European directive introduce a new top-up tax in Slovakia

As part of our series of articles, we regularly inform you about the current development of the global minimum tax. On 3 August 2023, the Ministry of Finance of the Slovak Republic published a draft law that plans to introduce the so-called top-up tax, which is based on the OECD BEPS 2.0 initiative taken over in the EU directive on the minimum global tax. The Slovak Republic, as an EU member state, must implement this directive into local legislation by the end of this year. It is not clear from the draft law whether the top-up tax will be applied already for the tax period of 2023, although the directive clearly states that it should apply to tax periods starting on 31 December 2023 and later.

Who is subject to the minimum level of taxation

The top-up tax will apply to those companies that fall under the ultimate parent company with consolidated revenues of at least 750 million euros in two accounting periods out of the last four accounting periods. For the determination of revenues, the procedure will probably be in accordance with the determination of consolidated revenues for the purposes of Country-by-Country Reporting (CbCR). As part of the OECD proposal, it is required that at least one company in the group has a residence in a country other than the country of residence of the ultimate parent company, but within the EU, the directive also applies to purely local groups of companies.

When determining the top-up tax, it will be based on the total effective tax rate of the group, while being compared to the global minimum effective tax of 15%. If the effective tax of the group does not reach this limit, the difference between the global minimum effective tax and the actual effective tax of the group will have to be compensated through the payment of the top-up tax. The allocation of the top-up tax between the individual companies of the group will be based on the ratio of the adjusted profit of the given company to the total profit of the group.

Exceptions to the application of the new rules

Excluded entities are, for example, some state-owned enterprises with 100% state participation, non-profit organizations, pension funds or some investment funds, these will not have to pay the top-up tax. However, even in their case, their income will be included in the group's consolidated income for the purpose of determining whether the group is subject to the provisions on the top-up tax or not.

New notification obligations will be added

In relation to the top-up tax, it will be necessary to submit notifications that will contain information intended for the correct determination of the top-up tax. These notices can be submitted by one of the selected companies in Slovakia instead of each company individually, or by the ultimate parent company abroad, as long as the Slovak Republic has an agreement on the exchange of information on top-up tax with the country of residence of the ultimate parent company. The deadline for submitting this notice will probably be 13 months from the end of the relevant tax period (15 months according to the directive). At the same time, the draft law also contains the obligation to submit a tax return, which will be submitted individually by the companies in the group, also within 13 months from the end of the tax period.

The draft law contains various adjustments to the revenues included in the calculation of total consolidated revenues for the purposes of the top-up tax, as well as adjustments to the tax liability for the calculation of the effective tax rate and other provisions.

Our colleagues from the KPMG global network regularly monitor the global development of these legislative changes, which you can find on this link BEPS 2.0: state of play (kpmg.com).

We are monitoring the legislative process and will inform you about the final version of the law.