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In December 2022, we informed you in our News Flash about the amendment to the VAT Act, which, among other things, brings an important change from January 1, 2023 for VAT payers who have deducted input VAT from received supplies and at the same time have not paid their suppliers for these supplies.
Since the obligation to return the deducted VAT represents a significant limitation of input VAT deduction compared to system applicable until December 2022, and for thousands of VAT payers might lead to an additional VAT payment to the state budget already in the VAT return for January 2023, we bring you a summary of the most important highlights on this topic.
Pursuant to the VAT Act valid from January 1, 2023, the VAT payer has the obligation to return the VAT deducted from the received supplies based on supplier invoices issued with Slovak VAT, if there is more than 100 days from the liability´s due date.This obligation shall be proceeded in the tax period in which 100 days since the due date of the liability occurs. To avoid retroactivity, the correction of the deducted VAT shall not be applied to older liabilities for which 100 days from the due date occurred before January 1, 2023. The amended VAT Act only requires the refund of the deducted input VAT in case of unpaid liabilities that exceed 100 days from the agreed due date after January 1, 2023, and at the same time these liabilities will not be paid by the end of January 2023.
In such a situation, the VAT payer will be obliged to correct the deducted input VAT in the VAT return for January 2023 to the extent of the unpaid liability, for which 100 days have passed since the due date in January 2023.
If, after the VAT payer has returned the deducted VAT to the state budget, partially or fully pay for the liability to his supplier, the VAT payer has the right to correct the corrected input VAT, i.e., additionally deduct the VAT amount again. The VAT payer (customer) will be able to additionally claim input VAT deduction to the extent in which he paid the liability, namely in (i) the tax period of the payment, if he has not received from the supplier a document on the correction of the tax base for uncollectible receivable by the deadline for filing of the tax return, or (ii) in the tax period in which he received a correction document from the supplier on the correction of the tax base due to the fact that he received payment in connection with the uncollectible receivable.
With regard to the system of VAT, the correction of deducted VAT does not apply to overdue liabilities, in which the transfer of the tax liability to the recipient (reverse-charge) is applied, i.e. the recipient of the performance is responsible for the payment of output VAT.
In conclusion, we would like to draw your attention to the fact that based on the above-mentioned amendment the obligation to return the VAT deducted from unpaid invoices will be stricter to the customers, but at the same time, for the suppliers there will be easier to obtain the VAT from the state from supplies for which they did not receive payment.
However, the right to refund the paid output VAT arises to the supplier later than the customer’s obligation to return the deducted input VAT, namely after 150 days after the receivable is due. In addition, the VAT payer – supplier, must prove that he has taken any action to collect the claim, and for claims worth more than EUR 1,000 (including VAT) he must meet other legislative conditions set out in the VAT Act (execution proceedings, court action).
For more information about the supplier’s right to refund paid VAT, read our article, in which we informed about the changes in the VAT Act.
If you are more interested in this issue, do not hesitate to contact us.
On December 6, 2022 the National Council of the Slovak Republic approved the government’s draft amendment to the Income Tax Act, which indirectly amends the Tax Administration Act as of January 1, 2023. Some of the adopted changes, regarding the institution of a second chance for the imposition of sanctions and also the shortening of the period for the imposition of interest on late payment, have been postponed until January 1, 2024. Below we bring you a brief summary of the most significant changes resulting from the adopted amendment.
In order for the changes to enter into force, they must still be signed by the President of the Slovak Republic and published in the Collection of Laws of the Slovak Republic.
The amended provision concerns the mitigation of sanctions in the case of the first detected violation of tax obligations towards the tax authority in Slovakia.
For the first violation of tax obligations in Slovakia, the tax authority will not impose a penalty, which is determined by the interval, but will warn the tax subject to fulfill his obligation, and if the obligation was fulfilled late, the tax authority will warn the tax subject that a penalty will be imposed on him for the next violation.Violation will be assessed according to the factual nature of the administrative offense, specifically by the tax office and the customs office. This provision will enter into force on January 1, 2024.
The amendment includes shortening of the period for levying interest on delay in payment of arrears (advance tax, tax instalments, amount to secure tax or in case of late payment of selected advance tax or withheld tax) from the original five years to a maximum period of up to one year from the end of the year, in which the arrears will be paid.
According to the amendment, after the suspension of enforcement proceedings, the seized driver’s license will be returned, in such a way that the decision is delivered to the Police Force without delay, while there is no need to wait for its legal validity.
In the case of effective remorse for tax crimes within the meaning of the Criminal Code, it will be possible to levy the tax by paying it even after the right to levy the tax has expired.
The shorter period of 8 days for tax compliance in Slovakia with certain obligation towards the tax authority in connection with a tax audit, assessment procedure or local investigation will now apply to a taxpayer who has been assigned a status of less reliable taxpayer (instead of unreliable index) based on tax reliability index.
If you are interested in more information on any of the topics, do not hesitate to contact our tax advisors in Slovakia.
On December 6, 2022 the Slovak Parliament approved an amendment to the Value Added Tax (VAT) Act with effectiveness from January 1, 2023, which brings legislative changes regarding temporary reduction of VAT rate for hospitality services, ski lifts and aquaparks, the correction of the deducted tax in the case of unpaid liabilities, correction of tax base in the case of uncollectible receivables, correction of tax base in the case of theft goods defined by law and changes in mandatory VAT registration in Slovakia after exceeding the turnover of EUR 49,790.
The primary goal of the amendment to the VAT Act was the area of purchasing goods and services through e-shops or digital platforms, which are currently experiencing great growth. This legislative change will be effective as from January 1, 2024.
In order for the legislative changes to enter into force, they must be signed by the President of the Slovak Republic and published in the Collection of Laws of the Slovak Republic, too. Below we bring you an overview of the most important legislative changes which may impact you.
Reduced VAT rate from 20% to 10% will apply on transport of persons by cable cars, ski lifts, access to indoor and outdoor sports facilities for the purpose of sport, admission to artificial swimming pools and for restaurant and hospitality services for the period from January 1, 2023 until March 31, 2023.
The transposition of Council Directive (EU) 2020/284 introduces a notification obligation for payment service providers with effect from January 1, 2024 in order to combat tax avoidance in the field of cross-border e-commerce, as well as to check the correctness of the amount of tax declared. Domestic payment service providers will be required to keep records of payees and cross-border payments in connection with the payment services they provide for each calendar quarter, and at the same time to make these records available to the Financial Directorate of the Slovak Republic. These records will then be sent by each member state to the Central European Payment System (so-called CESOP), where they will then be cross-checked and evaluated.
The customer (VAT payer) is obliged to return the VAT deducted from the purchased goods and services, in the price of which VAT was applied, if he has not fully or partially paid the supplier within 100 days from the due date of the liability (instead of the original 90 days). The deadline for refunding the tax deducted from the unpaid liability is thus extended by 10 days.
If the customer does not receive a corrective invoice from supplier by the end of calendar month following the calendar month in which the corrective invoice was sent, such corrective invoice is deemed to be delivered to the customer on the last day of the following calendar month.
For the purposes of the definition of the uncollectible receivable, the possibility to request a correction for the uncollectible receivable with a low value of EUR 300 that was overdue more than 12 months, is cancelled. Instead, the supplier will monitor whether the receivable is overdue more than 150 days. After fulfilling the time test, it is further monitored whether:
Following the above, the receivable will become unenforceable according to the new rule if the moment of meeting the time test of 150 days after the maturity of the receivable occurs after January 1, 2023. If the moment of fulfilment of the time test of 150 days after the maturity of the receivable occurs before the end of 2022, the original rules effective as of December 31, 2022 will apply.
The provision is also supplemented with conditions under which the supplier must return the requested VAT in Slovakia, i.e. carry out correction of the reduced tax base, and only if exhaustively defined facts occur – the VAT payer withdraws the receivable in whole or in part, there is a cessation of court proceedings due to reasons on the part of the supplier, or the court does not fully or partially grant the supplier’s claimed receivable.
If the property stolen from the taxpayer was purchased for a purpose other than resale with a purchase price of EUR 1,700 and less and a useful life of more than 1 year, he is obliged to return a proportional part of the deducted VAT corresponding to the residual value, as if the property had been depreciated for 4 years.
Domestic taxable persons who perform only exempted activities such as financial, insurance services, delivery and rental of real estate will be able to voluntarily decide whether to register for VAT purposes after the turnover of these activities exceeds EUR 49,790.
If you are interested in more information on any of the topics, do not hesitate to contact our tax advisors in Slovakia.
In this issue of our News Flash, we would like to briefly outline a recent case of the European Court of Justice (ECJ), which concerns the joint and several liability of the indirect customs representative for import of the goods and whether this person could be recognized as being liable for the payment of the import value added tax.
In the case C-714/20 from 12th May 2022 ECJ is dealing with the question whether the Union Customs Code must be interpreted as meaning that the indirect representative is liable not only for customs duties, but also for import VAT merely as a result of being a “declarant” for customs purposes. At the same time, ECJ is dealing with the question, whether the Council Directive on the common system of value added tax must be interpreted as meaning that the liability of the indirect customs representative for the payment of the import VAT, jointly and severally with the importer, can be accepted where there are no national provisions explicitly and unequivocally designating or recognizing that representative as being liable for that tax.
The case concerns Italian company U.I. Srl that represented other importing Italian companies as an indirect customs representative and in this respect executed all necessary customs operations in its name on behalf of those importing companies, and submitted the corresponding customs declarations on the basis of powers of attorney.
The Customs Agency determined that U.I. Srl in its capacity as indirect customs representative of the importing companies was jointly and severally liable for payment of that tax with those companies, specifically under the Customs Code.
However, in Italian legislation, there is absence of the exact specification of the person liable/jointly and severally liable for payment of the import VAT.
In accordance with settled case-law in interpreting a provision of EU law, it is necessary to consider not only its wording, but also the context in which it occurs, and the objectives pursued by the rules of which it is part. Even though the declarant is the debtor and, in the event of indirect representation, the person on whose behalf the customs declaration is made is also a debtor according to the Customs Code, however, the context and objectives of the Customs Code show that it is aimed exclusively at customs debt and not also at import VAT.
Further, Council Directive on the common system of value added tax makes no reference to the provisions of the Customs Code in relation to the obligation to pay that tax, but provides that that obligation is imposed on the person or persons designated or recognized as being liable by the Member State into which the goods are imported.
In those circumstances it is for Member States to designate or recognize the person or persons liable for payment of import VAT using national provisions that are sufficiently clear and precise, in accordance with the principle of legal certainty.
It follows that any liability of the indirect customs representative for the payment of import VAT imposed by a Member State, jointly and severally with the person who has given him or her a power of representation and whom he or she represents, must be established, explicitly and unequivocally, by such national provisions.
ECJ ruled that Council Directive on the common system of value added tax must be interpreted as meaning that the liability of the indirect customs representative for the payment of the import value added tax, jointly and severally with the importer, cannot be accepted where there are no national provisions explicitly and unequivocally designating or recognizing that representative as being liable for that tax.
This ECJ case can potentially reduce the liability of indirect customs representative to pay import VAT by limiting their responsibility only for customs debt but not the import VAT, provided that there are no explicit provisions in national legislation that recognize this indirect representative as being the person liable to pay the import VAT. This case could be considered as positive news for indirect representatives as they are not allowed to claim the deduction of import VAT, if it is payable, because they do not use the imported goods for their own taxable transactions.
On 11 May 2022, the European Commission issued a Proposal on DEBRA, a Directive on laying down rules on a debt-equity bias reduction allowance and on limiting the deductibility of interest for corporate income tax purposes (DEBRA) (COM/2022/216 final). This proposal follows up the Communication on Business Taxation for the 21st century (COM(2021) 251 final), which was adopted by the European Commission on 18 May 2021 and which we informed you about in our Flash News here.
Tax systems in the EU allow for the deduction of interest payments on debt when calculating the tax base for corporate income tax purposes, while costs related to equity financing, such as dividends, are mostly non-tax deductible. This asymmetry in tax treatment is one of the factors favouring the use of debt over equity for financing investments.
With a view to addressing the tax-induced debt-equity bias across the single market in a coordinated way, this directive proposal on DEBRA lays down rules to provide, under certain conditions, for the deductibility for tax purposes of notional interest on increases in equity and to limit the tax deductibility of exceeding borrowing costs. These rules should apply to all taxpayers that are subject to corporate tax in one or more Member State, except for financial undertakings. Since small and medium enterprises (SMEs) usually face a higher burden to obtain financing, it is proposed to grant a higher notional interest rate to SMEs.In the light of the different objectives between this proposal on DEBRA and the ATAD rule on interest limitation, the two rules on limiting the deductibility of interest should apply in parallel.
If this proposal on DEBRA is adopted as a Directive, it should be transposed into Member States’ national law by 31 December 2023 and come into effect as of 1 January 2024.
Below we summarize in brief the key information on two measures covered by the proposal.
Under the proposal on DEBRA, the allowance on equity is computed by multiplying the allowance base with the relevant notional interest rate (NIR).
The allowance base is calculated as the difference between the level of net equity at the end of the tax period and the level of net equity at the end of the previous tax period. The relevant NIR is based on two components: the risk-free interest rate and a risk premium.
The risk-free interest rate is the risk-free interest rate with a maturity of ten years, as laid down in the implementing acts to Article 77e(2) of Directive 2009/138/EC, in which the allowance is claimed, for the currency of the taxpayer. Risk Premium is set at 1% (or 1.5% for SMEs).
An allowance on equity is deductible, for 10 consecutive tax periods, from the taxable base of a taxpayer for corporate income tax purposes up to 30% of the taxpayer’s EBITDA. If the deductible allowance on equity is higher than the taxpayer’s net taxable income, the taxpayer may carry forward the excess of the allowance on equity without a time limitation. Taxpayers will also be able to carry forward their unused allowance on equity which exceeds the 30% of taxable income for a maximum period of 5 tax years.
The base of the allowance on equity does not include the amount of any increase which is the result of:
However, this is not applicable if the taxpayer provides sufficient evidence that the relevant transaction has been carried out for valid commercial reasons and does not lead to a double deduction of the defined allowance on equity.
Other measures set specific conditions for equity increase from contributions in kind and target the re-categorisation of old capital as a new capital.
The proposal on DEBRA also introduces a reduction of debt interest deductibility by 15%, to better mitigate the debt-equity bias. In particular, a proportional restriction will limit the deductibility of interest to 85% of exceeding borrowing costs (i.e. interest paid minus interest received).
Given that interest limitation rules already apply in the EU under Article 4 of the ATAD, the taxpayer will apply the rule of Article 6 of this proposal as a first step and then, calculate the limitation applicable in accordance with article 4 of ATAD. If the result of applying the ATAD rule is a lower deductible amount, the taxpayer will be entitled to carry forward or back the difference in accordance with Article 4 of ATAD.
By way of example, if company A has exceeding borrowing costs of 100, it should:
In this issue of our News Flash, we would like to briefly outline two recent cases of the European Court of Justice (ECJ), which both concern the identification of real supplier for VAT deduction – namely, the the refusal to right to deduct VAT in cases where the real supplier of goods or services has not been identified.
In cases C-281/20 from 11th November 2021 and C-154/20 from 9th December 2021 is ECJ dealing with the similar question, whether the Council Directive on the common system of value added tax must be interpreted that in case of undeniably realized supply of goods/services it is necessary, among other things, to prove and identify real supplier of such goods/services, in order to exercise a right for deduction of the input tax.The first case concerns a Spanish company Ferimet that acquired goods and the company itself issued invoice for this supply, where it has been proven that the supplier stated on the invoice is not the real supplier of goods. The real supplier of goods has not been identified. Goods were supplied in tax regime of „reverse charge“ when Ferimet taxed acquisition of goods but deduction of tax was not allowed.
The second case concerns a Czech company Kemwater ProChemie that was refused to deduct a VAT paid in respect of advertising services provided during a golf tournament. Managing director of services supplier stated that he had no knowledge of the fact that those services had been provided, and also company Kemwater ProChemie was not able to demonstrate that the mentioned company was indeed the supplier of those services.
As results from the settled case-law of the ECJ, the right to deduct VAT is subject to compliance with material as well as formal conditions where the fundamental principle of VAT neutrality requires deduction of input VAT to be allowed if the material conditions are satisfied, even if the taxable person has failed to comply with some of the formal conditions.
ECJ further added that even though the naming of the supplier on the invoice relating to the goods or services on the basis of which the right to deduct VAT is exercised, is a formal condition for the exercise of that right, on the other side, the status of the supplier of the goods or services as a taxable person is among the material conditions for the exercise of that right.
ECJ declared in both mentioned cases that the taxable person must be refused the right to deduct VAT if, taking into account the factual circumstances and despite of the evidence provided by that taxable person, the information necessary to verify that the real supplier of goods or services had the status of taxable person is lacking, because one of the material conditions of allowing the right to deduct VAT is that the goods or services on the basis of which the right to deduct VAT is exercised, have been actually supplied by taxable person.
Additionally, in Ferimet case, ECJ dealt with the question whether the non-existence of a factual tax advantage has any impact on the company´s right to deduct VAT. ECJ stated that a non-existing factual tax advantage or fact if VAT payable on the prior or subsequent supplies of the goods concerned has or has not been paid to the treasury is irrelevant to the right of the taxable person to deduct VAT. A finding of a risk of loss of tax revenue is not, therefore, necessary in order to justify such refusal of right to deduct VAT.
For exercising the right to deduct VAT is important not only the fact if the goods or services have been supplied, but also knowing by whom they have actually been supplied. Importance of identification of the factual supplier shall not be underestimated. We recommend to taxable persons, for the purpose of possible later tax audit, to secure all available evidence proving by whom the goods or services have actually been supplied. Burden of proof lies on taxable person.
Recently, the Slovak Minister of Finance presented to the public the plans for tax reform, which are called “Tax Revolution”. It may happen that they start to be implemented, at least some of planned measures, already in 2022.
According to his presentation, which can be found on the web page of Slovak Ministry of Finance, too, the following should be covered by the tax reform:
Below is a brief overview of key issues.
New measures on children´s allowance and tax bonuses for the parent for his/her child with the aim to mitigate negative impacts of the tenuity on development of children´s talent should be introduced.
Allowances should cover cash allowances, which in part should be purposefully bound to “services for children” (e.g., tutorage, sport activities) and recreational bonus to support domestic tourism, to which children with their wage-earning parent should be entitled.
The reform promises lowering of administrative burden through introduction of flat tax rate of 19% for taxation of gross salary income. Social and health insurance contribution should be paid only on the level of employer at rate of 39%.
Allowances reducing the tax base should be available for some income recipients: for low-income employees (9% from gross salary), working students (10% from gross salary) and working disabled people (10% or 20% from gross salary as the case may be). The reform promises increase of net income for employees.
The income tax rate should be reduced to 19% flat rate. Moreover, when calculating the tax base, the company should be allowed for additional deduction up to 50%, and this through “speed-up” depreciation of productive assets. Further, measures for optional group taxation should be introduced.
At the same time, the reform counts with higher taxation of banks, monopolies and oligopolies. It also counts with increase of tax rate for taxation of dividend income for individuals.
The reform counts with an introduction of health and social insurance contribution in form of one cumulative levy at flat rate of 29% from gross profit. Income taxation should be at flat rate of 19% from gross profit.
If income is taxed through a withholding tax, at rate of 29% (should apply on gross income), no tax registration and accounting books would be required from an individual entrepreneur.
For restaurant services, the VAT rate should decrease to 10%. However, specific measures for tips should be introduced. The total amount of received tips should be allocated among restaurant´s employees as their bonus for work.
Further, some specific requirements for menu for children and for possible smaller portions for adults upon their wish should be introduced.
Specific recreational and meal bonus in amount of EUR 300 should be introduced for people more than 60-year-old. The pre-condition for this will be vaccination. The aim is to motivate people to vaccination and supporting domestic tourism, as well.
On October 27, 2021, the Parliament approved a government bill amending the Tax Code, among other laws. The relevant law was also signed by the President of the Slovak Republic on November 8, 2021, and it was published on November 12, 2021 in the Collection of Laws of the Slovak Republic under number 408/2021 Coll.
The most significant measures introduced with effect from January 1, 2022 are:
Below, we bring you brief information on the implemented measures, which you should pay attention to.
From the current non-public form of evaluation of tax entities, we are moving to a transparent form of evaluation of tax subjects – entrepreneurs registered for income tax. Tax entities that will responsibly fulfil their tax obligations will be rewarded with benefits. On the contrary, those entrepreneurs who will not be rated as reliable, will be motivated to take more responsible approach.
The tax entity, which is an entrepreneur registered for income tax, will receive its first tax reliability index by the end of the month two years after the end of the year in which the tax entity was registered for income tax. The tax office shall send a notification of the tax reliability index to those tax entities to which the notification of special tax regimes was delivered by December 31, 2021 by February 28, 2022, at the latest. For example, if the tax entity was registered for income tax before December 31, 2019, the notification of the index will be delivered to it from February 28, 2022.
The tax reliability index will be sent to the tax entities by notification, while the tax subject will have the opportunity to defend itself by filing an objection within 15 days of its delivery, which also has a suspensive effect. The index will be re-evaluated, and the evaluated period will be a calendar half-year. In the event of a change in the index, the tax subject will be notified.
The assessment of the tax entity will be published in the list on the website of the financial administration. The tax reliability index will be published by the Financial Directorate of the Slovak Republic for the first time by June 30, 2022 at the latest. The tax reliability index may also affect the amount of fines for a possible fault, which are determined by the range. When imposing such a fine, the tax administrator will determine its amount also considering the index of tax reliability at the time when the tax subject committed the delict.
The criteria based on which the tax reliability index will be determined to tax subjects will be regulated in a decree of the Ministry of Finance. Criteria are understood as selected obligations of tax subjects arising from special tax regulations and because of its economic indicators. The details of the claims, the conditions for determining the tax reliability index, as well as the way in which it will be determined, will be published on the website of the Finance Directorate.
The decree of the Ministry of Finance is currently in the interdepartmental comment procedure until November 26, 2021 under the legislative process number LP/2021/645.
The tax administrator may disqualify a natural person – the company’s statutory or a member of the statutory body, if the reasons stipulated by law are fulfilled. In the event of disqualification, a natural person will be excluded from the possibility of being a statutory body or its member, a member of a supervisory body or a holder of procuration in all companies and cooperatives, for a period of 3 years.
The measure is introduced in connection with the regulation of disqualification of persons in the Commercial Code, as well as in the law on courts, according to which it is possible for not only a court, but also for another body to issue a disqualification decision if legal reasons are met.
The disqualified person will be registered in a public register in which tax entities can check the credibility of their potential business partners. The Register of disqualifications will be kept by the District Court of Žilina.
First case: In the case of a natural person who is a statutory body or a member of a statutory body of a tax entity who has completed a tax audit by the cessation of the right to refund of excess VAT deduction and the amount of his tax arrears and of arrears on other monetary fulfilment is in total of EUR 5,000 more than one year from the due date.
Second case: In the case of a natural person who was a statutory body or a member of a statutory body at the time the tax entity submitted a VAT return for the tax period for which the tax audit of the eligibility for excess VAT deduction was terminated by the cessation of the right to refund.
In order to motivate taxable persons to use the instrument of binding opinions more often, the amounts of payments for their provision are reduced. The current amount of payments is between 1% and 3% of the amount of the anticipated business case, with a minimum of EUR 2,000 and a maximum of EUR 30,000. According to the new rules, the amount of the reimbursement will be EUR 1,000 and it will be linked to the provision of a binding opinion on a single business case and a single legislative measure. A highly reliable tax entity will pay half of this amount.
Payment for a request for a binding opinion under the new rules will apply to requests for a binding opinion submitted from January 1, 2022.
In connection with the amended rules on guaranteeing Value Added Tax in the VAT Act and the possibility to perform the so-called split payment when paying invoices, (you can find more detailed information in our previous News Flash) updated data concerning the numbers of tax administrator accounts kept for tax entities will be publicly available from January 1, 2022.
The tax administrator will no longer send the registration certificate to the tax subjects, the so-called “cards”, which must be returned after the end of the business and brought to the tax administrator always to mark the changes. The tax administrator will only send registration decisions to tax entities.
In order to ensure the proper technical functionality of the financial administration, the registration of taxpayers ex-officio is postponed by another year, i.e., from January 1, 2023.
Update: The bill was approved by the Parliament on October 27, the President of the Slovak Republic signed it on November 8, and on November 12, 2021, the law was published in the Collection of Laws of the Slovak Republic under number 408/2021 Coll. The changes concerning the reporting obligation of business bank accounts take effect on 15 November 2021.
In August 2021, a government bill was submitted to the National Council of the Slovak Republic, which is to amend, among other acts, the VAT Act. This bill is still the subject of discussion. In the field of VAT, the proposed act is to introduce a special notification obligation for new and existing VAT payers with effect from November 15, 2021, report business bank accounts to tax authorities in Slovakia for each bank account used for business purposes. If the act will be approved as proposed, we would like to point out that all VAT payers will have to notify the Financial Directorate of the Slovak Republic of all their own bank accounts used for business by November 30, 2021. Subsequently, all changes in the used bank accounts will be subject to notification. Failure to notify will be sanctioned.
The purpose of this measure is to publish the list of VAT payers’ bank accounts on the website of the Financial Directorate. Payment of the supplier’s invoice to a bank account which was not listed at the time of payment may lead to the application of the tax guaranteeing institute. Therefore, please note that after the introduction of the amendment, customers should pay increased attention to the supplier’s bank accounts, to which they will make the payment of invoices.
Failure to notify may also affect the refund of the excess deduction.
Every taxable person who is registered in the Slovak Republic as a VAT payer will have a reporting obligation. The obligation will apply to all VAT payers registered on November 15, 2021, as well as to newly registered VAT payers after this date.
Taxable persons who are VAT payers on November 15, 2021 will be obliged to report all accounts they use for business subject to VAT by November 30, 2021.
Newly registered VAT payers will be required to comply with the reporting obligation immediately from the date on which they became VAT payers or immediately from the date on which they set up such an account after they have been registered as VAT payers by the tax office. VAT payers will be obliged to notify any subsequent change, addition, or cancellation of notified bank accounts without delay.
It will be obligatory to report the numbers of all own bank accounts (payment, deposit), which the VAT payer will use for business that is a subject to tax under the Slovak VAT Act. This obligation applies both to bank accounts held with a domestic payment service provider and to accounts held with foreign payment service providers.
If the VAT payer uses bank accounts for business purposes that belong to another person (e.g. the parent company), he can notify these accounts, but at the same time he is obliged to notify the owner to whom these bank accounts belong. If the VAT payer declares that he uses bank accounts belonging to another person for the purposes of his business, the joint and several liability of the bank account holder with the VAT payer (who declares this “foreign” bank account as “own”) is proposed for the payment of tax not paid by the supplier if payment for the delivery of goods or services has been made to this bank account.
Payment service providers, such as e.g., banks will not have a reporting obligation in relation to the internal accounts held for this provider for the settlement of payment transactions.
The notifications will have to be made electronically on a form, the model of which will be determined and published on the Financial Directorate’s website.
The tax administration shall ensure that the form is pre-filled by them with all known bank account numbers. The VAT payer marks specific bank accounts for the purpose of fulfilling the special reporting obligation or adds other bank account numbers of which the tax administration is unaware (for example not yet reported by payment service providers or bank accounts abroad).
The tax office will be able to impose a fine of up to EUR 10,000 for non-compliance with the notification obligation (incorrect, false, or incomplete data).
The customer will be obliged to guarantee unpaid tax for the Supplier if he has paid the Supplier the consideration (or part thereof) for the supply to a bank account other than the supplier’s bank account, which was published on the website of the Financial Directorate on the day of payment.
In order to reduce the guarantee risk for unpaid tax, the customer will be allowed to use a special method of tax payment (so-called split payment), which will allow the customer to pay only the tax base to the supplier and pay the tax itself directly to the supplier’s personal account, which is administered by tax administration.
It is proposed to provide that the tax office return the excess deduction only to one of the bank accounts notified to it by the VAT payer as part of a special notification obligation. If the VAT payer has not fulfilled this obligation, the tax office will return the excess deduction within ten days from the date of notification of the bank account.
In this ECJ Judgement article, we would like to introduce you a case decided recently by the European Court of Justice (ECJ) that concerns applying of value-added taxation of occupational pension fund management services . In the judgment of the Court No. C-235/19 of October 8th 2020, the ECJ dealt with the question if providing of management services of pension funds could be considered as „insurance transaction“ that should be VAT exempted in accordance with the Council Directive 2006/112/EC on the common system of value added tax (further referred to as “Directive”).
This judgment refers to British companies United Biscuits (Pensions Trustees) Ltd. and United Biscuits Pension Investments Ltd. that administrate occupational pension scheme established for employees of United Biscuits (UK) Ltd. Both these companies used services of investment managers when administrating pension funds, who had a status of „insurers“ and „non-insurers“ as well. The status of insurers belongs to subjects, which provided management services of pension funds based on the license granted in accordance with the British Insurance Companies Act. On the other hand, non-insurers were subjects that provided the same services but based on the license granted in accordance with different law.In line with the local legislation, VAT exempted were that services provided by insurers, based on the conclusion that they carried out the activity falling within a sector of insurance when executed in accordance with the Insurance Companies Act. On the other side, services provided by non-insurers could not be VAT exempted.
Companies United Biscuits (Pensions Trustees) Ltd. and United Biscuits Pension Investments Ltd. complained and unsuccessfully asked the United Kingdom tax authority for reimbursement of the VAT at issue which they paid. Later they brought an action before the High Court of Justice, which rejected their action; consequently the Court of Appeal decided to stay the proceedings and to refer the question to the ECJ whether the supplies of pension fund management services provided by (a) insurers and (b) non-insurers were “insurance transactions” within the meaning of Article 135(l)(a) of the Directive.
The ECJ in this case said, as generally understood and according to settled case-law that a term insurance transactions requires that the insurer undertakes, in return for prior payment of a premium, to provide the insured, in the event of materialisation of the risk covered, with the service agreed when the contract was concluded.
In this case under consideration it was approved that services provided based on the concluded contract only consisted of investment management services solely, to the exclusion of any indemnity from risk. Further, the ECJ added to this that no other criterion connected with the concept of ‘insurance transactions’ may be derived from the case-law of the Court or EU law in the matter of insurance, except that above mentioned.
The ECJ came to a conclusion that investment fund management services supplied for an occupational pension scheme, which do not provide any indemnity from risk, cannot be classified as ‘insurance transactions’, within the meaning of the provision of Article 135(1)(a) of the Directive, and thus do not fall within the VAT exemption laid down in that provision.
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