What changes will the current approved amendment of the Tax Code bring to life entrepreneurs with the proposed effect from 1.1.2022 ?

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On 11.8.2021 received to Parliament NR SR Government proposal of the amendment Law 563/2009 Coll. on Tax Administration (Tax Code). The main objective of the present amendment is to introduce new tools to improve tax collection, with an emphasis on increasing incentives for taxpayers to comply voluntarily with tax obligations and to combat tax fraud effectively. The proposed changes should be effective after approval by Parliament and publication in the Slovak Code of Laws from 1.1.2022.

We monitor the approval process for you and we will update the article in case of changes.

In particular , the proposed modifications will affect the following areas:

• Taxpayers’ Assessment of the Tax Reliability Index
• Disqualification of taxable persons;
• Reducing the administrative burden on financial administrations and taxpayers.

Tax Reliability Index (IDS)

ITS is an instrument of motivational nature; the fulfilment of obligations towards financial management will be assessed in particular in the field of taxation and customs, the use of cash registers, restrictions on cash payments. Under the proposed modification, compared to the current ITS status Published on FRSR.

Scope of the obligations assessed (criteria) will be published in the MF SR Decree and only the criteria established by this Decree (Draft Decree is also current in the approval in NR SR). The tax entity will be able to lodge a reasoned objection against the notified ITS to the tax administration and, if it fails, it will be able to claim its rights in court through an administrative action. The submission of an objection to an ITS notified administrator shall have suspensory effect. The published list of ITS taxpayers will only reach the tax entity once all defence mechanisms have been exhausted.

The re-evaluation of the allocated ITS will take place on a half-yearly basis and the notification to the taxpayer will only be sent to tax administrations if there is a change. The change of ITS must be duly justified in the Communication, that is to say, the tax administration must specify precisely what obligation the tax entity has not fulfilled or has fulfilled after the expiry of the deadline (e.g. if it is a failure to submit a tax return or a late submission of a tax return, it must specify which tax return and when it was due).

To date, special tax regimes will be replaced a benefit scheme (for highly reliable entities) Malusov (for unreliable entities). The personal scope of ITS will be changed, the evaluation will be subject to corporate registration for income tax (agreed VAT number) with tax history at least 2 years.

In the evaluation, the tax administrator will also apply the so-called Economic indicator Some criteria (e.g. the payment of taxes) cannot be applied in the same way in the same amount to all entities, there would be unfairness if the same amount of tax arrears were applied for both small businessmen and large firms and therefore assessed according to the size of the entity = differentiation of access taking into account the economic life of the tax entity.

Benefits, which is determined directly by the law and which will be two for a highly reliable tax entity:

• Sub-Protocol from the over-reduction eligibility check, the tax administrator will Mandatory, so far it has been voluntary by the tax administration;
• benefit in relation to legal time limitsj. the tax administrator shall apply a longer period of time to meet the obligations of the tax entity in the call for tax control or for the conduct of a local survey; at least 15 days (for others, 8 days).

For example, further benefits for a highly reliable tax entity should be (i) in relation to sanctions when the tax administrator takes into account ITS, (ii) in relation to fees will be reduced the tax ruling fee by half, while for all the fee is reduced to 1.000 €, (iii) the fee for the decision to approve the transfer pricing method will also be half.

Claims that the tax administrator will be able to grant to the tax entity under ITS beyond the law will be published on MF SR website.

Malus for an unreliable tax entity, only one is proposed so far, namely to reduce the time limit for the action to be taken in the call of the tax administrator to 8 days (e.g. in the tax inspection, in the clearance procedure, in the local investigation procedure, in the case of a reasoned request, the time limit may be extended).

Notifications of ITS allocations will be sent to tax administrators for the first time by the end of February 2022 and the list will be published for the first time by the end of June 2022. If a notification of special tax regimes (before the proposed amendment is effective) has been sent to a tax entity, the tax administration will automatically send the ITS notification under the new rules by 28.2.2022. If the tax entity has not previously been notified of special tax regimes and if it has been assigned a VAT number until 31.12.2019, it will also receive an ITS notification until 28.2.2022.

Disqualification of unreliable natural persons by a decision on exclusion

This institute is based on § 13a The Commercial Code and is a tool to combat the abuse of white horses (mostly in the area of VAT). The proposed amendment will allow the tax administration to decide to exclude a natural person from being a statutory body or a member of a statutory body or supervisory body of a company and a cooperative (tax entity). The exclusion does not concern the taxable person himself, but only the natural person acting on behalf of an entity, subject to compliance with the statutory conditions.

Exclusion conditions a natural person by decision of the tax administrator:

• If such a natural person is a statutory body or a member of a statutory body of a tax entity which has completed a tax check on the loss of entitlement to the refund of excess VAT and at the same time the amount of tax arrears and arrears on another financial transaction is in total 5 000 € for more than one year (i.e. conditions must be met simultaneously as well as the payment period see Example *) or
• Where such a natural person was a statutory body or a member of a statutory body of a tax entity at the time when the tax entity submitted the VAT return for the tax period for which the tax control was terminated by the cessation of entitlement to the refund of excess VAT .

*Example of fulfilment / non-compliance with exclusion conditions:

1. The tax entity had terminated the tax control by the cessation of the right to deduct VAT and at the same time has a tax arrears of EUR 3000 over a period of 13 months from maturity and an underpayment of EUR 2000 over a period of 15 months from maturity = the exclusion condition is met.
2. The tax entity has completed its tax control over the cessation of the right to deduct VAT and at the same time has a tax arrears of EUR 3000 over a period of 7 months from the payment and an outstanding payment of EUR 2000 over a period of 13 months from the payment = the exclusion condition is not met.

If the conditions for exclusion are met, the tax administrator may issue a decision to exclude a natural person (statutory) for three years from the possibility to act for a commercial company or cooperative However, the possibility of doing business as a businessman and being a partner will remain with this natural person, i.e.. this institute does not exclude a natural person from possession.

Exclusion is not possible if (i) enforcement proceedings are under way for arrears which are still satisfied after one year of its maturity, (ii) deferrals or arrears are allowed or payments are authorised, (iii) bankruptcy or restructuring proceedings are under way.

Excluded natural person (Decision delivered to this individual) may appeal against that Decision, with no special remedies. However, it will be possible to use the review of the decision by the administrative court (administration of the administrative action), while the disqualified natural person will be obliged to inform the tax administration of the submission of such an administrative action as the administrative action brought has suspensive effect only if it is, i.e. notified to the tax administration.

Reducing administrative burden

Registration procedure – the proposed modification will abolish registration certificates for so-called registration cards (this applies to all taxes). Cards have no added value either for the tax entity or for the tax administrator; when they are lost, the tax entity is unnecessarily penalised because it cannot submit them when registering changes to the registration data or when it ceases to operate and it is also an increased administrative burden for the tax administrator to issue and subsequently shred these cards. Instead, the tax administrator will issue a marketing authorisation and the tax entity will not be able to appeal against such decisions.

Notification obligations The tax entity will no longer have to report/notify (e.g. change of surname, change of business name, change of registered office, etc.).

Access to the file for consultation The tax administration shall make the file available on request the following working day and, if this right is not exercised for subjective reasons on the part of the tax entity, it shall be made available again on the basis of a repeated application on the following working day.

Changes in the area of evidence – the tax administration will be able to carry out certain joint actions in relation to the evidence (e.g. oral hearing, hearing of witnesses, hearing of experts and familiarising itself with evidence) which will relieve tax entities who have so far had to participate repeatedly in the same actions. Hearing of the witness or expert shall also be possible through: digital technology (details will be published by FR SR on its website).

Obligation to determine device tax is converted into a tax administration option. The proposed change relates to the abuse of this institute by bodies frequently represented by “white horses’, who did not submit tax returns (mostly monthly VAT) and thus increased the administrative burden on the tax administration without effect since the tax was not paid/paid by the taxable person after the deduction;

In addition, the Commission considers that the contested tax ruling constitutes State aid within the meaning of Article 107 (1) TFEU. will be reduced to 1.000 € and there will also be a unification of deadlines for the tax entity to 10 working days. When using this institute, the tax administration will be bound by the opinion issued, which constitutes legal certainty for the tax entity, while at the same time the tax administration can verify, in the case of tax control, whether the tax entity has carried out the transaction under consideration in accordance with the description supplied for the advance ruling, whether or not certain facts have deviated. For the time being, the legal disadvantage remains a very limited area for which a binding position can be sought (the scope of tax legislation is established). Decree No 229/2014 of the MFSR Z.Z.).

For the latest and updated information on the Tax Reliability Index, see our article Here.