Draft act on a compensatory tax to ensure a minimum level of taxation of multinational enterprise groups and large-scale domestic groups

The Ministry of Finance of the Slovak Republic has submitted a draft act on a compensatory tax to ensure a minimum level of taxation of multinational enterprise groups and large-scale domestic groups (hereinafter referred to as the “Act”).

The Act has been drafted with the intention to ensure minimum taxation of income of entities located in the Slovak Republic that are members of a multinational enterprise group or a large-scale domestic group, and thus to implement Council Directive (EU) 2022/2523 of 15 December 2022 on ensuring a global minimum level of taxation for multinational enterprise groups and large-scale domestic groups in the Union.

The expected positive impact of the introduction of a global minimum level of taxation is to reduce tax competition between countries in the field of low effective corporate income taxation and to ensure that enterprises that are part of large multinational groups pay their fair share of tax regardless of where they operate.

If the effective taxation of the consolidated group entities’ income in the Slovak Republic is below the minimum tax rate of 15%, the taxpayer will pay a compensatory tax equal to the difference between this minimum tax rate and the effective tax rate. The effective tax rate is calculated as the ratio of the taxes included (in addition to income tax payable, this should include, for example, deferred tax, withholding tax or special levy in regulated industries) and the profit/loss in the given jurisdiction after adjusting for specific items listed in the Act.

The draft Act applies only to entities of a group of enterprises with annual revenues of at least EUR 750 million, achieved in at least two accounting periods of the last four accounting periods preceding the accounting period under review. Excluded from the scope of application are entities acting in the public interest and not carrying out business activities, such as government entities, international organisations, non-profit organisations, pension or investment funds.

The taxpayer will be obliged to file a tax return for the compensatory tax no later than 13 months after the end of the relevant tax period, and the compensatory tax is due within the same period. In the transitional period, i.e. the first accounting period in which the group is in the scope of application, the period shall be extended by three calendar months.

The Act is proposed to enter into effect on 31 December 2023. We will keep you informed of further developments on this draft Act in future editions of our Newsletter.