Tax News, January 2023

In the January issue of tax news, we would like to inform you about the amendment to the Tax Procedure Act and amendment to the Financial Administration Act, where both introduces various changes. In addition, we present Slovenian Tax Authority’s explanation regarding the obligation to charge VAT upon termination of taxable economic activity and the adjustment period for fixed assets.

In addition, we are informing you about the conditional agreement reached on the Carbon Adjustment Mechanism at the Borders, which was adopted by the negotiators of the Council of the EU and the European Parliament as well as about the  VAT proposals in the digital age presented by the European Commission.

At the end we wanted to remind you also on certain upcoming deadlines e.g., deadline for preparing and providing the statement of income paid in 2022 and the deadline for reporting of certain type of control data for personal income tax (»PDPZ«).

The amendment to the Tax Procedure Act introduces changes in the area of ​​information exchange, extends the date for settlement of advance payments of activity tax and corporate income tax and introduces various other amendments

The National Assembly of the Republic of Slovenia at its 5th regular session on 15 December 2022, adopted an amendment to the Tax Procedure Act (hereinafter stated as "ZDavP-2N"), which introduces the obligation of operators of digital platforms to report on business activity, which includes personal services, sales of goods, rental of real estate and rental of various modes of transportation. The amendment to the ZDavP-2N entered into force on 28 December 2022.

The purpose of the amendment to the ZDavP-2N is to harmonize Slovenian legislation with European legislation, namely EU Directive 2021/514 amending Directive 2011/16/EU on administrative cooperation in the field of taxation.

Based on the transposed directive, operators of digital platforms will have to provide to their tax authority information about the business activity of sellers who do business through their platforms. The reporting obligation will apply to all operators, since exceptions are provided only for smaller entities and for less risky transactions, and for operators that will implement comparable reporting according to the OECD model in a third country.

The amendment to the ZDavP-2N also introduces joint tax control, group requests, mandatory electronic submission of withholding tax statements also for employers (natural persons), and deadlines for certain instruments of administrative cooperation.

Moreover, the deadline for the settlement of advance payments of business activity tax and corporate income tax is being extended. The latter is now the 20th day of the month for the previous month or quarter, which means that the instalment of the advance payment for December 2022 will be due on 20 January 2023.

In addition, the order of payment of real estate transfer tax, inheritance and gift tax, and motor vehicle tax has also been introduced. The amendment to the ZDavP-2N also enables the payment of obligations with one order for payment and supplements the provisions regarding the issuance of a decision on the guarantor's responsibility for tax payment.

An additional administrative novelty introduced by the amendment ZDavP-2N is that a qualified digital certificate will no longer be required to collect documents from the eDavki portal.

An amendment to the Financial Administration Act 

The National Assembly of the Republic of Slovenia at its 5th regular session on 15 December 2022, adopted an amendment to the Financial Administration Act (hereinafter "ZFU-B"). The law was submitted to the National Assembly for consideration by the Government of the Republic of Slovenia.

The purpose of the ZFU-B amendment is to effectively prevent tax evasion, which damages the state treasury by several million EUR. The aim of law amendment is primarily the harmonization of Slovene legislation with European legislation regarding the easier flow of goods and services.

The amended legislation will enable tax inspectors to use secret tracking devices for goods in case of suspected violation of tax regulations.

In light of certain concerns that the measure is not in line with constitution, the State Council voted a suspensive veto on the ZFU-B amendment. As a result, at least 46 votes will be needed in the National Assembly to re-confirm the amendment.

Slovenian Tax Authority’s explanation regarding the obligation to charge VAT upon cessation of taxable economic activity and the adjustment period for fixed assets

Taxable persons often wonder regarding the application of the VAT exemption under point 7 or 8 of Article 44 of the VAT Act. On 16 December 2022, the Slovenian Tax Authority issued an explanation in respect to the application of said exemption in case of retention of immovable property, for which VAT was deducted, on the cessation of an economic activity. In its explanation, the Slovenian Tax Authority relied on the judgment of the European Court of Justice, Case C-299/15. 

Slovenian Tax Authority explains the following:

When a fixed asset, which has been granted a right to deduct VAT, is retained, VAT must be charged, irrespective of whether the adjustment period for that fixed asset has expired. The taxable amount shall be represented by the purchase price of the goods or similar goods, or the cost price of the goods determined at the time of retention of the goods.

As stipulated in Article 8(c) of the VAT Act,  the supply of goods carried out for consideration is, among others, the retention of goods by a taxable person or his successors in title (except in cases referred to in Article 10 of VAT Act) when the taxable person ceases to perform a taxable economic activity where the VAT on these goods was wholly or partly deductible on the acquisition or application of the goods pursuant to point a) of this Article.

Considering the explanation and opinion of the Advocate General in Case C-299/15, the rules for the adjustment of VAT deductions are stipulated by Article 187 of the VAT Directive (Article 69 of VAT Act) and the provisions on the taxation of the private use of goods, to which Article 18(c) of the VAT Directive applies (Article 8(c) of VAT Act). The latter contains neither a time limit nor a reference to Article 187 of the VAT Directive; namely, provision on the taxation of private use of goods does not result from the right to deduct VAT but is the basis for the taxation of private use by VAT in the event of the transfer of goods from the assets of an undertaking to private property resulting from the cessation of an economic activity. As stated in the Tax Authority’s explanation, the purpose of taxation under Article 18(c) of the VAT Directive is to prevent goods from being subject to exempt final consumption after the cessation of their taxable economic activity, irrespective of the reasons or circumstances of that cessation.

From the Tax Authority’s explanation it follows, that Article 44 of VAT Act does not apply in the cases referred to in Article 8(c) of the VAT Act. The Tax Authority’s decision applies from the date of issue of the explanation.

Negotiators of the Council and the European Parliament reached a provisional and conditional agreement on the Carbon Border Adjustment Mechanism

As previously reported in the April and June tax news, the European Union (“EU”) is currently introducing a new environmental duty, i.e., Carbon Border Adjustment Mechanism (“CBAM”), for imports of products / materials from most carbon-intensive sectors.

After the vote on CBAM has been postponed in June, due to disagreement on EU Emission Trading System (“ETS”) revision, on 13 December 2022 negotiators of the Council of the EU and the European Parliament reached a provisional political agreement on the CBAM. This mechanism will initially apply to imports in some of the most carbon-intensive sectors, including cement, aluminum, fertilizers, electricity, iron, and steel. Compared to the initial proposal, the negotiators expanded the scope by including also hydrogen, indirect emissions under certain conditions and some downstream products for which a review will be carried out before the end of the transition period.

As per the proposal, CBAM will be launched in October 2023, starting with a transitional period imposing reporting obligations on the imports of goods covered by the scheme. After this transition period ends, levy on import of covered products will be introduced. Duration of transition period is to be determined in further negotiations.

Next steps

CBAM must now be confirmed by the Council of the EU and by the European Parliament, as well as adopted by both institutions. Nevertheless, the agreement remains conditional upon reaching agreement on other pieces of legislation linked to CBAM (e.g., revision of EU ETS).

European Commission publishes proposals for VAT in the Digital Age

On 8 December 2022, the European Commission issued proposals to amend the European Union (EU) value-added tax (VAT) system to respond to digitalization. Proposals include a series of measures aimed at modernizing the VAT system and making it resilient to fraud and to address challenges in the area of VAT for the platform economy.

The proposed VAT in the “Digital Age Package“ covers the following three topics:

• Introducing standardized Digital Reporting Requirements (DRR) across the EU in an electronic format and imposing e-invoicing on intra-EU supplies.
• Addressing the challenges of the platform economy in short-term accommodation rental and passenger transport services by enhancing the role of platforms in VAT collection - introducing deemed supplier model, whereby intermediary (platform) would be responsible for collecting and remitting VAT to the Authorities, when this would not be done by service provider itself.
• Expanding the scope of the One Stop Shop (OSS) and use of reverse charge for B2B transactions, for online shopping companies.

Additionally, the proposals seek to make changes for online platforms facilitating the sale of goods in the EU:

• It would be mandatory for platforms to use the Import One Stop Shop (IOSS) Scheme when facilitating the sale of goods from non-EU (third countries) to consumers in the EU. However, it is not proposed at this stage to increase or remove the threshold for using IOSS (EUR 150).
• Making them a deemed supplier for VAT purposes for the transfer of underlying suppliers’ goods to other Member States for storage prior to sale to consumers in the EU.

Next steps

The package of proposals takes the form of amendments to three pieces of EU legislation: the VAT Directive (2006/112/EC), Council Implementing Regulation (EU 282/2011) and the Council Regulation on Administrative Cooperation (EU 904/2010). The legislative proposals will be sent to the Council of the EU for agreement and to the European Parliament and the Economic and Social Committee for consultation.

Do not miss: Upcoming deadlines

In accordance with Article 337 of Tax Procedures Act, all income payors must prepare a Statement of income paid in the period from 1 January 2022 to 31 December 2022 and provide it to each income recipient until 31 January 2023.

Additionally, the deadline for reporting of certain type of control data for personal income tax expires on 31 January 2023. All payors of premiums for additional pension insurance for employees (“PDPZ”) must submit a file with control data via eTax portal. The data must refer to premiums paid in 2022 for the employer’s part of voluntary additional pension insurance for employees (VIRPN2.DAT).