Top-up tax in Slovakia
In connection with the OECD initiative referred to as Pillar II and Council Directive (EU) 2022/2523, Act No. 507/2023 Coll. on the top-up tax to ensure a minimum level of taxation for multinational enterprise groups and large domestic groups was adopted in Slovakia, effective as of December 31, 2023.
The law applies to:
- Constituent entities located in Slovakia that are members of a multinational enterprise group or a large domestic group with consolidated annual revenues of at least EUR 750 million;
- Joint ventures and entities affiliated with joint ventures in Slovakia.
The goal is to implement a minimum effective tax rate of 15%, meaning the top-up tax applies if the effective tax rate is below 15%.
The effective tax rate is determined as the ratio of the sum of adjusted covered taxes to the net qualifying income of the constituent entities. It is calculated at the jurisdiction level and then allocated among the constituent entities within that jurisdiction.
The Directive distinguishes three taxation rules:
- IIR (Income Inclusion Rule) – grants the right to tax the income of subsidiaries taxed below 15%,
- UTPR (Undertaxed Profits Rule) – the secondary rule – applies if the parent entity does not include the income of subsidiaries under the IIR. In this case, jurisdictions that have implemented the UTPR rule will be allocated the amount of top-up tax, which they can collect from entities located within their territory,
- QDMTT (Qualified Domestic Minimum Top-up Tax) – optional rule – allows jurisdictions to tax excess profits of entities located within their territory if they have been taxed below the 15% effective tax rate.
Slovakia has opted to delay the implementation of the IIR and UTPR rules until December 2029.
Slovakia has implemented the QDMTT rule, enabling it to collect top-up tax from constituent entities located within Slovakia, rather than from the jurisdiction where the parent entity of the group is located.
Starting from 2024, entities that are part of a large multinational group or a large domestic group with consolidated annual revenues meeting the established threshold will be required to submit a Top-up Tax Notification (“Notification”), a Top-up Tax Return (“Tax Return”), and pay the tax.
The deadline for submitting the Notification and the Tax Return will be 15 months after the end of the relevant period. However, in the so-called transition year, i.e., the first financial period in which a multinational group of companies or a large domestic group falls within the scope of this law, a deadline of 18 months applies. For the year 2024, the Notification and Tax Return will therefore be due by the end of June 2026. Both the Notification and the Tax Return will have prescribed forms, which will be published on the website of the Tax Authorities.
Given that the issue of top-up tax is very complex and extensive, we recommend addressing this area as early as 2025.
Failure to submit the Notification or Tax Return within the prescribed deadline will result in a penalty ranging from EUR 1,500 to EUR 50,000, which may be levied repeatedly.
Regarding the top-up tax law, the National Council of Slovakia adopted an amendment, effective as of December 31, 2024, which clarifies and streamlines certain provisions related to the calculation of the top-up tax and the conditions for its application, while also expanding the scope of control mechanisms.
If the new obligation applies to you, please contact us. We will be happy to help you.