International Tax Planning and Transfer Pricing Planning: Slovenia from a US perspective

Autor:Professor Dr. Rainer Zielke
Cargo del Autor:Professor in business economics at Østfold University College, Halden, Norway
Actualizado a:April 2017
 
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Contenido
  • 1 Abstract tax planning
  • 2 Abstract transfer pricing planning
    • 2.1 Introduction
    • 2.2 The low tax country Slovenia in the OECD context
    • 2.3 Transfer pricing rules of Slovenia
      • 2.3.1 Country-per-Country (CbC) reporting
      • 2.3.2 Laws and rules
      • 2.3.3 Arm's length principle
      • 2.3.4 Transfer pricing methods
      • 2.3.5 Definition of related companies
      • 2.3.6 Reporting requirements
      • 2.3.7 Documentation requirements
      • 2.3.8 Cost sharing
      • 2.3.9 Dispute resolution
    • 2.4 Calculation of the case studies in international tax planning between Slovenia and the USA
      • 2.4.1 Design of the tables
      • 2.4.2 The treaty Slovenia-USA in brief
      • 2.4.3 BEPS Project progress
      • 2.4.4 Slovenia in brief
      • 2.4.5 The USA in brief
      • 2.4.6 Design of case studies
      • 2.4.7 Case study 1: Dividends from Slovenia to the US
      • 2.4.8 Case study 2: Interests from Slovenia to the US
      • 2.4.9 Case study 3: Royalties from Slovenia to the US
      • 2.4.10 Case study 4: Management and technical service fees from Slovenia to the US
      • 2.4.11 Case study 5: Capital gains with Slovenia as asset country to the US as seller country
      • 2.4.12 Case study 6: Dividends from the US to Slovenia
      • 2.4.13 Case study 7: Interests from the US to Slovenia
      • 2.4.14 Case study 8: Royalties from the US to Slovenia
      • 2.4.15 Case study 9: Management and technical service fees from the US to Slovenia
      • 2.4.16 Case study 10: Capital gains with the US as asset country and Slovenia as seller country
    • 2.5 Concluding remarks
  • 3 Notes
Abstract tax planning

According to the International Monetary Fund, Slovenia confirms in 2016 with a gross domestic product (GDP) of US$ 44,122 million the twenty first-highest GDP of the European Union. In Slovenia, the corporate income tax is levied at the rate of 17.00%. In principle, the Slovenian corporate income tax system is a classical system, which means that corporate profits are subject to corporate income tax at the level of the company and dividends are taxed in the hands of the shareholders. Nevertheless, Slovenia is a low tax country. Especially for multinational enterprises, it is interesting to realize profits in low taxing countries by means of tax planning measures. Slovenia has introduced numerous anti-avoidance rules to avoid erosion of the taxable basis and to avoid profit shifting. According to the OECD, Slovenian economic activity is projected to gather pace in 2017 and 2018. Private consumption will accelerate on the back of employment gains and faster real wage growth. Investment will pick up as renewed EU structural funds bolster infrastructure investments, firms react to capacity constraints, and housing construction responds to higher property prices. Inflation is set to increase as economic slack disappears during 2018. As the labor market tightens, there will be greater need for reforms to get the long-term unemployed back to work and improve labor force mobility to enhance the inclusiveness of economic growth. This chapter provides a survey on the actual tax law frame conditions in Slovenia and provides practical support in international tax planning and transfer pricing planning between Slovenia and the US based on cross border case studies.

Abstract transfer pricing planning

With respect to transfer pricing Slovenia applies the arm’s length principle and follows the OECD Guidelines, the following transfer pricing methods are applicable: the comparable uncontrolled price method (CUP), the resale price method (RPM), the cost plus method, the transactional net margin method (TNMM), and the profit split method (PSM). CUP is the preferred method, followed by RPM and the cost plus method. If none of them can be used, PSM or TNMM may be applied. A domestic and a foreign company are regarded as related if: one of them holds, directly or indirectly, at least 25% of the shares or voting rights in the other company, or one of them participates in the management or control of the other company, or one of them controls the other company on the basis of a contract, or the transaction conditions differ from the conditions that have been or would have been agreed between non-associated companies under equal or comparable circumstances. Further, resident companies are regarded as related to each other if they are mutually related to a company by conditions listed above. There are reporting requirements and documentation requirements. Cost sharing is allowed. Avance pricing agreements are not available.

Introduction

International tax planning and transfer pricing planning between Slovenia, a developed economy and per capita the richest of the Slavic countries by nominal GDP, and the second richest by GDP (PPP) behind the Czech Republic, and the US as most important national economy of the world based on cross-border case studies is of central importance. In addition, the USA confirm with a population of 321 million inhabitants in 2017 3rd place of the most populous countries in the world (4.40% of the world population).

According to the International Monetary Fund, [1] Slovenia confirms in 2016 with a gross domestic product (GDP) of US$ 44,122 million the twenty first-highest GDP of the European Union. In Slovenia, the corporate income tax is levied at the rate of 17.00%. In principle, the Slovenian corporate income tax system is a classical system, which means that corporate profits are subject to corporate income tax at the level of the company and dividends are taxed in the hands of the shareholders. Nevertheless, Slovenia is a low tax country. Especially for multinational enterprises, it is interesting to realize profits in low taxing countries by means of tax planning measures. Slovenia has introduced numerous anti-avoidance rules to avoid erosion of the taxable basis and to avoid profit shifting.

According to the OECD, [2] Slovenian economic activity is projected to gather pace in 2017 and 2018. Private consumption will accelerate on the back of employment gains and faster real wage growth. Investment will pick up as renewed EU structural funds bolster infrastructure investments, firms react to capacity constraints, and housing construction responds to higher property prices. Inflation is set to increase as economic slack disappears during 2018. As the labor market tightens, there will be greater need for reforms to get the long-term unemployed back to work and improve labor force mobility to enhance the inclusiveness of economic growth. As economic slack is disappearing, fiscal tightening may be needed to prevent inflationary pressures. The sale of state-owned enterprises would promote competition and help to maintain the gains made in international competitiveness. Fiscal space has narrowed as public debt is estimated to rise to 85% of GDP by the end of 2016 and interest payments have increased to almost 3% of GDP. The structure of fiscal policy could be more supportive on the supply side by moving the tax burden from labor towards property and shifting some spending on the unemployed in favor of training rather than passive income support.

According to Orbitax, [3] (Daily Tax News Digest of 23 January 2017), Slovenia has published the regulations for the country's advance pricing agreement (APA) procedures, which are available in Slovenia from 1 January 2017.The regulation sets out the four main steps:

a) Preparation, which includes the filing of a written initiative with the tax authority providing:

b) Details of the taxpayer;

c) Details of the related parties entering into the transaction(s) to covered;

d) The type of APA (unilateral, bilateral, or multilateral);

e) A brief presentation of the organization structure of the taxpayer and its group;

f) A brief description of the transactions; and

g) The proposed methods for the determination of transfer prices;

  • Filing an application for the conclusion of the APA, which includes the submission of:

a) Similar information as above, but in more detail;

b) Additional relevant information if a bilateral or multilateral APA, such as applicable tax treaty provisions;

c) An annual report of related entities with which the transactions are covered by the APA, showing the material and financial operations and profit, including tax returns, for the three previous tax years; and

d) Transfer pricing documentation for the transactions covered, including methods used, critical assumptions made, financial and economic analysis, etc.;

  • The conclusion and signing of the APA, which may apply for up to five years, with the possibility of renewal; and
  • The monitoring of the implementation of the APA, which includes that the taxpayer must report on the validity of critical assumptions and if any critical assumptions change, adjustments must be made.

The costs for an APA are EUR 15,000 for the conclusion of an APA and EUR 7,500 for renewal.

Click the following link for the APA procedures regulations (Slovenian language), [4] which entered into force 1 January 2017.

According to Orbitax, [5] (Daily Tax News Digest of 22 November 2016), the law transposing Directive (EU) 2015/849 into Slovenia's domestic law was published on 4 November 2016 and entered into force on 19 November. The Directive includes new anti-money laundering rules including the requirement that all EU Member States maintain a central register of information on beneficial ownership that must be accessible to competent authorities, financial intelligence units, obliged entities such as banks, and any other person or organization that can demonstrate a legitimate interest. Beneficial ownership information is to be added to the new registry within 14 months of the law's entry into force. Click the following link for the Law on Prevention of Money Laundering and Terrorist Financing (Slovenian language).[6]

According to Orbitax, [7] (Daily Tax News Digest of 14 November 2016), on 4 November 2016, the law amending the Corporate Income Tax Act was published in Slovenia's Official Gazette. The amendments include:

  • An increase in the corporate tax rate from 17.00% to 19.00%...

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