Tax News, September 2023

In this edition of tax news, we inform you about the beginning of Carbon Border Adjustment Mechanism (“CBAM”) reporting, the reporting of European payment service providers (“CESOP”), the transformation of the Slovenian supplementary health insurance system and about the tax matters related to the floods and landslides incurred in Slovenia. In addition, we inform you about the expected long-term changes in the field of transfer prices.

CBAM reporting period starts on 1 October 2023 – act now if you are still unsure of implications for your company

As reported in previous editions of Tax News, 1 October 2023 marks the start of transitional period for Carbon Border Adjustment Mechanism (“CBAM”).

During transitional period, between 1 October 2023 and 31 December 2025, importers of covered goods (steel and iron (incl. some downstream products), aluminium, cement, fertilisers, electricity and hydrogen) will need to submit quarterly reports and obtain CBAM import authorization.

The first quarterly CBAM report is due by 31 January 2024 and will cover the period 1 October to 31 December 2023. There is a very low de minimis threshold – any consignment of covered goods over EUR 150 will be subject to reporting.

We expect, these new reporting obligations will introduce a significant compliance burden on businesses, with many reporting on embedded emissions for the first time. Calculating embedded emissions is a lengthy and complex process, relying on data from manufacturers based outside the EU. While certain default values will be made available to bridge data gaps, there are restrictions on their use, increasing the need for robust emissions data throughout supply chains. This is likely to be a significant data challenge for businesses.

Depending on what steps have you already taken, this is how your organization can prepare for the new compliance obligations and consider the strategic implications of the regime:

1.    Assign responsibility and review your EU import footprint to identify whether your business is in scope of the regime and assess both the financial and organizational impact for your business. If you are still unsure whether CBAM may impact your organization at all, EY has prepared a questionnaire, which can help you with this assessment.

2.    Assess the data requirements needed to submit quarterly CBAM reports, mapping against existing data availability to identify gaps. Where data gaps exist, put in place mechanisms to close them.

3.    Communicate with your suppliers to understand whether they have undertaken any preparations for the implementation of the regime, including understanding whether monitoring systems are used and required information for CBAM reports is available.

4.    Prepare to register to become an Authorized CBAM Declarant when the transitional registry opens in October 2023.

5.    Closely monitor developments of the CBAM legislation and reform of the EU ETS, assessing further guidance published by the EU and incorporate this into planning. In addition to the EU, other jurisdictions are exploring introducing similar policies including the UK, which recently concluded a consultation on adopting its own CBAM.

Reporting of payment data from payment service providers and transmission to the Central Electronic System of Payment information (“CESOP”)

The Council of the EU adopted a legislative package requiring European payment service providers to report quarterly to the competent institutions in the Member States on all beneficiaries who have received more than 25 cross-border payments. The Council of the EU aims to address shortcomings in the regime for cross-border supplies of goods and services to buyers in the Member States regarding the control and fight against VAT fraud. Payment service providers will also have to report on their services in Member States in accordance with their licenses. The European database, CESOP, will be responsible for managing this data.

Member States must adopt and publish the laws and regulations necessary to comply with CESOP Directive, by 31 December 2023. The new rules will enter into force on 1st January 2024.

The Ministry of Finance has submitted a bill amending the Value Added Tax Act. The legislative package for the amendments is composed of two legal texts:

• Council Directive (EU) 2020/284 of 18 February 2020 amending Directive 2006/112/EC as regards introducing certain requirements for payment service providers and
• Council Regulation (EU) 2020/283 of 18 February 2020 amending Regulation (EU) No 904/2010 as regards measures to strengthen administrative cooperation in order to combat VAT fraud.

Transformation of supplementary health insurance system

On July 6, 2023, the National Assembly of the Republic of Slovenia adopted the Act Amending the Health Care and Health Insurance Act (ZZVZZ-T), which entered into force on July 7, 2023. The Act will become applicable on January 1, 2024. The ZZVZZ-T terminates supplementary health insurance contracts effective on the date of application of the Act.

Act introduces a new compulsory health contribution, which must be paid regardless of the actual number of insured days in a calendar month. In 2024 the contribution will amount to EUR 35 monthly. The compulsory health contribution will be adjusted once a year (on 1st March) in line with the increase in the average gross salary. The newly adjusted amount will be published in the Official Gazette, February at the latest. The first valorization of the amount of the compulsory health contribution will take place in 2025.

The obligation to calculate and pay the new contribution is concurrent with the obligation to calculate and pay the contributions for sickness and accident insurance outside work. It is also collected in the same way and according to the same procedure.

Tax matters related to the floods and landslides in August 2023

On 12 September 2023, we provided you via special Alert (Law Alert, September 2023 | EY Slovenia) an overview of the main measures currently in force to eliminate or mitigate the consequences of the floods and landslides occurred in Slovenia in August 2023. 

The European Commission Announces New Tax Policy Package

On 12 September 2023, the European Commission published a new package of legislative proposals, namely the proposal for a Directive »Business in Europe: Framework for Income Taxation« or »BEFIT«, proposal for a new tax system for small and medium-sized enterprises (»Head Office Tax Systems for SMEs«, abbreviated as »HOT«), and the proposal for a Directive on Transfer Pricing, which aim to harmonize rules at EU level, increase tax certainty, reduce the risk of double taxation and reduce the costs incurred by companies in the process of compliance reporting and tax compliance in different Member States.

Please note that these are initial proposals or ideas, which are not yet certain to be implemented in the same form. These proposals are therefore more indicative of the direction in which further considerations and activities of international organizations are heading in terms of further measures to combat tax avoidance and optimization of tax rules by EU Member State companies.

1. BEFIT - tax system for multinational entities

The BEFIT proposal provides a common framework for corporate income taxation for groups of companies with a combined annual revenue exceeding EUR 750 million. The new system should, on one hand, reduce the reporting costs for corporate income taxation purposes, while on the other hand, it would make it easier for the tax authorities of individual Member States to keep track of which taxes they still have to collect. Smaller companies will also be able to join the system on a voluntary basis, provided they operate in several Member States.

The proposal includes the following measures:

• Common rules for calculating the tax base
• The tax base of all members of a group will be aggregated into a single tax base at group level, presumably in the member state where the group is established
• Allocation of the aggregated tax base

If the BEFIT proposal is approved by Member States, it would enter into force on 1 July 2028.

2. Head Office Tax (HOT) System - tax system for small and medium-sized enterprises

In addition to the BEFIT system, the European Commission has also proposed the creation of the Head Office Tax System for SMEs operating in several EU Member States. Under the new proposal, SMEs would no longer have contact with the tax authorities of different Member States in which they operate, but only with one tax authority, namely with the one of their primary Member State, i.e. the country where the company's head office is located. The primary Member State tax authority would then pass on the information to other Member States where the company has permanent establishments.

If the company meets the criteria of an SME, it must remain in the HOT system for five years, with the possibility of renewal for additional five years each time. However, if the company exceeds the scope of the HOT criteria for SMEs, it can enter the BEFIT tax system for multinational entities.

3. Changes in transfer pricing

The proposal for a Directive on Transfer Pricing aims to harmonize the rules across EU Member States and ensure a unified approach to transfer pricing. The proposal aims to incorporate the arm's length principle into EU law and clarifies the role and status of the OECD Transfer Pricing Guidelines, which would increase tax certainty while reducing the risk of litigation and double taxation. The new transfer pricing rules would be implemented in Member States' legislation by 1 January 2026.