IB ServiceGrant Thornton Newsletter December 2015

Topic

1. Summary of the most important changes in tax laws valid from 1 January 2016

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1. Summary of the most important changes in tax laws valid from 1 January 2016

2. Tax return as at 31.12.2015 – changes against the year 2014

3. Tax penalties from 1 January 2016

4. Changes in the Slovak VAT Act from 1 January 2016

5. Whistleblowing

• It is specified in more detail that costs of advisory and legal services classified in codes 69.1 and 69.2, i.e. legal services, legal advisory services, services of notaries public, accounting services, keeping of books of accounts, audit services, tax consulting and audit services, will be tax deductible once they have been paid.

Transfer pricing

Amendments of the Income TaxThe process of approval of the used valuation method by the tax administrator is specified.

Measures against tax evasion Dividend at the Slovak parent company will be taxed if such dividend is treated as tax cost at the subsidiary. Furthermore, a

Summary of the most important changes in tax laws valid from 1 January 2016

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Transfer pricingIt is specified that the tax administrator may invite the taxable person to submit transfer pricing documentation for the respective year not sooner than after expiration of the time-limit for submission of the income tax return for the respective year, i.e. it may request for transfer pricing documentation for the year 2015 not sooner than on 1 April 2016 (or 1 July 2016 in case of prolongation of the time-limit for submission of the tax return).

The process of approval of the used valuation method by the tax administrator is specified.

dividend is treated as tax cost at the subsidiary. Furthermore, a new rule is introduced, according to which dividend will be subject to tax if the taxable person receiving dividend undertakes steps leading to an abuse of the Income Tax Act.

Changes in determination of the tax baseSeveral changes relating to determination of the tax base will already be applied upon submission of the income tax return for the year 2015, for example:• If a taxable person sells assets, the loss on sale of which is not a

tax expense, such person may apply monthly tax depreciation;• In case of fulfilment of determined conditions the creation of a

value adjustment to receivable attribution will be a tax expense; under the same conditions the write-off of receivable attribution will be a tax expense;

• Supplier who applies the special regime will pay VAT from issued invoice after reception of payment from the customer;

• Customer will claim a VAT deduction only after the payment of the invoice to the supplier who applies the special regime.

Introduction of local reverse-charge rules for construction works From 1 January 2016 the reverse-charge regime will be applied to construction works, supply of a building or parts of buildings under the contract for work, as well as to some supplies of goods with installation or assembly.

The supplier of these services will issue an invoice without VAT and

Taxation of capital incomeCapital income of physical persons, irrespective of its amount, will be taxed through a special tax base at the rate of 19%.

Income of physical persons from the transfer of securities traded on a regulated market (e.g. on stock exchange), which are not part of business of the physical person, will be exempt from tax if period between their acquisition and sale does not exceed one year. Furthermore, income of physical persons from long-term investment savings will be exempt from tax after 15 years of establishment of the savings account.

Changes in the VAT Act

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The supplier of these services will issue an invoice without VAT and the obligation to pay VAT (as well as the claim for VAT deduction on the basis of invoice) will arise to the recipient of the services.

Introduction of the reverse-charge rules for supplies of goods by a foreign person The reverse charge regime is also introduced for domestic supplies of goods by a foreign person. Until the end of year 2015 this regime was applied only when a foreign person had supplied goods with installation or assembly to a domestic person.

Tightening of requirements for reporting of simplified invoices in the VAT control statement Until the end of year 2015, for received simplified invoices the taxable person only reports in the VAT control statement summary information on the tax bases, VAT and deducted VAT from all simplified invoices.

Changes in the VAT Act

Application of a special VAT rate – 10% to selected types of foodsWhile foods are subject to the VAT rate of 20% until the end of year 2015, the VAT rate of 10% will be levied on selected types of meat, milk, dairy products and bread from 1 January 2016.

Payment of VAT upon the receipt of payment for supplied goods or service Taxable persons whose turnover does not exceed EUR 100 000 per calendar year and who are not subject to bankruptcy proceedings or have not entered into liquidation, will have the option to apply a special regime upon supply of goods and services in the home country, where:

After 1 January 2016, the taxable person will be obliged to report in the VAT control statement received simplified invoices separately for individual suppliers if the total amount of tax deducted from simplified invoices is EUR 3.000 or more.

Electronic communication of the tax administrator with a taxable person While persons determined by law are obliged to use electronic means for their communication with the tax administrator already from 1 January 2014, electronic communication in the opposite direction, i.e. from the tax administrator to the taxable person, will only become a reality only in 2016. In this year the financial directorate will gradually publish on its website information about

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directorate will gradually publish on its website information about taxes, for which this electronic communication in the opposite direction will be used.

Ing. Vladimír KovárKrižkova 981103 BratislavaT +421 2 593 004-61F +421 2 590 004-10E vladimir.kovar@sk.gt.com

total useful area in m2 (or per cent) of all parts of the building classified to DC 5 with total useful area in m2 (or per cent) of all parts of the building classified to DC 6;

• Technical improvements of a building used for several purposes will be classified to a depreciation group on the basis of the purpose, for which the lessee uses the leased premises. The declining-balance depreciation method may only be used for tangible assets classified to depreciation groups 2 and 3. All other types of assets have to be depreciated using the straight-line method from 1 January 2015.

As of 1 January 2015 an amendment of the income tax act entered into force, which will significantly influence the quantification of the tax base and calculation of the tax as at 31.12.2015. Taxable persons with fiscal year starting before 1 January 2015 will be affected by this amendment only in the fiscal year ending during the year 2016.

Here are the most important changes.

Tax return as at 31.12.2015 – changes against the year 2014

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depreciated using the straight-line method from 1 January 2015. Depreciation charges for the previous years will not be adjusted;

• The new amendment applies to assets acquired in the form of financial leasing and used under financial lease contracts concluded after 1 January 2004. From 1 January 2015 they are depreciated during the period of depreciation determined for individual depreciation groups, which means a prolongation of the period of depreciation of assets acquired in this form against the past;

• In case of operating lease depreciation charges for leased equipment may be recognised as tax expenses of the lessor in the individual tax periods, up to the amount of income from lease;

• Losses on the sale of passenger vehicles, motorcycles, ships and sports and holiday boats are not a tax expense. Monthly tax depreciation for these assets may also be applied in the year of their sale.

Reclassification of non-current assets between depreciation groups, change in the period and method of depreciation

• The number of depreciation groups increased from 4 to 6 (period of depreciation: 4, 6, 8, 12, 20 and 40 years);

• For some types of assets, in particular those of technological character, e.g. generators, transformers, power distribution equipment, furnaces and ventilation systems, the period of depreciation was reduced (from 12 to 8 years);

• For administrative buildings and buildings for cultural and entertainment purposes, hotels and residential buildings the period of depreciation was prolonged from 20 to 40 years;

• If a building is used for several purposes, the main use will be decisive for determination to which depreciation group it belongs. It will be determined on the basis of comparison of the

advertising gift are tax deductible in the total amount up to 5% of the tax base of the taxpayer. These limitations do not apply to alcoholic beverage producers;

• Penalties and contracted default interest or late charges are not recognised as tax expenses, regardless of their payment.

Cost items deductible after their payment

• Costs of marketing and other studies, market surveys, certification and standardisation are included in the tax base evenly over the period of their validity, but not longer than during 36 months of their payment (the accruals concept will only be applied to standards and certificates with acquisition cost higher than

Deduction of receivables

• Tax deduction of the write off of irrecoverable receivables (e.g. in case of termination of bankruptcy proceeding, restructuring or execution proceedings , issue of the court´s ruling or death of the debtor) will be possible only for receivables that were initially included in taxable income. It means that for example receivables from loans which, unlike receivables from supplies, did not increase the taxable profit at the time of recording, may not be deducted from tax if they become irrecoverable;

• This limitation does not apply e.g. to banks.

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standards and certificates with acquisition cost higher than EUR 2.400);

• Agency commissions, including those paid under mandate and similar contracts (e.g. commercial agency agreements) will be tax deductible up to 20% of the value of mediated transaction. Again, this provision does not apply to certain financial institutions (e.g. banks, insurance companies and their branches, etc.);

• Costs of advisory and legal services (classification codes 69.1 and 69.2, i.e. legal services, legal advisory services, services of notaries public, accounting services, keeping of books of accounts, audit services, tax consulting and audit services) paid by taxable person in the countries, with which the Slovak Republic has not concluded the international double taxation treaty, will be tax deductible only after reporting, retention and payment of the withholding tax or tax security for these payments.

Provisions

• Provisions for unbilled supplies and services, provisions for preparation, audit and publication of financial statements and annual report, and provisions for preparation of the tax return are not recognised as a tax expense.

Non-deductible costs

• Tax deductible advertising items, the value of which must not exceed EUR 17 per unit, do not include tobacco products and alcoholic beverages. These advertising gifts may only be deducted from tax by producers of tobacco products and alcoholic beverages. Wine is an exception. Wine bottles as

Limitation of deductibility of interest costs (so-called “thin capitalization rule”)

• Costs of credits and loans provided by dependent persons may be claimed as tax expenses up to 25% of EBITDA (earnings before interest, tax, depreciation and amortization). Activated interest in fixed assets remains unaffected by this prohibition of deduction. This provision does not apply to leasing companies, banks and insurance companies.

Tax changes concerning passenger vehicles

• The “luxury“ limit in amount of EUR 48.000 for passenger vehicles only applies to taxable persons whose taxable profit achieved with use of a passenger vehicle as a company asset is lower than EUR 12.000;

• This limit of profit will be increased in case of the use of several passenger vehicles, depending on the number of these vehicles. For instance, if a taxpayer uses 2 passenger vehicles, the limit of profit will be EUR 24.000;

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Transfer pricing

• From 1 January 2015 transactions between domestic related companies must be included in transfer pricing documentation, too.

profit will be EUR 24.000;• Taxable persons who do not achieve the respective limit of profit

may depreciate the passenger vehicles in a limited amount, while taxable persons with higher taxable profits may depreciate them in the full amount.

Example No. 1:

In January 2015 the company purchases a passenger vehicle for the price of EUR 70.000. The calculation of impact on the tax base during the period of depreciation will be as follows:

In tax periods, where taxable profit is lower than EUR 12.000, the tax base will be increased by the difference between depreciation charges

Year

Depreciation charges from acquisition cost of EUR 70,000

Depreciation charges from limited acquisition cost of EUR 48,000 Tax base

Increase of the tax base of EUR 5,500 (= 17,500 – 12,000) at tax base ≥EUR 12,000

2015 17.500 12.000 10.000 5.500 2016 17.500 12.000 12.000 -2017 17.500 12.000 11.000 5.5002018 17.500 12.000 22.000 -

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In tax periods, where taxable profit is lower than EUR 12.000, the tax base will be increased by the difference between depreciation charges from acquisition cost of EUR 70.000 (depreciation charge in amount of EUR 17.500) and depreciation charges from limited acquisition cost of EUR 48.000 (depreciation charges in amount of EUR 12.000).

In case of lease of “luxury vehicles” depreciation costs at the lessor are tax deductible in the full amount. At the lessee the cost of lease may be deducted up to the amount of EUR 14.400 per year, if taxable profit of the lessee is below EUR 14.400. If the tax base is equal or higher than EUR 14.400 the cost of lease is recognised as a tax expense in the full amount.

Ing. Martina RunčákováKrižkova 981103 BratislavaT +421 2 593 004-00F +421 2 590 004-10E martina.runcakova@sk.gt.com

Example 1:

A penalty assessed four years after the date for payment of the tax will be four-times higher after tax audit.On the basis of tax audit for the year 2015 the tax authority will assess additional tax in amount of EUR 50.000. The tax was payable in 2015 and the tax audit will be conducted in 2019.

Payment of penalty according to the old rules: EUR 5.000 (The penalty is calculated as a lump-sum using a triple of the ECB

From 1 January 2006 much higher penalties, but not exceeding the amount of additional assessed tax, may be imposed for a tax return indicating an incorrect amount of tax (hereinafter “incorrect return”). While incorrect tax returns are now sanctioned by a lump-sum penalty irrespective of the period of delay, in the future the amount of panalty will depend on the number of days of delay and a high interest rate.

1. If additional tax is assessed as a result of tax audit an interest rate p.a. representing a triple of the base interest rate of the

Tax penalties from 1 January 2016

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(The penalty is calculated as a lump-sum using a triple of the ECB rate, at least 10 per cent, the number of years between the date for payment of tax and the tax audit does not play any role.)

Payment of penalty according to the new rules: EUR 20.000(The penalty is calculated with use of a triple of the ECB rate, at least 10 per cent p.a. Four years elapsed between the date for payment of tax and the tax audit. The additional tax liability will bear interest of 10 per cent p.a. In this specific case the penalty is four times higher than before.)

rate p.a. representing a triple of the base interest rate of the European Central Bank (at least 10 per cent) will be used for calculation of the penalty.

2. If a supplementary tax return is filed within 15 days of the start of tax audit an interest rate p.a. representing a double of the base interest rate of the European Central Bank (at least 7 per cent) will be used for calculation of the penalty.

3. If a taxable person files a supplementary tax return before the start of tax audit its tax honesty will be “rewarded” by use of the interest rate corresponding to the base interest rate of the European Central Bank (at least 3 per cent) for calculation of the penalty.

Example 2:

If a company files a supplementary tax return four years after the date for payment of tax and before the tax audit, the penalty will be 140 percent higher.On the basis of tax audit for the year 2015 the tax authority will assess additional tax in amount of EUR 50.000. The tax was payable 2015 and the tax audit will be conducted in 2019. The supplementary tax return will be filed before the start of tax audit.

Payment of penalty according to the old rules: EUR 2,500(The penalty is calculated with use of 1.5-times of the ECB rate, at least 5 per cent p.a. the number of years between the date for payment

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least 5 per cent p.a. the number of years between the date for payment of tax and the tax audit does not play any role.)

Payment of penalty according to the new rules: EUR 6,000(The penalty is calculated with use of the ECB rate, at least 3 per cent p.a. Four years elapsed between the date for payment of tax and the tax audit. The additional tax liability will bear interest of 3 per cent p.a. In this case the penalty is 140% higher than the penalty imposed according to the old rules.)

Ing. Vladimír KovárKrižkova 981103 BratislavaT +421 2 593 004-61F +421 2 590 004-10E vladimir.kovar@sk.gt.com

Changes in the Slovak VAT Act from 1 January 2016In case of supplies of goods to a domestic taxable party with place of supply in the Slovak Republic (domestic supplies of goods) the foreign person will issue an invoice without VAT, containing information on the application of reverse charge. The foreign person will not claim deducted VAT from goods purchased with Slovak VAT through a VAT return filed in Slovakia, but it will do so by submitting the application for VAT refund to a foreign person in the state of establishment of the foreign person. In this way the foreign person will obtain VAT from purchased goods with significant delay.

Introduction of the application of reverse charge to supplies of goods by a foreign person

Situation before 31.12.2015In case of a supply of goods by a foreign person from other member state or by a foreign person from a third country (hereinafter „foreign person“) reverse charge was only applied to supplies of goods with installation or assembly with the place of supply in the Slovak Republic.In case of other supplies of goods with place of supply in the

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from purchased goods with significant delay.

For foreign persons it will mean the following:• They will not be obliged to pay VAT in Slovakia, and • They will only be allowed to deduct VAT through the

application for VAT refund, on the other hand.

The foreign persons will continue reporting of acquisitions of goods from other member state within the territory of SR in the VAT return (both the tax liability and deductions of VAT from acquired goods). The VAT deduction may also be applied via a tax return e.g. in situations where the foreign person executes a supply of goods in SR with VAT (e.g. to a private person) or a supply of goods to other member state, in addition to a supply of goods in SR with Reverse Charge.

In case of other supplies of goods with place of supply in the Slovak Republic (domestic supplies of goods) the obligation to pay the value added tax was imposed on a foreign person, who was liable to apply for registration and submit the VAT returns in Slovakia. In this case the foreign person deducted VAT from goods purchased with Slovak VAT through the VAT return.

Situation after 01.01.2016The reverse charge will be applied to each supply of goods by a foreign person (including goods supplied with installation or assembly) to a domestic taxable party with place of supply in the Slovak Republic. The only exception remains goods supplied in the form of sale by distance selling, in which case reverse charge will not be applied.

Introduction of the Reverse charge for construction works between two domestic persons – VAT payers

Situation before 31.12.2015In case of supplies of construction works or goods with installation or assembly between two domestic persons the supplier was obliged to pay VAT.

Situation after 01.01.2016In case of supplies of construction works between two domestic persons the reverse charge to the customer will be applied in the following situations:

F CONSTRUCTIONS AND CONSTRUCTION WORKS 41 Buildings and building construction works

42 Constructions and construction works for civil engineering

42.1 Roads and railways; construction works for roads and railways

42.2 Constructions and construction works for utility projectsConstructions and construction works for other civil engineering

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following situations:• In case of supply of construction works, including supply of a

construction or its part, classified to Section F of the Commission Regulation (EU) No 1209/2014 of 29 October 2014, and

• In case of supply of goods with installation or assembly, providing their installation or assembly is classified to Section F of the regulation

Constructions and construction works classified to Section F of the Commission Regulation (EU) No 1209/2014 of 29 October 2014:

JUDr. Ing. Peter SchmidtKrižkova 981103 BratislavaT +421 2 593 004-63F +421 2 590 004-10E peter.schmidt@sk.gt.com

42.9 Constructions and construction works for other civil engineering projects

43 Specialised construction works

43.1 Demolition and site preparation works

43.2 Electrical, plumbing and other construction installation works

43.3 Building completion and finishing works

43.9 Other specialised construction works

may be imposed (including violations of the Labour Code, e.g. illegal employment, and many other violations).

The Act allows the employees, who file an action or make a report to an administrative body (e.g. Labour Inspectorate), to apply the court or the administrative body for the protection against sanctions on the part of the employer. The protection which may be provided to an employee, consists in making the legal act taken or decision made by the employer against the employee conditional on the prior approval

A new Act on certain measures related to reporting of anti-social behaviour and on amendment of some acts, referred to as “Whistleblowing Act” (hereinafter “Act”), was passed with theentry into force from 2015.

In connection with adoption of this Act, a new obligation for employers was introduced. This obligation consists in the introduction of an internal regulation similar to the OHS regulation, and of new rules for the protection of “whistleblowers“, which also

Whistleblowing

the employer against the employee conditional on the prior approval of the Labour Inspectorate. Any legal act taken without approval of the Labour Inspectorate is declared invalid.

If an employee makes a report directly to the employer and later is subject to a labour-law related act (e.g. termination of employment) not approved by him, he may apply the Labour Inspectorate for suspension of effects of such labour-law related act in 7 days of the day when he became aware of it.

The Act encourages the employees to report breaches also by remuneration, which will be paid if the report proves to be true and the offender is condemned in the criminal or administrative proceedings. The remuneration may paid up to 50-times the minimum wage (i.e. EUR 19 000 from January 2015), but its granting and amount depend on the decision of the Ministry of Justice of SR (it is not enforceable).

and of new rules for the protection of “whistleblowers“, which also applies to the employees.

(i.) General information on the Act

The purpose of the Act is detection of “serious anti-social behaviour”, such as:• Corruption;• Deceitful practices in public procurement and in the use of EU

funds;• Other crimes, for which the law imposes the sentence of

imprisonment with the upper limit exceeding three years (e.g. theft causing a substantial damage – min. EUR 26 600; fraud or misappropriation of funds or non-payment of wage and severance pay, causing a major damage, i.e. min. EUR 2 660, etc.);

• Administrative offences, for which a fine of at least EUR 50.000

(iii.) Time-limitsThe Act entered into force on 1 January 2015 and the individual

obligations of the employers must have been complied with by 1 July 2015 at the latest.

(ii.) New obligations of the employer

An employer who has more than 50 employees (including persons working under agreements on work performed outside employment relationship) is obliged to establish an internal mechanism for making and handling of reports. This mechanism must have the form of an internal regulation, like OHS.

For this purpose the employer is obliged :• to designate a responsible person, which may be a special

organizational unit or an employee reporting directly to the organizational unit or an employee reporting directly to the statutory body;

• to issue an internal regulation, specifying the details on making and handling of reports on breaches, keeping of records and protection of the reporter,

• to keep records on all reports made and the manner of their handling, for a period of three years .

If the employer breaches the obligation to introduce an internal mechanism the Labour Inspectorate may impose a fine on the employer up to the amount of EUR 20.000.

Furthermore, the Act allows imposition of a lump-sum penalty up to EUR 500 for a breach of the obligation in performance of labour inspection.

BratislavaPanenská 6SK-81103 BratislavaT +421 2 5263 2804F +421 2 5263 2677E bratislava@taylorwessing.com

JUDr. Radovan Pala

SLOVAKIA (Bratislava | Prešov)

Martina RunčákováT +421 2 593 004-41

Wilfried SerlesT+421 2 593 004-00

Grant Thornton

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IB Grant ThorntonKrižkova 9

SK-811 04 BratislavaT +421 2 593 004-00F +421 2 593 004-10E office@sk.gt.com

IB Grant ThorntonFloriánova 2

SK-080 01 PrešovT +421 51 7710 328