10.1515/eual-2016-0010
SLOVAK INCOME TAX LEGISLATION IN TERMS
OF EU SECONDARY LAW TRANSPOSITION
SLOVENSKÁ LEGISLATÍVA
UPRAVUJÚCA DAŇ Z PRÍJMOV
Z POHĽADU TRANSPOZÍCIE
SEKUNDÁRNEHO PRÁVA EÚ
Renáta KRAJČÍROVÁ*
I.Introduction
European integration is the process of industrial, political, legal, economic, social and cultural integration of states wholly
or partially in Europe. European integration has primarily
come about through the European Union (EU) and its policies. The Directive is one of the legal instruments available to
the European institutions for implementing European Union
policies. It is a flexible instrument mainly used as a means
to coordinate and harmonize national laws also in tax area.
Interest in tax coordination has increased recently, however,
prompted in part by fears that tax competition among the
economically integrated EU nations will over time significantly reduce the level of capital income taxation (1).
At the summit in Brussels in 1997, the European Commis Zodrow, G. 2003. Tax Competition and Tax Coordination in the
European Union, International Tax and Public Finance No. 10,
pp. 651–671.
(1)
sion defined the concept of harmful tax competition as “a
level of freedom in the field of tax law which contributes to
the emergence of significant differences between the taxation
of domestic and foreign investment and even to the exemption of the latter from tax in some EU countries(2).
The process of international tax competition concerns the
introduction of additional legal norms to the legislation in
force in a given country. These norms favour reducing the
tax burden for foreign investors, thus attracting their capital(3).
Investors’ decisions are not based only on the statutory tax
rate in the country, but also on a range of other aspects, such
Hybka, M. 2002. Harmonizacja podatkow a konkurencja podatkowa miedzy panstwami Unii Europejskej, Zeszyty Studiow
Doktoranckich No. 4, Wydawnictwo AE v Poznaniu, Poznan.
(3)
Dzialo, J. 2015. Tax Competition or Tax Coordination? What
Is Better for the European Union? Comparative Economic Research, Vol. 18, N.2, 2015.
(2)
Abstract (EN)
The article deals with the integration process of implementation of European Union secondary law into the Slovak tax legislation. In particular, the article analyses whether provisions of (i) EU Parent Subsidiary
Directive, (ii) EU Interest and Royalty Directive and (iii) EU Merger Directive are implemented into the Slovak Income Tax Act. Following our
research, it should be noted that in general, the Slovak tax legislation
has adopted the EU secondary law, in particular, the Parent Subsidiary
and Interest and Royalty Directives have been implemented. It should
be noted that the profit distributions are not subject to tax in Slovakia. It
follows that interest and royalty are not subject to tax and is applicable
to EU associated companies. Following the Slovak implementation of
EU Merger Directive, merger transactions are generally treated as not
giving rise to a capital gain. As a result, according to the Slovak Income Tax Act the income received by shareholders from acquiring new
shares and income from exchange of the shares on merger transaction
is not subject to income tax.
Abstrakt (CZ)
Príspevok sa zaoberá procesom integrácie sekundárneho práva
Európskej únie do slovenskej daňovej legislatívy. Konkrétne, analyzuje, či ustanovenia (i) európskej smernice o materských a dcérskych spoločnostiach, (ii) európskej smernice o výplate úrokov a
licenčných poplatkov a (iii) európskej smernice o zlučovaní, sú implementované do slovenského zákona o dani z príjmov. Z analýzy
vyplýva, že vo všeobecnosti, slovenská daňová legislatíva prijala európske sekundárne právo, najmä v oblasti materských a dcérskych
spoločností, úrokov a licenčných poplatkov. Je potrebné zdôrazniť, že
podiely na zisku nie sú na Slovensku predmetom dane. Následne, tiež
úroky a licenčné poplatky nie sú predmetom dane, v prípade podnikov
v skupine. Vo všeobecnosti, transakcie zlúčenia by mali byť daňovo
neutrálne. V dôsledku toho, podľa zákona o dani z príjmov, príjmy
spoločníkov plynúce z nadobudnutia nových akcií a podielov a príjmy
plynúce z dôvodu ich výmeny v prípade transakcií zlúčenia nepodliehajú dani z príjmov.
Keywords (EN)
dividend payment, interest payment, royalty payment, income tax,
merger
Kľúčové slová (CZ)
výplata dividend, úroky, licenčné poplatky, daň z príjmov, zlúčenie
* Slovak University of Agriculture in Nitra, Slovakia
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as depreciation of fixed assets, treatment of foreign source
income, property taxes paid by firms, as well as treatment of
dividends paid by companies and taxes on wealth and capital gains at the level of individuals(4).
II. Material and Methods
In the paper we theoretically focused on some selected EU
directives related to income taxes that have impact to business environment. In particular, Council directive 2011/96/
EU of 30 November 2011 on the common system of taxation
applicable in the case of parent companies and subsidiaries
of different member states (further referred as “EU Parent
Subsidiary Directive”), Council Directives 2003/49/EC of 3
June 2003 on a common system of taxation applicable to
interest and royalty payments made between associated companies of different EU member states (further referred as “EU
Interest and Royalty Directive”) and Directive 2009/133/ES
on a common system of taxation applicable to mergers, divisions, transfers of assets and exchanges of shares concerning
companies of different EU member states (further referred as
“EU Merger Directive”) are taken into consideration in our
research.
Further, the basic theoretical framework comprises the
provisions of the Slovak Act no. 595/2003 Coll. on Income
Tax as amended (further “ITA” or Slovak tax law”).
Based on the comparison of the provisions of the given directives and provisions of the Slovak Income Tax Act we verified the level of their transposition into Slovak tax legislation.
III. Results and Discussions
EU Parent Subsidiary Directive
The objective of EU Parent Subsidiary Directive is the application of the same tax regime for distribution of profit reported by subsidiary companies. The EU Parent Subsidiary
Directive allows (i) exemption of dividends and other profit
distributions paid by subsidiary companies to their parent
companies from withholding taxes and (ii) an eliminates
double taxation of such income at the level of the parent
company.
The EU Parent Subsidiary Directive is mandatory for all
member states of the EU (further ”EU member states”).
The EU Parent Subsidiary Directive treats the taxation of
distributed profit of certain commercial companies which
are residents in the EU member states in accordance with
the local tax legislation and they are not tax residents in
non–member states of the EU based on the double taxation
agreements between member and non–member states. EU
member states are obliged to put the EU Parent Subsidiary
Directive into practice through their national laws.
As mentioned above, the EU Parent Subsidiary Directive
provides for tax exemption of cross–border dividends paid
between related companies located in different EU member
states.
In 2014 and 2015 the European Council has adopted two
Šimková, N. 2016. Effective Average Tax Rate of Capital Applied
to the Slovak Conditions. Politická ekonomie, vol. 64, no. 1, s.
51–64.
(4)
34
amendments of the EU Parent and Subsidiary Directive.
The EU Parent Subsidiary Directive has been amended by
Council Directive 2014/86/EU of 8 July 2014 and introduces
a rule preventing corporate groups from using hybrid loan
arrangements to benefit from double non–taxation under
the EU Parent Subsidiary Directive. The Council Directive
2015/121 of 27 January 2015 adopted a binding general anti
abuse rule. Following our analysis, it should be noted that
the provisions of EU Parent Subsidiary Directive has been
adopted in the Slovak tax legislation in full extend.
According to the Act no. 595/2003 Coll. on Income Tax as
amended, (further “Income Tax Act“) shares in profit after
tax, e.g., in the form of dividends paid to entities who participate on the share capital of the entity paying is not subject
to tax, unless the distributed profit was generated prior to
1 January 2004. This means that dividends from profits declared after 1 January 2004 by a Slovak limited liability company or a joint–stock company, are not subject to taxation in
Slovakia, if paid to a Slovak tax resident as well as to a Slovak
tax non–resident.
In accordance with the transitional provisions of the Income Tax Act, the dividends from profits generated until 31
December 2003 paid to legal entities with a seat in an EU
member state that have at least 10% direct interest in the registered capital of the Slovak company that pays out dividends
are not subject to tax as of the effectiveness of the Treaty of
Accession of the Slovak Republic to the European Union.
However, please note that the dividends from profits declared until 31 December 2003 paid from a Slovak tax resident company to a Slovak tax non–resident company seated
elsewhere EU member state, are treated as income from
source in the territory of the Slovak Republic, are subject to
withholding tax at the rate of 19%, or the rate based on the
double tax avoidance treaty is to be used. The withholding
tax at a rate of 35% is to be applied, if the recipient of this
income has a registered seat in a country other than listed
on the web page of the Ministry of Finance of the Slovak
Republic.
Following the above, the Slovak tax residents for corporate
tax purposes are a legal entity with the seat or the place with
effective management in the territory of the Slovak Republic.
Such Slovak tax residents are, in accordance with the Slovak
tax law, taxed on their worldwide income (unlimited tax liability). The Slovak tax non–residents are those with the seat
or the place of effective management outside the territory of
the Slovak Republic and are taxed only from Slovak source
income (limited tax liability).
EU Interest and Royalty Directive
EU Interest and Royalty Directive allow exemption from tax
of interest and royalty payments made between associated
companies.
In general, according to the EU Interest and Royalty Directive interest or royalty payments arising in a member state
shall be exempt from any taxes imposed on those payments
in that State, whether by deduction at source or by assessment, provided that the beneficial owner of the interest or
royalties is a company of another EU member state.
The term “interest” means income from debt–claims of
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every kind, whether or not secured by mortgage and whether
or not carrying a right to participate in the debtor’s profits,
and in particular, income from securities and income from
bonds or debentures, including premiums and prizes attaching to such securities, bonds or debentures. Please note that
the penalty charges for late payment shall not be regarded
as interest.
The term “royalties” means payments of any kind received
as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work, including cinematograph films and software, any patent, trade mark, design or
model, plan, secret formula or process, or for information
concerning industrial, commercial or scientific experience;
payments for the use of, or the right to use, industrial, commercial or scientific equipment shall be regarded as royalties.
In general, following the above mentioned, any income
from debt–claims of every kind, income from securities and
income from bonds or debentures, including premiums and
prizes attaching to such securities, bonds or debentures
should be regarded as an interest. Further, any payments
characterized as a payment for knowhow or right to use the
intellectual property including software should be considered as royalties.
According to the Slovak Income Tax Act, interest and royalties paid by the Slovak company to the Slovak tax non residents and the permanent establishment of the Slovak tax
non residents located in the Slovak Republic are subject to
a withholding tax, in general, at the rate of 19%. This withholding is eliminated according to the respective double tax
avoidance treaty. Further, according to the Slovak Income
Tax Act, the withholding tax is not applied and such income
is to be exempt from tax:
at least twenty–four consecutive months, if the
1. the taxable party that pays such income has a direct
holding of at least 25 % in the registered capital of the
final beneficiary of such income, or
2. the final beneficiary of such income has a direct holding
of at least 25% in the registered capital of the taxable
party who pays such income, or
3. other legal entity with the registered office in a EU member state has a direct holding of at least 25% in the registered capital of the taxable party who pays this income
and simultaneously has a direct holding of at least 25%
in the registered capital of the in the final beneficiary of
such income.
(i)an interest and other proceeds from credits and loans,
or from interest from unit certificates, bonds, certificates
of deposit, treasury bonds and other securities and deposits of equal ranking earned from the source in the
territory of the Slovak Republic by a legal entity that is
a taxable party of a EU member state and that is also
a final beneficiary of this income or by a permanent establishment of this legal entity located in the territory
of other EU member state, if it is the final beneficiary of
this income, from the Slovak tax resident or from permanent establishment of the legal entity being a taxable
person of a European Union member state, however
only if by the income payment day, during the period of
at least twenty–four consecutive months, and
(ii)income for the use or the provision of the right to use
an industrial, commercial or scientific facility earned
from a source in the territory of the Slovak Republic by
a legal entity that is a taxable party of a European Union member state that is also the final beneficiary of this
income or by the permanent establishment of this legal
entity located in the territory of other European Union
Member State, provided that it is the final beneficiary of
this income, from from the Slovak tax resident or from
permanent establishment of the legal entity that is a taxable party of a European Union Member State, however
only if by the income payment day, during the period of
EU Merger Directive
On 19 October 2009 the Council adopted the EU Merger Directive. The objective of the Merger Directive is to remove fiscal obstacles to cross–border reorganisations involving companies situated in two or more EU member states. The EU
Merger Directive includes a list of the legal forms to which
it applies. The companies must be subject to corporate tax,
without being exempted, and resident for tax purposes in an
EU member state.
In the case of mergers and divisions, the transferring company transfers assets and liabilities to one or more receiving
companies. The EU Merger Directive provides for deferral of
the taxes that could be charged on the difference between
the real value of such assets and liabilities and their value
for tax purposes. The deferral is granted provided that the
receiving company continues with their tax values and effectively connects them to its own permanent establishment
in the EU member state of the transferring company. These
rules apply to transfer of assets where the assets transferred
form a branch of activity. The EU Merger Directive covers
also triangular cases where the transaction includes a permanent establishment of the transferring company situated in
a different EU member state.
The exchange of shares is a transaction where a company
acquires a holding majority in the capital of the acquired
company. It transfers in exchange its own shares to the share-
It should be concluded that if the foreign company registered
in the EU member state is a beneficial owner of the interest/
or royalties, the payment of an interest and royalties from the
Slovak tax resident are tax exempt in the Slovak Republic
provided that the above mentioned conditions are met, i.e.
(i) the taxpayer that pays such income has a direct holding of
at least 25% in the registered capital of the beneficial owner
of such income, or the beneficial owner of such income has
a direct holding of at least 25% in the registered capital of the
taxpayer who pays such income, or other legal entity with
the registered seat in a EU member state has a direct holding
of at least 25% in the registered capital of the taxpayer who
pays this income and simultaneously has a direct holding of
at least 25% in the registered capital of the beneficial owner
of such income. In addition, the above minimum 25% holdings in the registered capital should have been for a period
of at least 24 consecutive months at the time of the actual
payment of the respective income.
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holders of the latter company.
In all these transactions, the EU Merger Directive provides
for tax deferral of the taxes that could be charged on the
income or capital gains derived by the shareholders of the
transferring or the acquired company from the exchange of
such shares for shares in the receiving or the acquiring company.
Following the Slovak implementation of EU Merger Directive, merger transactions are generally treated as not giving
rise to a capital gain. As a result, according to the Slovak Income Tax Act the income received by shareholders from acquiring new shares and income from exchange of the shares
on merger transaction is not subject to income tax.
IV.Conclusion
1.EU Parent Subsidiary Directive has been adopted in
the Slovak tax legislation in full extent. In general, the
dividends distributed from profits made after 1 January 2004 are not subject to any Slovak tax. Dividends
paid by a Slovak subsidiary to an EU Parent Company
(as well as from an EU Subsidiary to a Slovak Parent
company) even if such dividends relate to profits earned
before 1 January 2004 are not subject to tax. Please note
that the receiving (parent) company needs to directly
possess a holding of at least 10% of capital at the time of
distribution;
2.The EU Interests and Royalties Directive is incorporated into the Slovak tax legislation. Interest/Royalty
payments are exempt from taxation (including withholding tax) in Slovakia, provided that the payment is
made (i) to a recipient which is a legal entity being a tax
resident in an EU member state and being the beneficial
owner of the interests /royalties, and (ii) the taxpayer
that pays such income has a direct holding of at least
25% in the registered capital of the beneficial owner of
such income, or the beneficial owner of such income has
a direct holding of at least 25% in the registered capital
of the taxpayer who pays such income, or other legal
entity with the registered seat in a EU member state has
a direct holding of at least 25% in the registered capital
of the taxpayer who pays this income and simultaneously has a direct holding of at least 25% in the registered
capital of the beneficial owner of such income;
3.Following the Slovak implementation of EU Merger Directive, merger transactions are generally treated as not
giving rise to a capital gain. As a result, according to the
Slovak Income Tax Act the income received by shareholders from acquiring new shares and income from
exchange of the shares on merger transaction is not subject to income tax.
References
1. Council Directive 2011/96/EU of 30 November 2011 on the
common system of taxation applicable in the case of parent
companies and subsidiaries of different Member States is mandatory for all Member States of the EU.
36
2. Council Directive 2014/86/EU of 8 July 2014 amending Directive 2011/96/EU on the common system of taxation applicable
in the case of parent companies and subsidiaries of different
Member States.
3. Council Directive (EU) 2015/121 of 27 January 2015 amending Directive 2011/96/EU on the common system of taxation
applicable in the case of parent companies and subsidiaries of
different Member States.
4. Council Directive 2003/49/EC of 3 June 2003 on a common
system of taxation applicable to interest and royalty payments
made between associated companies of different Member
States.
5. Council Directive 2009/133/EC of 19 October 2009 on the
common system of taxation applicable to mergers, divisions,
partial divisions, transfers of assets and exchanges of shares
concerning companies of different Member State and to the
transfer of the registered office of an SE or SCE between Member States (codified version).
6. Council Regulation (EC) No 139/2004 of 20 January 2004 on
the control of concentrations between undertakings (the EC
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Is Better For the European Union? Comparative Economic Research, Vol. 18, N.2, 2015.
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Doktoranckich No. 4, Wydawnictwo AE v Poznaniu, Poznan.
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51–64.
12.Transposition Guidance: How to implement EU Directives
effectively?
2013https://www.gov.uk/government/uploads/
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13. Zákon č. 513/1992 Zb. Obchodný zákonník v znení neskorších
predpisov (The Act no. 513/1992 Coll. Commercial Code as
amended).
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amended).
15. Zodrow, G. 2003. Tax Competition and Tax Coordination in the
European Union, International Tax and Public Finance No. 10,
pp. 651–671.
Contact address/ Kontaktná adresa
Ing. Renáta Krajčírová, PhD.
Department of Accounting, Faculty of Economics and Management,
Slovak University of Agriculture in Nitra, Tr. Andreja Hlinku 2,
949 76 Nitra, Slovak Republic,
e–mail: [email protected]
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