In this edition of our News Flash, we would like to introduce you to the approved law on the so-called top-up tax in Slovakia, which transposes Council Directive (EU) 2022/2523 of 14 December 2022 on ensuring a global minimum level of taxation for multinational enterprise groups and large-scale domestic groups in the Union.

The aim of introducing the top-up tax is to limit tax competition and ensure a minimum level of taxation for companies in Slovakia that are part of multinational groups, at least at a rate of 15%. The Slovak Republic, as a country with a low number of parent companies and a higher number of subsidiary companies, has decided to introduce minimum taxation through domestic top-up tax in order to prevent additional taxation of the affected entities’ income abroad.

The top-up tax law came into effect on 31 December 2023 and has been fully in force since 2024. Therefore, businesses to which it applies should prepare for its practical implementation, including monitoring the effective tax rate and the potential obligation to pay the top-up tax.

Despite its relatively short period of effectiveness, the law has already been amended, but the amended version of the law will apply only in the tax period for the year 2025.

Entities to which the top-up tax applies

In order to avoid adverse impacts on smaller MNEs in the internal market, the top-up tax only applies to entities located in the European Union that are members of MNE groups or large-scale domestic groups that meet an annual consolidated revenue threshold of at least EUR 750 million in at least two of the four fiscal years preceding the tested fiscal year.

That threshold is consistent with the threshold of existing international tax rules such as the country-by-country reporting rules (CbCR rules).

According to the law, a constituent entity is a company with its registered office in Slovakia or its permanent establishment if it is part of a multinational or large domestic group. The new obligation affects approximately 5,000 tax entities in Slovakia.

Tax rate and calculation method

The law sets a minimum tax rate of 15%. First of all, entities that are members of MNE groups or large-scale domestic group located in the territory of the Slovak Republic must monitor their effective tax rate to ensure it is at least 15%. If the effective tax rate for these entities falls below the minimum tax rate (15%), the entity is obliged to pay the difference in the form of a top-up tax.

The effective tax rate is calculated as follows:

Adjusted covered taxes represent the sum of taxes that are considered when calculating the effective tax rate. They arise from the amounts of current and deferred income taxes, but they are subsequently adjusted for other items that may either increase or decrease their value. They do not include VAT, excise duties, or top-up tax, but they include, for example, special levies on business activities in regulated sectors or withholding taxes related to income included in the calculation of qualifying income.

Qualifying income (or qualifying loss) of the entities in Slovakia is calculated based on their economic results, adjusted by certain items defined in the top-up tax law. The business results after adjustments are considered as qualifying income and are then summed.

Since the effective tax rate applies to a particular state, entities of one multinational or national group located in the Slovak Republic, will have to coordinate with each other at certain point and calculate the effective tax rate together.

The law also specifies the calculation of income that will not be subject to the top-up tax, aiming to provide a tax exemption for constituent entities that carry out genuine economic activities in Slovakia. This calculation is essential for determining the amount of top-up tax or applying an exemption from the calculation. The wording of the law also stipulates that the transactions between constituent entities must be established based on the arm’s length principle. If these transactions are not consistent with the arm’s length principle, the necessary adjustments must be made.

Exceptions to the calculation of the top-up tax in Slovakia

In addition, the law provides for several exceptions, where there is no obligation to calculate top-up tax at all, while some exceptions are of a temporary nature.

• De minimis exclusion applies to groups conducting business in the Slovak Republic through smaller entities. The condition for applying the exception is that each entity within the given group has revenues of less than EUR 10 million and an economic result of less than EUR 1 million. These values are adjusted in accordance with the law into qualifying revenues and qualifying income and then averaged for every constituent entity in Slovakia (average for all the current and two previous accounting). In essence, after the recalculation, either all of the group´s constituent entities in the Slovak Republic meet the exception, or none.
• The exemption based on a qualified report by individual states applies, for example, if the total amount of revenues of constituent entities in the Slovak Republic, as reported in the DAC4/CbCR report for a given accounting period, does not exceed EUR 10 million and the total amount of their economic results does not exceed EUR 1 million or if the simplified effective tax rate of constituent entities in the Slovak Republic does not exceed:
  • 15% for the accounting period of 2024
  • 16% for the accounting period of 2025
  • 17% for the accounting period of 2026

Excluded entities

Several types of entities are excluded from the scope of this law, including public entities, international organizations, non-profit organizations, pension funds, and others.

Specific rules apply to tax-transparent entities, reverse hybrid entities, stateless entities, joint ventures, investment entities, investment funds, insurance entities, entities engaged in international shipping, minority-owned entities, and others.

Notification obligation and the deadline for filing a tax return

The entity to which the top-up tax applies is obliged to submit a notification with information to determinate the top-up tax no later than 15 months after the end of the relevant tax period. According to the legislative wording, this deadline cannot be extended or missed. However, in the first year, which is 2024, the deadline for submitting a notification with information to determine top-up tax will be extended by three full calendar months (i.e. until the end of June 2026).

Within the same period, entities will be obliged to file a tax return and pay the relevant top-up tax.

If there are several taxpayers from the same group in the Slovak Republic, they can agree on the fulfilment of the notification obligation by only one of them, or under certain circumstances, the obligation can also be fulfilled through notification of the ultimate parent entity.

Accounting for the top-up tax

Considering the material and timing relevance, any potential top-up tax liability should be recorded as an expense in 2024. Although the tax will only become payable in 2026, its origination is linked to the financial results of 2024. This means that companies should reflect this obligation in their 2024 accounting records.

If you believe that your company may be subject to the obligation of the top-up tax calculation from 2024 and you would like to obtain additional information, our tax experts will be happy to provide you with consulting in this area.

Michaela Salayová

Senior Tax Manager | Accace Slovakia

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