The Ministry of Finance published a proposal of the Minimum Tax Act (hereinafter: “ZMD“) on 23 June 2023. With the ZMD, the Council Directive (EU) 2022/2523 on ensuring a global minimum level of taxation for multinational enterprise groups and large-scale domestic groups in the Union of December 14, 2022 (hereinafter: “Directive“) is implemented into the Slovenian legal system. Its aim is to establish a common framework for a global minimum tax rate in the EU based on a common approach from the OECD model rules in such a way that the revenues of multinational enterprise groups and large-scale domestic groups with a total revenue of EUR 750 million and more (hereinafter: “Groups“) will be taxed with a tax rate of at least 15 %. This will be achieved by the so-called top-up tax. The introduction of the top-up tax liability is foreseen in the Directive as an option of the Member States. Slovenia will have to officially notify the Commission of its choice, which will provide adequate certainty to the tax authorities of other Member States, third country jurisdictions and Groups. Constituent entities of Groups located in Slovenia will therefore have to pay top-up tax to Slovenia.
The main goals of the ZMD are the establishment of a system against tax base erosion, fair, transparent and stable corporate taxation, the elimination of excessive tax competition and the prevention of aggressive tax planning as well as consistency in determining and administering rules against base erosion (predictability, without double or excessive taxation).
Main solutions of the ZMD:
- The ZMD will be an independent law which will apply separately from the Corporate Income Tax Act (Official Gazette of the RS, no. 117/06 and subsequent, ZDDPO-2) and which will consistently implement the provisions of the Directive into the Slovenian legal system.
- It introduces a minimum tax rate (hereinafter: “MDS“) of 15 %. It will affect Groups with constituent entities in countries in which the effective tax rate (hereinafter: “DDS“) is lower than the MDS. The DDS will be determined for each financial year and for each country separately by dividing the adjusted covered taxes constituent entities in the country by their net qualifying income. The difference between the MDS and the so determined DDS is the rate of the top-up tax. The top-up tax will increase the Group’s effective tax rate to the MDS level. It will be applied to the excess profit in accordance with the standardized basis and top-up tax calculation mechanism.
- In order to comply with the rules in of the Directive, the Groups will proceed in five steps. Namely, in the first step they will identify constituent entities within the scope of the Directive, identify excluded entities and safe harbors. In the second step they will calculate the qualifying income or loss for each constituent entity with adjustments to the financial accounting net income or loss. The third step will be the calculation of adjusted covered taxes. The fourth step will be the calculation of the DDS for each country (for all constituent entities in the country) and, if the DDS is lower than the MDS, the top-up tax will be calculated. The fifth step will be the fulfillment of the top-up tax obligation in accordance with applicable rules.
- ZMD provides for a de minimis exclusion for Groups whose average revenue is less than EUR 10,000,000 and whose average qualifying income or loss in the jurisdiction is less than EUR 1,000,000. Such Groups will not pay the top-up tax even though their DDS is lower than the MDS in that country.
As follows from the accompanying text to the ZMD proposal, higher annual tax revenues of around EUR 220 billion on global level are foreseen as a result of the implementation of the minimum taxation rules. As far as Slovenia is concerned, a total of 412 Groups with parent companies in Slovenia or abroad and subsidiaries in Slovenia were identified on the basis of Country-by-country reporting data in 2019. From these, 144 Groups in Slovenia had DDS below 15 % in 2019. Their average unweighted DDS was 8.72 %. According to estimates, the ZMD should affect a total of 184 Groups. The total annual tax liability of the companies that are part of these Groups and are residents in Slovenia amounts to around EUR 27 million.
According to the deadline of the Directive, ZMD should be adopted by the end of December 2023 at the latest. It should enter into force for business years starting on 31 December 2023 or later. Comments on the proposal are collected until July 16, 2023.