Pillar 2 Dashboard: Slovenia

On December 22, 2023, the Minimum Tax Act (to implement the EU Minimum Tax Directive), was published in the Official Gazette of the Republic of Slovenia, No. 131/23.

The purpose of the Minimum Tax Act is to implement the EU Minimum Tax Directive into domestic law.

Whilst the EU Minimum Tax Directive is based on the OECD Model GloBE rules, it does not the OECD Administrative Guidance. As Slovenia has opted just for a transposition of the terms of the Directive, it does not currently reflect many aspects of the OECD Administrative Guidance (either the February 2023, July 2023 or December 2023 guidance issued).

Similarly, only the Transitional CbCR Safe Harbour (as provided in the December 2022 Safe Harbour and Penalty Relief Guidance) is included in the law. The other GloBE Safe Harbours as provided in the OECD Administrative Guidance/Safe Harbour Guidance (QDMTT Safe Harbour, the Transitional UTPR Safe Harbour and the NMCE Simplified Calculations) are not specifically included yet.

Article 3 of the Law states that the OECD Model Rules, Commentary and other published guidance (such as the Administrative Guidance and Safe Harbour Guidance) are to be used  when applying the provisions of the law in order to ensure consistent application. OECD Guidance is to be applicable in implementing the Minimum Tax Act the day following publication on the OECD website. The Minister of Finance will also publish a notice in the Official Gazette outlining the applicability of the OECD guidance.

Administrative Guidance

The only aspect of the OECD Administrative Guidance included in the Minimum Tax Act is the provision for Restricted Tier 1 Capital included in the February 2023 OECD Administrative Guidance.

The following aspects of OECD Administrative Guidance are, therefore, not yet included:

– Currency conversion rules (Article 1.1)

– Sovereign wealth funds and the definition of Ultimate Parent Entity (Article 1.4)

– Clarifying the definition of ‘Excluded Entity’ (Article 1.5)

– Meaning of “ancillary” for Non-Profit Organisations (Article 1.6);

– Excluded Equity Gains or Loss and hedges of investments in foreign operations (Article 2.2);

–Excluded Dividends – Asymmetric treatment of dividends and distributions (Article 2.3);

– Debt release election (Article 2.4)

– Accrued pension expenses (Article 2.5)

– Excess negative tax carry-forward guidance (Article 2.7)

– Substitute loss-carry forwards (Article 2.8)

– Equity Gain or loss inclusion election (Article 2.9)

– Allocation of taxes arising under a Blended CFC Tax Regimes (Article 2.10)

– The extension of the taxable distribution method election to insurance investment entities (Article 3.1)

– Exclusion of Insurance Investment Entities from the definition of Intermediate Parent Entity and Partially-Owned Parent Entity (Article 3.2)

– The extension of Additional Capital to include Restricted Tier One Capital (Article 3.3)

– Liabilities related to Excluded Dividends and Excluded Equity Gain or Loss from securities held on behalf of policyholders (Article 3.4)

– Portfolio shareholding election (Article 3.5)

– Application of Tax transparency election to Mutual insurance companies (Article 3.6).

– Currency Conversion Rules (Article 1 of the Second Set of OECD Administrative Guidance )

– Tax Credits Guidance (MTTCs) (Article 2 Second Set of OECD Administrative Guidance)

– Specific rules for the Substance-Based Income Exclusion (Article 2 Second Set of OECD Administrative Guidance)

No aspects of the Third Set of OECD Administrative Guidance (issued in December 2023) are also included.

As noted above, Article 3 of the Minimum Tax Act does, however, provide for OECD Guidance to be used as a source of interpretation. A notice is to be published in the Official Gazette outlining the guidance to be used.

Safe Harbour and Penalty Relief Guidance

Article 43 of the Minimum Tax Act provides that top-up tax is deemed to be zero when the conditions of a Qualified International Safe Harbour Agreement are met.

A Qualified International Safe Harbour Agreement is an international set of rules and conditions agreed by all EU Member States that applies specific safe harbours.

Article 74 of the Minimum Tax Act does, however, specifically provide for the Transitional CbCR Safe Harbour, albeit at a high-level. The specific rules for joint ventures and treatment of Net Unrealised Fair Value Losses, for instance, are not included. Similarly, relevant provisions of the December 2023 OECD Administrative Guidance that impact on the safe harbour (eg MNEs not required to file CbC Reports and no push-down of taxes on income of PEs, CFCs, and hybrid entities) are also not included.

The QDMTT Safe Harbour and the Transitional UTPR Safe Harbour are not otherwise included in the law.

Elections in the OECD Model Rules

The Minimum Tax Act includes all of the key elections as provided in the OECD Model Rules, including:

-Excluded Entity Election (Section 6(4) of the Act)

-Election to use the Realization Method Section 20(6) of the Act)

-Stock-Based Compensation Election (Section 20(3) of the Act)

-Election to Spread Capital Gains (Section 20(7) of the Act)

-Consolidation Election (Section 20(9) of the Act)

-GloBE Loss Election (Section 30(1)of the Act)

-Prior Year Adjustment Election (Section 32(1) of the Act)

-Tax Transparency Election (Section 53(1) of the Act)

-Taxable distribution Election (Section 54(1) of the Act)

-Unclaimed Accrual Election (Section 29(1) of the Act)

-Distribution Tax Regime Election (Section 51(1) of the Act)

-Substance-Based Income Exclusion Election (Section 35 of the Act)

-Deemed Disposal of Assets (Section 46(4)of the Act)

-De minimis Election (Section 41(1)of the Act)

Elections in the Administrative Guidance

No elections from the OECD Administrative Guidance are included in the Minimum Tax Act.

As such, the following are not included in the law:

-Portfolio Shareholding Election

-Excess Negative Tax Carry-Forward Election

-Foreign Exchange Hedge Election

-Debt Release Election

-Equity Gain or loss inclusion election

Differences to Model Rules

The provisions of the Slovenian Minimum Tax Act closely follow the rules set out in the EU Global Minimum Tax Directive. The differences are, therefore, minor.

Given the Slovenian law is based on the EU directive, the scope of the global minimum tax also applies to domestic groups as well as international groups. As such, the definitions in the Model Rules relating to an MNE group including at least one entity or permanent establishment which is not located in the jurisdiction of the ultimate parent entity aren’t included in the Slovenian law.

The Slovenian law applies the UTPR via a separate additional tax. Therefore the specific requirements in the Model Rules and EU Directive that apply to UTPRs implemented as a denial of a deduction (eg Article 2.4.2) do not apply. As such,  there is no equivalence to Article 2.4.2 of the OECD Model Rules in the Slovenian law for the carry-forward of excess UTPR top-up tax.

Qualifying Domestic Minimum Top-Up Tax

Chapter VIII of the Minimum Tax Act includes a domestic minimum tax intended to be a QDMTT.

QDMTT Design Features

Article 55(2) of the Minimum Tax Act provides that the method of calculation is to take the general top-up tax calculation (or additional top-up tax from a prior year). However, this is then effectively recalculated taking account of some adjustments that are provided in the OECD Administrative Guidance

Push-Down Taxes

Tax paid or incurred by a Constituent Entity-owner under a CFC Tax Regime that is pushed down to a domestic Constituent Entity in the GloBE Rules must be excluded, as provided in the OECD Administrative Guidance. This is included in Article 60(2) of the law.

This preserves Slovenia’s primary right to tax income accruing to a Slovenian member entity which is also a CFC. If there were no statutory derogation from the general GloBE rules for the calculation of the domestic minimum tax, and the CFC tax paid by the controlling company abroad were included in the included taxes of the Slovenian CFC, the effective tax rate would be increased. Therefore, excluding the CFC tax from the Slovenian CFCs covered taxes allows Slovenia to tax low-taxed income at a higher rate than would be the case under an IIR.

Article 60(2) of the law prevents the pushdown of tax to hybrids, PEs and for taxes on distributions (except for Slovenian withholding tax on dividends).

Ownership Interests

Article 58 of the Law provides that top-up Tax that is subject to the QDMTT is based on the whole amount of the Jurisdictional Top-up Tax calculated, irrespective of the Ownership Interests held in the Constituent Entities located in the QDMTT jurisdiction by any Parent Entity of the MNE Group.

Accounting Standard

Under Article 59(3) of the Law, for the purposes of the QDMTT it is not necessary to use the accounting standard of the UPE. An acceptable accounting standard or an authorized accounting standard can be used providing it is adjusted to prevent material distortions of competition.

Investment Entities

Article 56 of the Minimum Tax Act provides that investment entities are not subject to the QDMTT. (Note that this would mean that for the purposes of the QDMTT Safe Harbour the Switch-Over Rule would apply).

Amended Top-Up Tax Calculation

Article 58 of the Law amends the standard top-up tax calculation so that the determination of the QDMTT payable does not itself require the deduction of QDMTT (which would include an element of circularity).

Other

Article 61 of the Law provides for the Substance-Based Income Exclusion (SBIE) to be deducted when calculating excess profits for the purposes of the top-up tax calculation. There are no amendments to be standard GloBE SBIE calculation.

Article 63 of the law provides that the de-minimis exclusion, the exemption for groups in the initial phase of their international activity and the safe harbours can also apply for QDMTT purposes.

Filing

Article 65 of the Minimum Tax Act includes relevant aspects of the submission of a GloBE Information Return (GIR).

Every Constituent Entity located in Slovenia will have an obligation to file a GIR in Slovenia. However, this obligation could be discharged if the GIR is filed by:

– The Ultimate Parent Entity, or

– The Designated Filing Entity.

Where the GIR is being filed by either the Ultimate Parent Entity or the Designated Filing Entity, the Constituent Entity, is required to file a notification with the Revenue.

Both the GIR and associated notifications are required to be filed no later than 15 months after the end of the fiscal year (with an 18-month deadline for the Transition Year).

Group entities are required to also file a top-up tax return. Article 66 of the Minimum Tax Act requires submission of an IIR/UTPR self- assessment return (a ‘GloBE Top-Up Tax Return’) within 30 days of the GIR filing deadline if there is a top-up tax liability. Article 62 requires the filing of a DMT top-up tax return. The same filing deadline applies for the DMT Top-Up Tax Return as for the GloBE Information Return. This needs to be filed irrespective of whether there is a liability.

Payment

Article 66 of the Minimum Tax Act provides that the deadline for the payment of the IIR/UTPR top-up tax is 30 days after the deadline for submission of the top-up tax return (ie 60 days after the GIR filing deadline).

Article 62 provides that QDMTT tax must be paid within 30 days of the DMT tax return filing deadline (ie 30 days after the GIR filing deadline).

Penalties

Article 70 of the Minimum Tax Act provides for penalties of between EUR 3,200 – EUR 100,000 for breaches of the Minimum Tax Act. This includes failure to submit a GIR/Top-Up Tax Return.

None issued.

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