Proposal of the Minimum Tax Act
Newsletter – 31.07.2023
The proposal of the Minimum Tax Act (MTA) was published on 23 June 2023. The MTA will implement Directive (EU) 2022/2523 on ensuring a global minimum level of taxation for multinational enterprise groups and large-scale domestic groups in the EU. The latter is a consequence of the OECD’s global fight against tax base erosion within the scope of Pillar II.
The OECD’s Pillar II project represents an extraordinary milestone in international taxation as it is the first time that a minimum tax is being implemented on a global level. 135 countries have bound themselves to implement a minimum tax within the OECD, whereby the previously mentioned Directive enforces the minimum tax within the EU. The MTA proposal envisages that the minimum tax will have to be computed for tax periods after 31 December 2023.
1. Liable taxpayers
Only groups of multinational enterprises (MNEs) that have annual revenue in consolidated financial statements exceeding 750 MEUR in at least two of the four fiscal years preceding the tested financial year will be impacted by the minimum tax.
Each MNE group that fulfils the conditions for the purposes of the MTA will have to determine and calculate whether it is bound to pay the so-called “top-up tax” for each entity in its MNE group.
2. Relevant items for top-up tax computation
Determining all the elements required to compute the top-up tax is a complex operation and entails:
- identifying entities within the MNE group and determining the threshold;
- calculating the qualified revenue or loss of entities in the MNE group in a specific jurisdiction;
- computing qualified domestic taxes;
- computing the effective tax rate for each tax jurisdiction in which the MNE group is present;
- if the effective tax rate is lower than the minimum tax rate, the top-up tax will be computed for each jurisdiction.
All MNE group member entities that are part of consolidated financial reports will have to be considered. Moreover, entities that are excluded from consolidation due to their small size, on materiality grounds or on the grounds that they are held for sale, will also have to be considered.
3. Expected date of application
Should the proposal of the MTA be accepted, it will apply for fiscal years starting with 31 December 2023. The first reporting is envisaged to be executed within fifteen months after conclusion of the financial year of reporting.
Updated foreign direct investment screening mechanism
Effective from 1 July 2023, the updated Investment Promotion Act (IPA) applies, under which the foreign direct investment (FDI) screening mechanism has been updated. The FDI screening mechanism was implemented already in 2020 within the scope of intervention measures to mitigate and remedy the consequences of the COVID-19 pandemic. The screening mechanism has now been transferred to the IPA and updated. Below we present the most important updates.
1. New FDI and foreign investor definitions
Under the former regulation, both foreign natural or legal persons from the EU (also EEA and Switzerland) or from third countries were deemed to be foreign investors. Now, a foreign investor is only a citizen of a third country or a legal entity with its registered office in a third country. Consequently, EU investors are generally no longer subject to the FDI screening mechanism. Nevertheless, the legislator imposed a safety check that should prevent misuse by third-country entities through interim EU-based entities (e.g., investing through interim EU companies). Hence, a foreign investor is also a third-country citizen or a third-country legal entity that directly or indirectly holds at least 10 % of capital or voting rights in an EU legal entity and intends to execute FDI in the Republic of Slovenia or has already done so.
2. Notification – detailed procedural regulation
FDI must be notified to the Notification Commission at the Ministry of the Economy if it is carried out within the area of critical activities: critical infrastructure, technology, resources, access to sensitive information, media, interest of the EU. The scope of information to be included in a notification is set out in an exhaustive list.
The deadline for notification of FDI in the area of critical activities is 15 days of:
- conclusion of a legal transaction,
- announcement of a take-over bid,
- entry of an establishment of a new company into the court register.
Imposed fines for breaching provisions regarding FDI screening range from EUR 100,000 to EUR 500,000, depending on the size of the entity. Moreover, fines are also imposed for independent entrepreneurs in a range from EUR 50,000 to EUR 150,000, liable persons of legal entities from EUR 2,000 to EUR 10,000, and individuals (investors) from EUR 1,000 to EUR 5,000.
When planning a transaction that includes foreign investors, it should be carefully examined whether the conditions for FDI notification are met. We advise caution, especially in M&A transactions and when starting businesses in Slovenia in the form of new legal entities, given that the ownership structure will now be carefully scrutinized in order to correctly identify foreign investors.
Tax relief for dependent family members also for tax non-residents
The Supreme Court of the Republic of Slovenia has decided in matter
no. X Ips 21/2022 of 12 April 2023 that tax non-resident citizens of EU member states who generate all their taxable income in Slovenia are also entitled to claim tax relief for dependent family members. This applies only under the further condition that the non-resident cannot claim comparable relief in his state of residence, since he did not generate sufficient taxable income in that state to claim it.