August 25, 2015

July 8, 2015

This June, Ministry of Finance published the proposed changes to the Slovenian Tax Procedure Act. The envisaged amendments bring broad variety of important novelties (e.g. regarding automatic exchange of information, elimination of administrative burdens). The most significant change, however, is the introduction of the institute of Advance Pricing Agreement (APA).

The institute of Advance Pricing Agreement represents the possibility of a prior agreement between the taxpayer and the tax authority in relation to the criteria for determining the transfer pricing methods for future transactions. In many other countries, this institute has already been long established and, in practice, represents an important opportunity for the taxpayers to ensure greater predictability in relation to transfer pricing. In the Slovenian legal system, however, Advance Pricing Agreement is a complete novelty. Given the importance of introduction of Advance Pricing Agreement in the Tax Procedure Act, a longer transitional period is proposed. Thus, Advance Pricing Agreement will only be introduced from 1 July 2017 onwards.

Under the proposed regime of the Advance Pricing Agreement under the Slovenian Tax Procedure Act, the taxpayer will be able to apply for a unilateral, bilateral or multilateral agreement. Unilateral Advance Pricing Agreement will represent an agreement between the tax authority and the taxpayer; while bilateral or multilateral agreement will represent an agreement between two or more tax authorities.

In order to conclude an Advance Pricing Agreement, the taxpayer will have to file a written application with the tax authority; such petition will also need to specify all the necessary criteria that influence the determination of transfer prices. In such case, the Advance Pricing Agreement could then be concluded under the following conditions:

1. A taxpayer cooperates with the competent tax authority;

2. The transaction, which will be subject of the Advance Pricing Agreement, will actually be carried out;

3. A taxpayer and the competent tax authority agree on the substance of the agreement;

4. Appropriate duration and suitable certainty of the transaction that is subject to the agreement is ensured.

The proposed regulation of the Advance Pricing Agreement under the Tax Procedure Act also defines the minimum materia that any concluded agreement shall contain:

(a) Methodology (e.g. the method for determining transfer pricing along with the justification of choice of this method);

(b) Critical assumptions;

(c) Period of time which the agreement relates to;

(d) Other criteria that may affect the determination of transfer prices and the method of implementation of the agreement.

During the term of the Advance Pricing Agreement, the taxpayer shall notify the tax authority of any changes of the critical assumptions and necessary adjustments. In addition, subsequent changes of the concluded agreement will also be possible.

In case of violation of obligations of the taxpayer or, in the event of significant changes of the conditions, the agreement will be terminated. Any agreement, based on false, inaccurate or incomplete information provided by the taxpayer will be null and void.

All costs associated with the conclusion of the Advance Pricing Agreement will be borne by the taxpayer. An agreement itself will also not restrict the rights of the tax authority in the exercise of its competences.


July 1, 2015

Managing Partner Uroš Ilić gives interview in the CEE Legal Matters Magazine on the privatization process in the South Eastern Europe markets and his expectations for the future.

To read the interview, click to follow the link


June 24, 2015

Managing Partner, Uroš Ilić, attended a private luncheon with H.E. Brent R. Hartley, U.S. Ambassador to Slovenia, held for a small select group of AmCham business leaders, on 19 June 2015. The topic of discussion was recent developments regarding the trade agreement between the USA and EU – TTIP.

(Photo: STA)


June 22, 2015

For the second consecutive year, ODI is proud to receive the Creditworthiness Rating A Certificate of Excellence, which ranks us among 7.3% of the most successful Slovenian companies.  The standard classification of legal activities registered 250 firms in Slovenia, of which only 58 companies reached international standards of excellence rating.

The certificate of excellence, given by the Bisnode Group, Europe’s largest supplier of business and credit information, represents an above-average creditworthiness value of business entities. It is based on the accounting statements for the previous business year, and predicts the safety of its business operations in the following twelve months.

The companies with a creditworthiness rating of excellence operate above average, and rank among the most reliable, the most solvent, and the most successful business entities in Slovenia.

In an international environment, the certification is already an established practice, allowing business entities to further strengthen their reputation and confidence in the domestic and international business environment. The certificate holders thus gain the additional trust of their business partners.

June 19, 2015

ODI Managing Partner, Uros Ilic, attended Reforms, Banking Sector Consolidation and Business Restructuring conference hosted by AmCham Slovenia in cooperation with PwC, on 16 June 2015 at the Best Western Premier Hotel Slon in Ljubljana.

The focus was on the future and energy being directed towards finding solutions.

Business restructuring being essential.
A major challenge for both banks and the economy are bad loans – how to solve them?
When will our banks, free of bad loans, be of greater support to the economy?

The main guest speaker was dr. Dušan Mramor, Minister of Finance of the Republic of Slovenia.
Other guest speakers included:
Torbjörn Månsson , Executive Director, Bank Asset Management Company (BAMC)
Dr. Imre Balogh, President of the Management Board Probanka, non executive director BAMC
Hana Mitkovova, advisor in banking, former head of collection and valuation department at Komercni banka (SG Group)
Jonathan Wheatley, PwC, Director, European Portfolio Advisory Group – CEE
Martin Machoň, Chairman of APS Holding Board of Directors and CEO

Photo: Uroš Ilić with Henrik Dalgaard, Partner at PwC CEE


May 25, 2015

Mag. Uroš Ilić is leaving the Slovenian soil today to attend a 3-day International Referral conference in Shanghai on 28 May 2015. Mr Ilić is participating as a corporate and insolvency law specialist and will be giving a speech on Corporate restructuring and privatization legal challenges in Adriatic jurisdictions. The twice-yearly IR conference brings together the legal experts from all corners of the globe.

May 14, 2015

ODI Law Firm’s Slovenian office has recently amended its single-member company corporate structure. Uroš Ilić, an attorney-at-law specialist in corporate and insolvency law and ODI’s managing partner, who founded the firm 10 years ago, has been joined by two new equity partners.

Matjaž Jan is the regional head of the firm’s dispute resolution group. He became an attorney-at-law in 2008 and joined ODI in 2010. He has over 15 years of experience in corporate law, restructuring, insolvency and dispute resolution.

Branko Ilić is the Slovenian head of the real estate group and the Croatian desk in ODI’s Slovenian office. He also became an attorney-at-law in 2008 and joined ODI in 2010. He has over 10 years of experience in real estate law and dispute resolution.

In light of these structural changes, ODI’s Slovenian office has also amended its corporate name to Law Firm Ilić & Partners LLP.

The addition of the two new Slovenian equity partners is a welcomed development accompanying the firm’s rapid growth in the previous years. The new ownership structure will strengthen the firm’s foundations, enabling it to comfortably maintain its position as one of the leading law firms in the Adria region and providing support for achieving its goals on domestic and foreign markets.


May 7, 2015

Slovenian Withholding Tax on Interest Payments in Cross-border Financing Transactions


In cross-border financing transactions, withholding tax implications usually play a substantial role. The role of the tax lawyers is to recognize and acquaint the clients with any tax risks connected with their business operations as well as to advise on appropriate actions to address them (e.g., via negotiation and introduction of appropriate tax gross-up clauses into the agreements with foreign business partners).

The purpose of this article is to outline the regulation of Slovenian withholding tax, applicable to outbound interest payments. The withholding tax will be analysed at the following three levels: (I) at the first level, general regulation under Corporate Income Tax (CITA) will be outlined; (II) at the second level, benefits under the relevant provisions of EU Interest and Royalties Directive as implemented by Slovenian legislation will be analysed; while (III) at the third level, possible reduction of tax rate under the provisions of Double Tax Conventions concluded between Slovenia and other countries will be discussed.

Level I: Slovenian Corporate Income Tax Act (CITA)

Legal basis for the corporate withholding tax in Slovenian tax system is provided by the provision of Article 70 of the Corporate Income Tax Act (CITA), pursuant to which tax must be calculated and withheld on the payments made by residents and non-residents on Slovenian-sourced income to recipients outside Slovenia. Payments to which the withholding tax applies include payments for dividends, interest, copyrights, patents, licences, leases on real estate situated in Slovenia, services of performing artists, and services charged from low-tax jurisdictions (i.e. countries other than the EU Member States, where the general and / or average nominal profit tax rate is lower than 12.5% and where the country is included on the list published by the Ministry of Finance). The Slovenian withholding tax rate is 15%.


Case study (see diagram above): Slo Co, tax resident of Slovenia, pays interest to X Co, tax resident of country X. If assuming that country X is not an EU Member State and there is also no Double Taxation Treaty in place between Slovenia and country X, the withholding tax rate on outbound interest payments will be 15%.

It needs to be noted that some important exemptions from the withholding tax with regard to interest payments are provided by CITA. Among others, there is an exemption for interest on loans paid by the banks (Article 70, para 2) and interest arising from debt securities issued by Slovenian companies that are traded on a regular market or in a multilateral trading system in an EU Member State or in an OECD member country (for detailed conditions that need to be satisfied for this exemption to be granted, see Article 70a).

Procedural aspects:
The responsibility of calculating, deducting and remitting the withholding tax in the name of the recipient of income lies with the person or entity which pays the income. Article 58 of the Tax Procedure Act (TPA) defines this person as having the status of the “payer of tax”. In general, the payer of tax is a legal entity, sole entrepreneur or a business unit of a non-resident in Slovenia (for example, a branch of a foreign company) that pays or credits the income from which the tax needs to be withheld.

It should also be noted that the payer of tax can also be the agent that pays the income to the beneficial owner as an intermediary.

Level 2: EU Interest and Royalties Directive

Council Directive 2003/49/EC (Interest and Royalties Directive or IR Directive) has been implemented into Slovenian legislation through Article 72 of the CITA, which stipulates that tax is not withheld on interest and royalty payments between associated companies of different EU Member States. For this benefit to apply, however, the following conditions have to be met at the time of the payment:

  • The interest (or royalty) payments are made to a beneficial owner (for definition of this legal term, see below);
  • The beneficial owner satisfies the additional criteria:
    – it takes one of the legal forms listed in the IR Directive;
    – it is liable to one of the taxes defined in the IR Directive; and
    – it is a resident of another EU Member State (and is not deemed a resident of a third country      outside EU under the relevant Double Taxation Treaty);

In this respect, it needs to be added that the benefits provided by the IR Directive only apply with regard to intra-EU payments. Hence, benefits do not apply, if interest are paid by or to a permanent establishment (of a company that is a resident of an EU Member State) that is situated in a third state.

  • The paying company and the beneficial owner are related so that the one company directly participates in the capital of the other with at least 25%, or the third company directly participates in the capital of both with at least 25%;
  • The condition of the minimum holding period (regarding the abovementioned participation) of 24 months is met.

In addition to this, the withholding tax exemption does not apply if the amount of interest paid is in excess of the rules determined by transfer pricing rules (Articles 16 – 19 of the CITA).

It is important to note that the term “beneficial owner” is explicitly defined by Article 72 of the CITA: Beneficial owner of interest (or royalty) payments is a company of an EU Member State other than Slovenia which is the recipient of such payments for its own benefit. The law also clarifies that an agent acting as a deputy, authorised person or authorised signatory (representative) for other person shall not be deemed a beneficial owner. Also, a permanent establishment (PE) may be treated as the beneficial owner only, if it receives the payments for its own benefit (for its own account) and not merely as an intermediary, for example an agent or authorized signatory for some other person.

Procedural aspects:
The benefits under the Interest and Royalties Directive can only be claimed after the fulfilment of the requirements laid down in the Article 72 of the CITA has been substantiated by the attestation. Under the Article 377 of the TPA, the paying company has to file a request with the Financial Administration upon which the administration grants permission for exemption valid up to 1 year from the issuance. A decision to grant the permission has to be issued 3 months after the request was filed. A request has to be made separately for each payment of interest and royalties that is based on a different legal basis. The recipient company or its PE has to immediately inform the paying company or its PE of any changed circumstances that may lead to the outcome when conditions set out in Article 72 are no longer fulfilled.

In case the tax was already withheld even though the legal conditions for exemption under the IR Directive had already been fulfilled, a tax refund can be claimed (by either the beneficial owner or the payer). Financial Administration has to decide about the refund in 3 months from the date the request was filed with all the necessary proofs (it may also demand submission of relevant documentation in order to verify whether the conditions for exemption had been met).

Level 3: Double Taxation Treaties

Pursuant to relevant provisions of the Double Tax Treaties concluded between Slovenia and other countries, general 15 % withholding tax rate on interest payments may also be reduced. In this respect, it is important to note that Slovenia has so far concluded Double Tax Treaties with as much as 57 different countries. These treaties are predominantly based on the OECD Model Treaty (list of all of the current treaties in force is publicly available on the website of Slovenian Ministry of Finance).

Pursuant to provisions of Slovenian Double Tax Treaties (Article 11, in particular), the applicable withholding tax on interest payments rate is usually reduced to 10 % (e.g. Double Tax Treaty with Belgium, Canada, Russian Federation) or 5 % (e.g. Double Tax Treaty with Austria, Republic of Korea, Qatar). Some Double Taxation Treaties also include specific provisions whereby interest payments are subject to a nil withholding tax if certain conditions are met.

However, the benefits under the relevant Double Taxation Treaty may only be claimed, if the recipient of the interest payments is a beneficial owner of such payments. Unlike EU IR Directive, Double Taxation Treaties based on the OECD Model Treaty do not expressly define this term. Thus, OECD Commentary (as recently amended with regard to this concept in 2014) has to be taken into account as well as judicial interpretation of this term in various tax related disputes (e.g. famous UK Indofood, or Canadian Velcro and Prevost cases). Also, recent developments with regard to currently ongoing OECD BEPS project (especially with regard to preventing the granting of treaty benefits in certain “inappropriate” circumstances – Action 6) need to be taken into account.

Procedural Aspects
Article 260 of the TPA provides that a non-resident corporate taxpayer entitled to a lower tax rate or exemption from tax in accordance with the relevant Double Taxation Treaty can apply for a relief or exemption of the withholding tax prior to the receipt of income. Whether the non-resident taxpayer is entitled to benefits or not has to be decided by the Financial Administration. The payer of income is only authorized not to withhold the tax or withhold the tax at a lower rate upon the official permission from the Financial Administration.

As a general rule, the request has to be filed for each separate payment of income. However, Article 260, paragraph 6 of the TPA in circumstances when income is being paid on a regular basis enables the Financial Administration to extend the benefits from the relevant Double Taxation Treaty for a longer period of time (not only for a particular payment).

In case the tax has already been withheld even though the company is entitled to the benefits under the Double Taxation Treaty, such company may apply for a refund pursuant to the provision of Article 262 of the TPA. Refund of the tax withheld can be claimed up to the difference between the full amount withheld and the amount required by the Double Taxation Treaty. In case the taxpayer was exempt from tax according to the Double Taxation Treaty, the full amount of withheld tax is refunded. It should be added that Article 125 paragraph 4 of the TPA generally limits a taxpayer who paid excessive tax on income to apply for a refund within a period of 5 years after the payment (or after obtaining the legal title that determined a taxpayer’s non-liability to tax).


As it has been shown, for the purposes of the assessment of tax implication of any contemplated international financing transaction, three different levels have to be analysed. Namely, general withholding tax applicable to outbound payments (15 %) under CITA may be further reduced pursuant to the provisions of the CITA implementing EU IR Directive (reducing tax rate to nil provided that relevant conditions as explained above have been met), or by relevant Double Tax Treaty concluded by Slovenia. In any case, particular circumstances of each individual case have to be taken into account (in particular, whether the recipient of the dividends may be deemed “beneficial owner,” as well as recent developments in the framework of the OECD BEPS project, especially with regard to denial of treaty benefits in certain “inappropriate” circumstances – Action 6). Thus, for the purposes of early identification of possible tax risks, it is recommended that tax specialists are consulted before entering into any transaction.


May 4, 2015

Recently published proposal of the Slovenian Strategy on the management of state-owned assets contains a plan to limit the concentration of ownership in companies, privatized through an IPO. Such limitation is planned to be regulated in the companies’ Articles of Association (hereafter: Articles). However, when limiting the concentration of ownership in privatized companies, Slovenian state shall observe EU rules on the free movement of capital.

Restriction of transferability of the shares

Concentration of ownership could be limited by restricting transferability of the shares in the Articles of the company, i.e. Articles may provide that a consent of the company must be obtained in order to transfer the shares of such company. Moreover, the authority to issues the consent may be entrusted to the general meeting in combination with the requested qualified majority of 75% of the votes for the decision. By amending the Articles in the described manner, while still a predominant owner of the companies to be privatized, the state could control further transfers of company’s shares by owning only 25% plus one share of the company. Furthermore, any amendments of the Articles will be subject to the state’s consent, as the 75% majority is required to amend the Articles.

Golden shares jurisprudence of CJEU

In two generation of the »golden shares cases«, the Court of Justice of the European Union (CJEU) has assessed various attempts by the Member States to retain certain level of control in privatized companies by using the control enhancing mechanisms (CEM). Variants of CEM’s used by the Member States include limitation of voting rights, veto power of the state in capacity of a shareholder, special appointment rights, supermajority requirements and also the requirements to obtain a consent of the public authorities prior to acquisition of certain level of shares of privatized companies. In most cases, CJEU ruled that the aforementioned measures restricted the free movement of capital and were incompatible with article 63 of the Treaty on the Functioning of the European Union (TFEU).

Three factors have proved to be decisive for the assessment of the measures that could breach the free movement of capital rules: (i) Can the measure be qualified as a state measure? (ii) Is the measure restricting the free movement of capital? (iii) Is the restriction justified?

To fall within the scope of the free movement of capital rules, a measure must be attributable to the state or to another kind of public authority. A specific situation arises when the state acts as a (private) shareholder of a particular company. There, the question whether the state used any of its authority or the measure resulted from normal operations of company law is decisive.

A definition of restriction of the free movement of capital has been interpreted very broadly. Not only have discriminatory measures restricting or limiting investments of nationals / residents of other member states in companies of a particular Member State been recognized as a restriction, the definition also includes all measures deterring investors from other Member States (by making direct or portfolio investments less attractive), even though they apply without distinction to both residents and nonresidents of a Member State.

Only in one case CJEU found the restriction on the free movement of capital justified, namely Belgian golden share enabling the state’s veto on certain decisions and appointment of two members of the board was justified by overriding reasons in the general interest, i.e. safeguarding of a country’s energy supplies. According to CJEU, restrictions on the free movement of capital may also be justified on other grounds such as a guarantee of universal postal service or protection of consumers, workers or minority shareholders. However, until now most of the measures were not proportionate and thus not justified.

It remains to be seen how the planned limitation of the concentration of ownership will be carried out in Slovenia. In any way, free movement of capital shall not be restricted or the restriction shall not go beyond what is necessary in order to attain the objective in the general interest. Prior to the assessment of potential justifications, an interesting question might arise in regard to the classification of a “state measure”. If Slovenian state limits the concentration of ownership in privatized companies solely by using normal operations of company law in the capacity of a shareholder, such case could lead to further development of the CJEU golden shares jurisprudence.

Contact: Primož Mikolič,

Back to top