Opomera Morgachova, director of taxation at consulting firm Grant Thornton, summarizes and evaluates the major proposed changes that the said amendment brings.
Amendment 1. The notification of bank accounts and VAT obligations with liability is also transferred to the customer
The most important change in the VAT law relates to the introduction of a new notification obligation to pay VAT. Tax entities are obligated to notify the tax official of each of their Slovak and foreign bank accounts used to conduct business in Slovakia, immediately from the date on which they become tax payments or from the time they created this account. For payers registered for VAT until 15.11.2021, after approval of the draft amendment, the deadline for notifying their bank accounts in a special form should be 30.11.2021.
The bank accounts declared by the tax office will be published on the website of the Financial Department. Failure to notify the bank account will result in no overpayment of debit or overpayment of VAT to a payer unless the bank account has been notified. The tax officer may also impose a fine for not notifying the bank account within the time limit.
Another important effect of notifying bank accounts is the modified obligation to pay VAT. If the customer pays VAT to his supplier on an account other than the account posted on the financial management page on the day the payment order is entered, that customer will pay if the supplier does not pay the VAT to the tax office. “I definitely recommend customers to take proof of the supplier’s account at the time of entering the payment order in the form of a screenshot of the financial management page with the selected account. During the tax audit, the customer will need to prove that he paid the payment to the correct account.” Murgašová recommend. The financial department will not publish historical bank accounts, only an updated list.
How does this change. Morgachova:
In the explanatory note, the Ministry of Finance of the Slovak Republic assumes the reduction of the VAT gap and the improvement of VAT collection by introducing a new obligation on taxpayers. The proposed change will have a significant impact on all payers and, in particular, will transfer responsibility for non-payment of VAT to customers. Customers will be required to verify the correctness and timing of the supplier’s bank account on the Financial Management page, separately for each payment. For companies with a large number of suppliers and regular payments, this change will present an additional administrative burden and risk of VAT liability to the supplier, unless they can prove that they made the payment to the published account. Entities will start further data archiving, even at the time of payment, the supplier bank account has been published on the FRSR website, the database will only be updated to the current date and the daily archive of the list of accounts within the account will not be taken. If it is necessary to prove historically that a bank account was posted on the FRSR website at the time of payment, this evidence must be taken in addition to the account.
Amendment 2: Special method of paying VAT (so-called split payment): Those who do not trust the supplier may pay VAT directly to the state
The amendment introduces a new unilateral method of paying customers VAT by the tax office on behalf of the supplier in the event that the customer knows or suspects that the supplier will not pay VAT to the tax office. This way, you only pay the tax base without VAT to the supplier. In case of payment, the customer will not be charged for non-payment of VAT to the supplier. However, once the customer has paid the VAT liability to the tax office at the expense of the supplier, it will not be possible to return this excess payment to the customer, even if the supplier has paid his tax liability. On the contrary, this money will represent an overpayment to the supplier, which the supplier may request from the tax office.
To get a better idea of how this institute works in practice, we will use the following example:
The supplier entered into a contract with the customer for the delivery of goods for 100,000 euros without VAT. When paying the invoice for the delivered goods, the customer suspects that the supplier will not pay VAT, because at the time of payment no supplier bank account has been posted in the statement of the financial report. In accordance with the above, the customer will be at risk of liability for unpaid VAT in the amount of EUR 20,000. Therefore, the customer decides to pay the supplier out of the total invoice amount of €100,000 and €20,000 of the customer to the tax office. This relieved the customer of the risk of paying 120,000 euros to the customer, and at the same time, the monopoly office must charge him an additional amount of 20,000 euros in the event of a VAT obligation. In the event that the supplier also pays €20,000 to the tax office, he will return it to the tax office as an overpayment.
How does this change. Morgachova:
Paying VAT to customers for large payments for the supply of goods or services directly to the tax office bank account has been successful in practice, although there is no legislative support in the VAT law. This will standardize practices and legislation and reduce the risk of the customer’s VAT compliance.
Amendment 3: The Tax Reliability Index will be published by all taxpayers
The adjustment of the tax reliability index has been in operation in Slovakia since 2018, and some changes are planned from January 1, 2022. In the first place, each taxpayer (income taxpayer) should be assigned an indicator of fulfillment of tax obligations, on the basis of which additional benefits will be allocated to him. Taxpayers should be divided into three groups: a highly reliable, trusted, and untrustworthy tax entity. The distribution criteria are the fulfillment of tax obligations (the filing of returns and statements by the deadline), the timely fulfillment of notification obligations, the payment of taxes, advances and fines, the results of a tax audit, the tax amount correctly calculated in the tax return or additional tax returns. A more detailed methodology for allocating the indicator should be published by the Finance Directorate of the Slovak Republic on its website.
In accordance with the amendment, the tax office sends a notification to each taxpayer about the specified tax reliability indicator. Unlike in the past, the notice will also explain the reasons for assigning such an index to the taxpayer. In case of disagreement with the assigned index, it will be possible to object within 15 days of delivery of the notification. The objection must be substantiated. Another change would be to publish the custom index on the Financial Management website and publicly available to all. The index is reassessed by the tax office every six months and, in case of changes, reports the new index to the taxpayer. For newly registered taxpayers, the first indicator of tax compliance will be announced after two years.
How does this change. Morgachova:
We estimate that the allocation of the Tax Reliability Index will become more transparent, by establishing specific critical criteria. Even taxpayers would point me against the custom indicator. However, we also accept if the size of the taxpayer and the same “infringement” are taken into account when fulfilling individual tax obligations. It would be unfortunate for an honest taxpayer to lose his advantages and be described as unreliable if he neglects to pay a fine of 30 euros for the size of all obligations. I realize that publishing the index can be a motivating element for some to better meet their tax obligations, but a negative assessment can affect the company’s reputation and customer relationships. The situation will be more sensitive if a negative rating is assigned to the taxpayer in error or just for a simple breach of duty.
Amendment 4: The exclusion of statutory bodies for a period of three years for two reasons
The amendment introduced a new institute to exclude a statutory body – a natural person – from corporate or regulated bodies. This change also follows changes in commercial law.
Exclusion will be possible for two reasons:
• if the legal body (ie representative, prosecutor, supervisory body only, head of organized units, etc.) was working in the company at the time the VAT return was filed for the tax period in which the VAT tax control was opened, At the same time, tax control was not allowed
• If a VAT tax audit has not been conducted and the total arrears on all taxes are more than 5,000 euros for more than one year. In this case, the exception also applies to natural persons who were not in office at the time of filing the VAT return.
The tax office, in its capacity as tax administrator, will issue a decision on the exclusion of a legal natural person from corporate bodies, thus losing a monos that has served as a legal body for a period of three years in companies in the Slovak Republic from the date of validity of the exclusion decision. The excluded natural person will be able to appeal the exclusion decision, but will not be able to initiate a review of the decision outside of the appeals proceedings and request reopening of proceedings. The exclusion decision is reviewed by the court.
How does this change. Morgachova:
The new institute should assist the financial management in case the taxpayer does not cooperate and is not connected with the VAT controls. The risk of exclusion can act as a catalyst for these taxpayers and at the same time eliminate cases where the taxpayer creates a new LLC and continues with the same approach as before. Financial management in this way is more likely to identify these entrepreneurs than before.
Amendment 5: Reducing the value-added tax rate to support government housing
Milosz Oferek’s separate parliamentary motion was also submitted to Parliament, proposing to introduce a reduced value-added tax rate of 5%, both for buildings that meet the conditions for state-subsidized rental housing, and for the restoration and reconstruction of such buildings. Furthermore, this amendment proposes limiting non-taxable buildings for state-subsidized rentals after five years. In the event that the building is used for a purpose other than state-supported rental housing or this building is sold to other persons, it is proposed to introduce a correction mechanism in order to adjust the unjustified right to the reduced VAT rate.
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