Slovakia: Proposed changes to transfer pricing rules and limitations on deductibility of interest
Proposed changes to transfer pricing rules, new rule limiting the deductibility of interest that implements ATAD
Limitations on deductibility of interest
The Slovak Parliament discussed in the first reading an amendment to the income tax law that includes proposed changes to the transfer pricing rules, as well as a new rule limiting the deductibility of interest that implements the EU’s Anti-Tax Avoidance Directive (ATAD).
The proposed changes to the transfer pricing rules, which are proposed to be effective 1 January 2023, include:
- Clarification and more precise definition of foreign related parties, controlled transactions and significant controlled transactions
- Amendment to the rules for determining the tax base of a nonresident’s permanent establishment in accordance with the OECD methodology
- Usage of median for the purpose of adjusting the taxpayer’s tax base if the prices used in the controlled transactions are not in accordance with the arm’s length principle and are not in the interval of values of independent parties (unless a taxpayer proves that considering given conditions there is another more suitable value within the interval of independent values)
- Inclusion of a direct reference to the OECD transfer pricing guidelines
- Possibility to submit transfer pricing documentation in another language
The new rule limiting the deductibility of interest exceeding 30% of tax EBITDA—proposed to be effective 1 January 2024—would apply to all legal entities (residents and nonresidents, and both related and unrelated entities), except for certain financial institutions, debtors whose related parties are only individuals, and taxpayers whose net interest costs in a given year do not exceed €3 million. The new rule would allow the transfer of unused interest capacity to subsequent tax periods.
Read a September 2022 report prepared by the KPMG member firm in Slovakia
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