerce in the field of VAT. The abovementioned rules have been introduced with the Act on changes and amendments of Value Added Tax Act from 27 December 2023 and have entered into force on 1 January 2024.

Interest Limitation Rule (ILR), introduced by ATAD Directive

The directive against tax avoidance has been accepted by the European Council already in 2016, nonetheless the adoption of the rule of limiting tax deductible interest has been postponed until 2024. The ILR has been accepted by the Slovene National Assembly on 30th January of 2024 and was incorporated with the latest amendments in Slovene Corporate Income Tax Act which we shortly explain in the next section. 

AMENDMENTS TO SLOVENIAN CORPORATE INCOME TAX ACT

Although late, the changes to Corporate Income Tax Act (“CITA”) have been now adopted.

On 9 February 2024, amendments to the Corporate Income Tax Act were published in the official gazette, which became effective on 10 February 2024. The amendments have potentially questionable retroactive effect, since they are applicable for fiscal years started 1 January 2024.

The amendments introduce a new excess interest limitation rule as prescribed by the first Anti-Tax Avoidance Directive (“ATAD I”). The interest limitation rule under ATAD I allows companies to deduct their net financial expenses up to 30% of their operating profit (earnings before interest, taxes, depreciation and amortization or EBITDA).

In line with ATAD I, the amendments allow the deduction of excess borrowing costs up to the higher amount between the 30% of the taxpayer’s EBITDA (earnings before interest, taxes, depreciation, and amortization) and €1 million. The latter therefore represent a threshold, up to which full financing costs from related-party financing may be deducted for tax purposes.

In addition, changes to CITA provide for an exception for financial institutions, insurance undertakings, and standalone entities from the scope of the rule given the limited risks of tax avoidance. Since Slovenia does not have a fiscal unity regime, it has not opted for the application of the group ratio rule under Article 4(5)(b) of ATAD I. On the contrary, the amendments include a grandfathering clause for borrowing costs incurred on loans used to finance long-term public infrastructure projects in the EU, and loans concluded before 17 June 2016. Slovenia did not, however, opt for any carry forward possibilities, which would allow utilization of excess financing costs in the future tax periods.

Despite the acceptance of this new limitation on deductibility of financing cost, Slovenia decided to retain its pre-existing thin capitalization rule in interest deductibility, according to which tax deductibility of interest expense on inter-company (group) financing is linked to the debt: equity ratio of 4:1 (or higher, if taxable person manages to prove it could obtain larger financing from an unrelated party).

Additionally, current changes of CITA introduce certain different definitions related to deemed permanent establishments (“PE”) of foreign companies in Slovenia. The changed provisions introduce definitions as set-out with the new OECD Model Tax Convention from 2017. Namely, the changes introduce additional clarifications of the allowed types of ancillary activities and the anti-fragmentation rule.