Global minimum tax 15 %

The OECD´s Pillar Two aims to ensure a minimum level of taxation of multinational enterprise groups at the effective tax rate of 15 %. At the end of 2022, the European Union adopted Council Directive (EU) 2022/2523 on ensuring a global minimum level of taxation of multinational enterprise groups and large-scale domestic groups. One year later, the Directive was transposed into Slovak law through the Act on Domestic Top-up Tax.  The new obligations for Slovak taxpayers are applicable to financial years beginning in 2024.

The affected MNEs should, therefore, urgently address the implementation of the global minimum tax and verify the applicability of possible exceptions. In particular, the management and collection of the data required for the calculation of the top-up tax will be a key issue.

Council Directive (EU) 2022/2523 on ensuring a global minimum level of taxation of multinational enterprise groups and large-scale domestic groups in the Union (“the Directive”) has transposed the OECD recommendations and model rules into EU law. The OECD´s Pillar Two defines rules on the minimum level of taxation of multinational enterprise groups (“MNEs”), the so-called GloBE Rules (The Global Anti-Base Erosion Rules). It aims to ensure that MNEs are subject to a 15 % effective minimum corporate tax rate.

Who will be affected by GloBE?

Entities, that are part of an MNE group which has an annual consolidated revenue exceeding EUR 750 million in at least two of the four fiscal years immediately preceding the tested year, will be required to monitor whether their effective tax rate is at least 15 %. Should the effective tax rate be lower than 15 %, the taxpayer will be obliged to pay the difference in the form of a top-up tax.

GloBE in Slovakia?

The Ministry of Finance of the Slovak Republic has decided to implement only the voluntary Qualified Domestic Minimum Top-up Tax (QDMTT) effective from 2024¹ (“Top-up Tax”).

How is the QDMTT calculated?

In a first step, the MNE group within the scope will be identified together with individual entities within such group. Before the actual calculation, it is necessary to verify the application of possible exceptions.

The top-up tax is calculated for one jurisdiction. If multiple entities, therefore operate within the territory of the Slovak Republic, the effective tax rate will be calculated for all of these entities. Once the jurisdictional top-up tax is calculated, the top-up tax will be allocated among the entities within the jurisdiction in a second step. This allocation occurs on a pro-rata basis based on the entities´ qualifying income.

The calculation of the top-up tax can be summarized in the following steps:

•  identification of accounting profit or loss;
• adjustment of the accounting profit or loss to qualifying income (i.e. defined additions and reductions entering the calculation of qualifying
• income for the purposes of the top-up tax computation);
• identification of covered taxes;
• adjustment of covered taxes (i.e. additions and reductions entering the calculation of covered taxes for purposes of the top-up tax computation);
• calculation of the effective tax rate for the purpose of the top-up tax computation;
• determination of the top-up percentage;
• determination of excess profits;
• calculation of the jurisdictional top-up tax; and
• allocation of the top-up tax to individual entities.

Are there any exceptions from the QDMTT?

The de minimis exclusion can be applied if the average qualifying revenue of all entities located in Slovakia is less than EUR 10 million and the average qualifying income or loss is less than EUR 1 million. In this case, the top-up tax may be equal to zero.

The safe-harbour rule presents a further exception and essentially consists of a simplified calculation based on data from the Country-by-Country report. The top-up tax may be equal to zero once certain conditions of that calculation are met.

Substance-based income exclusion can also be considered as an exception. For the calculation of excess profits, a proportionate part of the eligible payroll costs and the book value of the eligible tangible assets may be excluded from the qualifying income. This applies only if the taxpayer can prove adequate asset and personnel equipment in Slovakia.

What are the deadlines for filing obligations related to the QDMTT?

With regards to the calculated top-up tax, the taxpayer is required to:

• file a notification with information to determine the top-up tax to the tax authorities,
• file a tax return the tax authorities and
• pay the tax.

The deadline for all three obligations mentioned above ends fifteen months after the last day of the reporting fiscal year. For 2024, a special transition rule applies which postpones the deadline by three months. For the calendar year 2024, the first obligations therefore have to be fulfilled until 30 June 2026.The obligation to file a tax return arises irrespective of whether a top-up tax is due.

At least one entity in Slovakia must file a notification to the tax authorities (if it also reports information for other Slovak companies). Alternatively, such obligation can be fulfilled by a foreign parent company as well. A failure to notify the tax authorities may lead to penalties.

For more information on the introduction in Austria, see the News of our Austrian colleagues here: https://www.leitnerleitner.com/news/pillar-ii-mindestbesteuerungsgesetz-in-begutachtung/

¹ Specifically effective from 31 December 2023.