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Getting cross-border tax advice? You may be OBLIGED to inform the tax authorities

From 1 July 2020 new rules for mandatory disclosure of specific cross-border arrangements to the tax authorities will apply in Slovakia.

The new rules are due to the implementation of the EU Directive on mandatory automatic exchange of information on taxation in relation to reportable cross-border arrangements (DAC6). 

Slovak transposition of DAC6

Slovak Act No. 305/2019 implements the automatic exchange of information oncross-border arrangements that could be used for aggressive tax planning, tax avoidance and tax abuse. The aim is to increase transparency and the Act lays down the obligation to report to the Slovak authorities any cross-border arrangements that fulfil at least one of the listed characteristics (“hallmarks”).

 

Taxes covered

Taxes covered include all taxes levied by EU Member States, primarily corporate and personal income tax, and do not include VAT, excise and customs duties, or social insurance levies.

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Reportable cross-border arrangement

A cross-border arrangement is defined as an arrangement or series of arrangements involving more than one Member State or a Member State and a third country.

For a cross-border arrangement to be reportable, at least one of the hallmarks from the list set by the Act must be met. These hallmarks may be generic or specific. All generic and some specific hallmarks make reporting a requirement if its main or one of the main aims were the obtaining of tax advantage.

Generic hallmarks include an arrangement, or series of arrangements, where the taxpayer/intermediary is obliged not to disclose how such an arrangement could secure a tax advantage vis-à-vis other intermediaries or tax authorities, or when the intermediary receives a fee for its services proportionate to the amount of tax advantage (i.e. success fee).

Specific hallmarks include (but are not limited to) trade in loss-making companies to reduce a tax liability under certain conditions, conversion of income into lower-taxed revenue streams, circular transactions, transactions leading to deduction without taxation, multiple depreciation, valuation differences, arrangements related to transfer pricing (transfer of hard-to-value intangibles, use of unilateral safe harbour rules, etc.) and arrangements which may compromise automatic exchange of information or beneficial owner identification.

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Reporting obligations

The reporting obligation will primarily apply to the intermediary (e.g. the advisor). A waiver from reporting under the Legal Professional Privilege (LPP) will apply for licenced tax advisors, lawyers, etc.

Where the LPP applies to an intermediary, it must inform other intermediaries/ taxpayers about their obligation to handle the reporting process.

If there are no intermediaries, or if all the intermediaries are covered by a LPP, the taxpayer will be responsible for reporting.

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Intermediary

For the purposes of this Act, an intermediary is defined as:

  • any person (individual/legal entity/etc.) that designs, markets, organises, makes available for implementation, or manages the implementation of a reportable cross-border arrangement, or
  • any person (individual/legal entity/etc.) that, having regard to the relevant facts/circumstances/experience/etc. knows, or could be reasonably expected to know, that it provided, directly or by means of other persons, aid, assistance or advice with respect to the above services.

An intermediary is only obliged to report if it has a Slovak presence (i.e. residency, permanent establishment, registration, is governed by Slovak laws, registration in professional tax/legal/similar consulting association).

 

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Taxpayer’s reporting obligation

If no intermediary exists or where all intermediaries are covered by LPP, the taxpayer is obliged to report on a reportable arrangement if:

a) it is a Slovak tax resident; or

b) it has a permanent establishment in Slovakia (which has benefits from a reportable arrangement) and which is not tax resident in Slovakia/another EU state; or

c) it has income from Slovakia and is not a tax resident in Slovakia/other EU state, does not have a permanent establishment (which has benefits from a reportable arrangement) in Slovakia/another EU state; or

d) it performs activity in Slovakia (where the above criteria are not met).

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Timeline of reporting

As from 1 July 2020, reportable arrangements must be reported within 30 days beginning on the day after the reportable arrangement (i) is made available for implementation; (ii) is ready for implementation; (iii) the first step in the implementation of the reportable arrangement has been made, whichever occurs first.

However, reportable arrangements where the first step of the implementation took place from 25 June 2018 to 30 June 2020 will need to be reported by 31 August 2020.

Deferral of DAC6 reporting deadlines in Slovakia

The law introducing deferral of the first set of DAC6 reporting obligations in Slovakia was published in the Slovak Collection of laws on 21 July 2020. In particular, the deadlines are the following:

  1. Until 28.02.2021 - Reportable arrangement where first step in implementation took place between 25.06.2018 and 30.06.2020;
  2. Until 31.01.2021 – Reportable arrangement (related to the period of 01.07.2020 - 31.12.2020) which: (i) was made available for implementation; (ii) was ready for implementation; (iii) the first step in the implementation of the reportable arrangement has been made, whichever occurs first.
  3. Until 30.04.2021 – Fist report on marketable arrangements should be reported by intermediaries.
  4. Reporting arrangements related to 2021 (not qualifying for above) would be reported within standard deadlines of 30 days after the reportable arrangement (i) was made available for implementation; (ii) was ready for implementation; (iii) the first step in the implementation of the reportable arrangement has been made, whichever occurs first.

 

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Penalties

Penalties of up to EUR 30,000 will apply for non-fulfilment, insufficient or late fulfilment of reporting obligations and penalties may be levied repeatedly.

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What does this mean for you?

If you are receiving advice on cross-border transactions with one of the above hallmarks or implement such cross-border transactions by yourself, it is highly probable that yourself or your advisor  will have to exchange information about this transaction with the local Tax Administration. Coordination between you and your intermediary(ies), possibly including your own advising group company, is crucial for a smooth process of the reporting obligation.

For more information, please contact us.

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How can PwC help?

Our team combines experts in tax, people, processes, data and technology. By bringing together these different skill sets, we can help clients to understand DAC6, and the broader tax policy context, and implement effective controls and processes to ensure all reportable cross-border arrangements are proactively identified and managed.

We can analyze your current and planned activities so that you understand the impact the DAC6 has on your reporting obligations.

 

We can help you to develop a comprehensively documented governance framework to define roles and responsibilities with respect to the reporting obligations and to identify and manage risks.

We can support you in the effective and efficient collation, analysis and storage of reportable data.

 

Using technology, we can assist you to fulfill multiple reporting requirements using the same data set and reporting mechanism in the required format, and with preparing the necessary paperwork.

Contact us

Christiana Serugová

Christiana Serugová

CEE TLS Lead Relationship Partner, PwC Slovakia

Tel: +421 903 261 010

Vladyslav Myrets

Vladyslav Myrets

Manager, PwC Slovakia

Tel: +421 904 939 658

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