Tax News, April 2022

The April issue of EY Tax news brings the following highlights:

• Novelties of the Amendment of Personal Income Tax Act (ZDoh-2Z)
• Main novelties and changes to the new Act amending and supplementing the Financial Administration Act (ZFU-A)
• A summary of the proposal of the Act on debureaucratization of taxation for the redemption of virtual currencies
• A summary of the general agreement on carbon border adjustment mechanism (CBAM) by EU finance ministers

 

Amendment of Personal Income Tax Act (ZDoh-2Z) novelties

• Changes in the assessment of prepayment tax for personal income during the year

In March 2022, amendments to the Personal Income Tax Act (Amendment ZDoh-2Z) were adopted, which will be applied retroactively from 1 January 2022. Accordingly, taxpayers whose liability arose before these changes took effect, may claim the benefits under the ZDoh-2Z rules from 1 January 2022 onwards.

Despite the changes, the calculation of salaries for January and February 2022 does not change in principle. For tax residents, the new rules for income, which is included in the annual tax base, will be applied in the annual assessment of personal income tax in such a way, that the tax authorities will make an appropriate personal tax recalculation based on the new personal income tax scales and tax reliefs. Nonetheless, there are cases where salary calculations for previous months need to be corrected accordingly.

• Feature 1 – Tax non-residents

If salaries for January and February 2022 were calculated and paid to a tax non-resident, who is not included in the annual personal income tax process, an adjustment of the payroll calculation is required and therefore adjustment of the REK-1 form. The correction of the REK-1 form is performed in such a way that the taxpayer recalculates the tax deduction. The underpaid net amount of income is transferred to the recipient of the income and a correction of the REK-1 form is submitted. After receiving the correction of the REK-1 form, an overpayment is established on the tax account of the tax deduction, which the Financial Administration of the Republic of Slovenia transfers to the taxpayer’s account or the taxpayer uses it to pay future tax liabilities.

If the taxpayer receives income from abroad and submits the tax returns himself and the prepayment tax assessment has already been issued, it is necessary to submit a request to the competent Financial Administration for revision of January and February 2022 tax assessments. Based on this, the Financial Administration recalculates the prepayment tax according to the new tax scales and returns the overpayment to the taxpayer. If the tax assessments have not been issued yet, it is necessary to file a correction of prepayment tax return before the issuance of tax assessment.

• Feature 2 – Electric vehicles benefit

Correction of REK-1 forms and calculation of salaries is needed also when the person had a calculated bonus for an electric car, as its value changed and is now zero. Accordingly, there is a change in the basis for calculating social security contributions. Since social security contributions cannot be calculated on an annual basis, it is necessary to correct the accounts and withholding tax reporting accordingly. A company can settle already paid contributions and future liabilities with the tax authority. As per individuals, the company must pay the difference in net income.

• The change of REK-1 – benefit for the purchase or acquisition of shares

Reporting is also changing regarding the benefit for share awards or stock options. The tax authority is introducing a new field in iREK- - B016a Benefit – the right to purchase or acquire shares, applicable to payments from 1 January 2022 onwards.

• Disposal of shares or participating interest in the context of the acquisition of own shares or participating interest in the company

The amended of ZDoh-2Z provisions stipulate that the disposal of shares in a company is taxed in accordance with the rules governing the taxation of capital gains, where the tax base is the difference between the value of capital at disposal and the value of capital at acquisition, reduced by flat-rate expenses associated with the acquisition and disposal of capital.

The rules that were applicable in years 2020 and 2021 stated that the purchase of own shares is in taxation sense equivalent to profit participation or dividend when the disposer of the shares is a natural person. The tax base constitutes the value of the share paid out. With the amendment ZDoh-2Z, the taxation of such income changed follows the general rules for taxation of income from the disposal of capital.

If the company has benefited from the intervention measures to contain the Covid-19 epidemic and has used the help or benefits intended to mitigate the effects of the epidemic, then it is advisable to examine the possible impact of these rules on the payment of funds for own shares. In some cases, the aid must be returned to the state, if the company paid out funds for the purchase of its own business shares during this period.

On 11 March 2022, the Slovenian National Assembly adopted a new Act amending and supplementing the Financial Administration Act (ZFU-A). It was published in the Official Gazette of the Republic of Slovenia on the 21^st of March 2022 and entered into force on the 5^th of April 2022.

The main changes and novelties are:

• According to the new Act, these procedures are now carried out by the Financial Administration as a uniform authority, regardless of the territorial jurisdiction.
• Besides that, the Act introduces a mandatory appointment of directors of financial offices for a period of 5 years.
• The amendment also foresees collegial decision-making in FURS in cases of tax inspections in which the expected tax liability exceeds 500.000 EUR, within inspections of related parties or in other cases of determining the tax base where the expected tax liability exceeds 100.000 EUR.
• Furthermore, it enables a professional cooperation of external experts in the form of an expert advisory body, with members of the financial administration and representatives from relevant industries.
• What is more, it introduces badges for officials, with which they will have to identify themselves in the field.
• The new Act also enables the superior to revoke the inspector’s authorization to lead and decide within the inspection procedure when the superior violates the rules. As examples of such irregularities in decision making, the legislator lists subjective and arbitrary decisions, which prove to be incorrect in legal proceedings or in the case when it departs from the settled case law. Within the latter, more consistent adherence to established practice (general and legal) in decision making by financial inspectors is therefore expected.
• Moreover, the Act follows the opinion of the information commissioner, that the legal basis for linking the tax register with other records needs to be regulated in a definite and unambiguous manner. Consequently, ZFU was amended in the part where the legal basis for connecting the collections of the Financial Administration with the collections that are regulated by the law governing the registration of real estate and the law governing the mass real estate valuation, that is led by the Surveying and Mapping Authority of the Republic of Slovenia.
• The amendment of ZFU also introduces a provision on the records of agricultural households, which has been regulated only in the Tax Procedure Act until recently.
• In addition, the amendment narrows the areas for which financial investigation may be initiated. Namely, it no longer defines them on a flat rate basis, but stipulates, that a financial investigation can be initiated when there are reasonable grounds to suspect, that an act in breach of tax rules or regulations in the field of gambling was committed.

The government of the Republic of Slovenia adopted a proposal for the Act on debureaucratization of taxation for the redemption of virtual currencies, on the 7^th of April 2022. This Act introduces the obligation to pay taxes on the value of cashed virtual currencies. A 5 % tax rate on the value of cashed virtual currencies has been proposed, with a tax relief of 10.000 EUR. The act will apply to all redemptions after its entry into force.

The proposal was sent to the National Assembly for consideration and urgent procedure for the adoption was suggested. Currently, natural persons who do not carry out activities regarding the redemption of virtual currencies, do not pay taxes.

The new Act is supposed to apply to all natural persons who are tax residents of the Republic of Slovenia and would cash in virtual currencies. As redemption, the exchange of virtual currency for fiat currency (euro, dollar…) will be considered and the redemption will be done when the fiat currency transfer will be made to the taxpayer’s transaction bank account or when the fiat currency payment will otherwise be available to the taxpayer. The purchase of goods, services or other assets with virtual currency will also be considered as redemption. However, any virtual currency that is not issued or guaranteed by either the central bank or a public authority and that is not necessarily pegged to a legally introduced currency and has no legal status of currency or cash, should also be considered as a virtual currency.

Moreover, the exchange of virtual currency, which is considered capital under the law governing personal income tax (e.g., for shares) and the purchase of another virtual currency or user token, should not be considered as redemption. In addition, taxpayers must be careful when redeeming leveraged cryptocurrencies that are considered as derivatives (e.g., if leveraged cryptocurrency is sold within a year then a 40 % income tax is paid at the time of sale).

Furthermore, the Act will not apply to legal entities whose virtual currencies are recorded among their assets and will also not apply to natural persons who perform an activity and whose virtual currencies are recorded among the assets of the activity they perform. It should be emphasized that a natural person, who buys and sells virtual currencies in his/her own name and for his/her own account, is not considered to be engaged in such activity, regardless of the number of transactions performed.

The suggested tax base is the sum of values of all the cashed virtual currencies in a calendar year, from which the amount of exemption of 10.000 EUR will be deducted, and the final amount will be taxed at a 5% tax rate. The tax liability will arise at the moment of the redemption of the virtual currency, unless the taxpayer proves that he/she had a los or when the total amount of the redemption of the virtual currency in a calendar year does not exceed 10.000 EUR. According to the proposal of new Act, the taxpayer should keep the documentation for 10 years from the day of redemption of the virtual currency, both in physical and electronic form.

It will be possible to submit the tax return once a year or immediately after each redemption of virtual currency, but no later than February 28 of the current year for the previous year. The proposed deadline for tax payment is 30 days from the date of submission of the tax return.

Since this is a proposal for the new Act, it is possible, that some changes and additions will be made during the legislative process.

EU finance ministers reach a general agreement on carbon border adjustment mechanism (CBAM)

On 15 March 2022, the finance ministers of EU Member States (The Council of the EU) reached a general agreement on additional duties which shall be imposed on imports of certain product categories (cement, steel, iron, aluminum, fertilizers and electric energy), the production of which is deemed carbon intensive. This is referred to as Carbon Border Adjustment Mechanism (CBAM) and it is the EU´s initiative aimed at reducing carbon dioxide emissions by 55% by 2030 and to achieving carbon neutrality by 2050.

The new duty will be introduced in the form of CBAM certificates, the price of which will be linked to the price of emission trading allowances (ETS). Prior to implementation of CBAM certificates, Member States must also agree on a reform of ETS.

By implementing a duty on import of high carbon-footprint product, the European Union aims to effectively protect its industry from competition and limit carbon leakage on the account of countries where similarly strict environmental rules are not in place.

According to the current timetable, a simplified CBAM system, where importers will have to report emissions embedded in their goods without paying a financial adjustment will apply as from 2023. Certificates are expected to be introduced in 2026, whereby importers will have to annually report on imports and emissions and surrender a corresponding number of certificates.

Next steps

The European Commission's legislative proposal is now moving into the first reading in the Parliament and into coordination with the Council of the EU. The Regulation is expected to be adopted in 2022 and phasing-in is to begin in 2023.