The Ministry of Finance of the Slovak Republic issued guidance on the Financial Transaction Tax

1. Performing Activity in Slovakia

When defining activity in Slovakia, the Ministry of Finance was inspired by the definition of a permanent establishment from the Income Tax Act.

A taxpayer’s activity is considered to be performed in Slovakia if it is:

a) carried out wholly or partly through a permanent place or facility for carrying out activities located in Slovakia – considered permanent if used continuously or repeatedly for the majority of the monthly tax period. In the case of a construction site, place of construction projects, or assembly projects, the time test for permanence does not apply,

b) carried out through a person who acts on behalf of the taxpayer and, continuously or repeatedly for the majority of the monthly tax period, negotiates or concludes contracts on their behalf based on authorization,

c) a platform or online marketplace is located in Slovakia,

d) an insurance risk related to this activity is located in Slovakia – i.e., real estate, its components, accessories, including items located therein (except goods in commercial transport), located in Slovakia, and vehicles registered in Slovakia.

The mere storage of a taxpayer’s inventory in Slovakia without further related activity does not constitute activity in Slovakia. However, the condition of performing activity in Slovakia is met if the supply or display of these goods and services in Slovakia is through a permanent place or facility for carrying out activities. This activity must be continuous or repeated for the majority of the monthly tax period.

In the case of foreign entities (which do not have a registered office or place of business in Slovakia), if:

• they do not have a Slovak account, only those financial transactions are subject to tax, and only to the extent that they relate to activities performed in Slovakia,
• they have a Slovak account, all financial transactions carried out on this account are subject to tax.

If a financial transaction at the time it was carried out was not related to the taxpayer’s (foreign entity’s) activity in Slovakia and therefore was not subject to tax, but subsequently becomes so (e.g., the taxpayer supplies goods in Slovakia acquired through a financial transaction carried out in previous months), the relevant tax period is the month in which the taxpayer performed the activity in Slovakia related to this financial transaction. This provision removes the obligation for additional notifications when the purpose of the transaction changes.

2. Recharged Costs

The guidance clarifies what is considered recharged costs:

• a situation where the taxpayer enters into a contract or other similar legal relationship with a third party, the content of which includes the transfer of funds or payments by the third party to other entities on behalf of the taxpayer,
• cost allocation.

It is not considered recharged costs if a third party purchases goods or services in its own name and on its own account and then sells them to the taxpayer.

If the parent company provides various services through its employees at headquarters and subsequently invoices these services to its subsidiaries, this is not considered cost allocation, even if the cost-plus method is used for service valuation.

On the other hand, if a software license procured centrally for all subsidiaries is allocated by the parent company among them, this is considered a recharged cost. Note the possibility to offset the tax withheld by the bank if you pay this cost from a Slovak bank account.

The taxpayer is not required to pay tax on the amount of recharged costs if the financial transaction that is the subject of the recharged costs is not subject to tax.

3. Cash Pooling

For the purposes of exemption from the tax base, it is not decisive where the provider maintaining the accounts of the members of the consolidated group is located, nor according to which rules the consolidated financial statements for the consolidated group are prepared. However, the requirement for a single bank remains.

How it looks in practice

The guidance also contains practical examples and the correct application of the financial transaction tax. The full text can be found at this link.

Based on public statements by the Prime Minister of the Slovak Republic, who indicated amendments to certain parts of the transaction tax, we do not expect the abolition of the financial transaction tax, but rather a narrowing of the circle of taxpayers.