Insights


August 26, 2015


Information and communication technologies (“ICTs”) have radically changed the way of communication and the way of doing business across the European Union. As ICTs and the Internet became the main driver of innovation and economic growth of the European Union, it is important to highlight the importance of the reliability and the security of the networks and information systems used by European governments, businesses and citizens. The network and information security is not just of key importance for the protection of the rights of the European citizens, but also for the functioning of the single digital economy. On one hand, governments and businesses now heavily rely upon the reliable and safe functioning of their network and information systems to provide daily services that are of critical importance to European citizens (e.g. finance, education, healthcare, transport, energy etc.), on the other hand, they have become a vehicle for political and social inclusion and the exercise of the fundamental rights and freedoms of the European citizens.

Network and information security is exposed to various threats that are effectively undermining citizens’ trust and confidence in electronic transactions and are hampering the growth of the digital economy in the European Union. The most recent survey on cyber security in the European Union indicates that cybercrime is the greatest threat to network and information security:

  • a staggering 87% of Europeans still avoid disclosing personal information online;
  • 70% of Europeans are concerned that their online personal information is not kept secure by websites; and
  • 64% of Europeans agree that they are concerned that information is not kept secure by public authorities

European governments and businesses have already deployed certain security measures for the prevention of network and information security incidents; however, most recent statistical data indicate that the levels of cybercrime in Europe are increasing. As a result, the economic losses, which may be attributed to cybercrime attacks and activities, are estimated at a bewildering USD 500 billion at a global level.

2. Proposal for NIS Directive

The prevalence of cybercrime has prompted the European Union to undertake various initiatives for the implementation of measures for the protection of network and information security incidents, especially in relation to critical services. These initiatives included the establishment of the European Network and Information Security Agency (“ENISA”) in 2004, the establishment of the European Programme for Critical Infrastructure Protection (the “ECI Directive”) in 2008, the enactment of the Directive 2013/40/EU (the “Infosys Attacks Directive”) in 2013 (aimed at tackling the increasingly sophisticated and large-scale forms of attacks against information systems11) and other initiatives.

The most recent EU initiative is the proposal for a Directive on Network and Information Security (the “Proposal for NIS Directive”), concerning measures to ensure a high common level of network and information security across the Union. The Proposal for NIS Directive is central to the first European Union Cyber Security Strategy (“EU Cyber Security Strategy”), which foresees the implementation of measures aimed at inter alia drastically reducing cybercrime and establishing a coherent international cyberspace policy for the EU. The Proposal for NIS Directive is a result of the lack of overarching legislation or regulatory requirements covering all Member States and different regulations implemented by different Member States, which ultimately leads to regulatory fragmentation. The European Commission considers that there is a need of regulation of the minimum requirements for capacities building and planning requirements, information sharing and coordination of actions and common security requirements for all market operators and public administrations concerned to be able to respond effectively to challenges of the security of network and information systems.

2.1 Key features of the Proposal for NIS Directive

The aim of the Proposal for NIS Directive is to ensure a common high level of network and information security (NIS) in the European Union, “by requiring the Member States to increase their preparedness and improve their mutual cooperation with each other, and by requiring operators of critical infrastructures, such as energy, transport, and key providers of information society services (e- commerce platforms, social networks, etc.), as well as public administrations to adopt appropriate steps to manage security risks and report serious incidents to the national competent authorities.” The key measures foreseen in the Proposal for NIS Directive include imposing a set of requirements on Member States, public administrations and market operators in a view of establishing a trusted network for cyber security information sharing between them. These key measures may be summarised as follows:

  1. Member States are required to adopt a national NIS Strategy (including a national NIS Cooperation Plan) defining the strategic objectives and concrete policy and regulatory measures to achieve and maintain a high level of network and information security.
  2. Member States are required to establish national NIS authorities with the competence to: (i) monitor the application of the NIS Directive on a national level; (ii) receive reports about security incidents from public administrations and market operators; and (iii) consult and cooperate with the relevant law enforcement and data protection authorities.
  1. Member States are required to establish Computer Emergency Response Teams (CERTs) responsible for handling cyber security risk and incidents with the competence to:
    • monitor cyber security incidents on a national level;
    • provide early warnings and alert announcements and disseminate information to relevant stakeholders about cyber security risk and incidents;
    • respond to cyber security incidents;
    • provide dynamic risk management, incident analysis and situational awareness;
    • build broad public awareness of the risks associated with online activities; and
    • organise campaigns on NIS.
  2. National NIS Authorities are required to inter-connect into a single secure Cooperation Network in order to: (i) circulate early warnings on cyber security risk and incidents; (ii) coordinate responses to cyber security risks and incidents; (iii) regularly publish non- confidential information on early warnings and coordinated response on a common website etc.
  3.  Public Administrations & Market operators are required to (i) take appropriate technical and organisational measures to manage the risks posed to the security of the networks and information systems which they control and use in their operations; (ii) notify to the competent national NIS authority incidents having a significant impact on the security of the core services they provide.

The above summary of the key requirements of the Proposal for NIS Directive indicates that the European Union is (for the first time in its history) taking a centralised regulatory approach in the tackling of cybercrime – very similar to the US approach. The Presidential Executive Order for Improving Critical Infrastructure Cyber Security 13636 of 12 February 2013 also aims to create a US cyber security information-sharing program between the federal agencies and companies and for this purpose it has ordered the implementation of measures that are similar to the ones proposed in the Proposal for a NIS Directive.

2.2 Establishment of a mandatory security incident information-sharing program

The key differences between the Proposal for NIS Directive and the US Cyber Security Framework are that the latter aims to establish a voluntary information-sharing program between the government and companies, and among companies, opposed to the mandatory reporting requirements between the government and the companies, imposed by the Proposal for NIS Directive. Although there are some suspicions whether the US cyber security information-sharing program is going to be voluntary indeed, it is interesting to look at the reasons for the introduction of a mandatory information- sharing program under the Proposal Directive.

It appears that this introduction of mandatory reporting requirements is rooted in the Proposal for NIS Directive’s objective to promote a culture of risk management and information sharing between the public and the private sector, (companies and public administrations), but at the same time, it poses a risk for promotion of a culture of “naming and shaming” of market operators that have experienced a security incident. It is well accepted that the systematic and continuous reporting of security incidents is beneficial in the context of formulating adequate strategies for a response at a national or supranational level. The Proposal for NIS Directive promotes the reporting of security incident as a vehicle for facilitating a culture of collaboration between the private and the public sector and obtaining of timely information about the occurrence, type and time for response to an incident of particular nature. Moreover, it also provides the possibility for public disclosure of information on security incidents by the competent national NIS authorities, if this would be in the public interest.

It appears that the objectives of the Proposal for NIS Directive are focused on gathering as much as detailed information on cyber security incidents and cybercrime trends and promotion of public- private partnership in coordination of proper responses. Consequently, although there is a risk for that, it does not appear that the mandatory reporting requirements are a “name-and-shame exercise”, in order to incentivize companies to deploy adequate protective measures for security incidents and to share information in order to avoid public disclosure of their “weak” cyber security protection.

Although, the reporting requirements are based on the proportionality of risk (risk-based approach), the broad and unclear scope of the Proposal for NIS Directive leaves plenty of room for the European Commission to make use of delegated and implementing acts for determining the security incidents thresholds and for the free interpretation of those acts by the individual Member States. In this context, it is unclear of how are the reporting requirement related to the Proposal for NIS Directive’s objectives. The Proposal for a NIS Directive introduces an obligation for public administrations and companies to report security incidents to the national NIS authorities, which in turn may disclose, or require companies and public administrations to disclose), the information about a particular incident in the public, if that would be in the public interest. Therefore, the mandatory reporting requirements do not facilitate the exchange of information about security incidents among companies, only between governmental authorities and companies, and the public is only to be informed if a security incident affects their interest.

The promotion of the culture of risk management is going to heavily rely upon the capacity and the pro-activity of the designated national NIS authorities to process all of the received security incident reports and to cooperate together with companies in order to coordinate a response. If due to various reasons companies would be discouraged to reporting security incidents (because of high costs for implementation of separate systems) or are over-reporting because of the unclear scope of the Proposal for NIS Directive, this would threaten the primary objective of the Proposal for NIS Directive. It would create a regulatory maze for reporting of security incidents where both the companies and the national NIS authorities would be struggling to actively exchange information and cooperate in order to coordinate a response to cyber crime attacks.

Another, potential problem lies in the imposing of security incident reporting requirements to public administrations. Public administrations hold enormous amounts of personal data and they already have in place appropriate security measures that, presumably, exceed the minimum security measures imposed by the Proposal for NIS Directive. It might be argued that the majority of the security incidents which affect the data stored by public administrations would have to be disclosed to the public, as it would be in the public interest for the European citizens to know that their information have been compromised. However, public administrations hold a lot of information which relate to critical infrastructure (e.g. defence, security) and are classified in accordance with the national legislation, hence they are going to be disclosed the public. As far as security incidents, which might be “reportable” i.e., are not classified under the relevant legislation, it is questionable whether the national NIS authority would be inclined to disclose them to the public, as mater of protecting the public administration’s reputation with the public.

2.2 Security incidents reporting thresholds

It is also important to highlight that the Proposal for NIS Directive does not provide any guidance on the thresholds to be applied on the “incidents that have a significant impact on the security of the core services provided” by market operators. The guidance on the assessment of whether a particular security incident is significant, is left upon the European Commission:

“The Commission shall be empowered to adopt delegated acts concerning the definition of circumstances in which public administrations and market operators are required to notify incidents.

The Commission shall be empowered to define, by means of implementing acts, the formats and procedures applicable for the requirements of public administrations and market operators to notify incidents to the competent national NIS Authorities.”

In this context, the European Banking Federation’s (EBF) concerns about the need for an accurate definition of what would constitute a significant incident are fully legitimate and justified:

“Art 14(2) requires reporting by market operators of ‘incidents having a significant impact on the security of the core services they provide’. The word ‘significant’ needs careful definition in order to determine whether this Directive will achieve its aim: If the requirement includes reporting of incidents with minimal impact to the business of the market operator, then it could drive a culture that is encouraged not to identify incidents. This would be counterproductive, as effective cyber security requires identification and investigation of a wide range of incidents, many of which appear to be insignificant at first sight. It is only by catching such incidents early that material incidents are prevented. We would recommend the limitation of mandatory reporting to just incidents with significant and material impact and this needs to be established within the Directive in order to prevent scope creep in the future.”

The Proposal for NIS Directive’s risk-based approach might be compromised by the lack of a precise definition on what would constitute a “significant” security incident and the lack of thresholds for determination of such significance. The fact that the European Commission is empowered to define the thresholds and the Member States are empowered to provide legally binding guidance on how these should be implemented, creates a high level of legal uncertainty and might potentially cause difficulties in the implementation of the Proposal for NIS Directive in the different Member States.

Depending on the European Commission’s input, Member States might provide substantially different guidance and instructions to public administrations and market operators, depending on the stage of development of network and information security infrastructure and best practices in dealing with security incidents. This might ultimately undermine the main objective of the Proposal for NIS Directive to establish a harmonized European legal framework for reporting of cybersecurity incidents and to discourage market operators to report security incidents which are not significant at all or do not affect a critical service.

Another concern related to the (lack of) reporting thresholds in the Proposal for NIS Directive is that a number of security incidents do not target the market operator’s network and information systems; instead they target their customer’s systems. Although it is safe to assume that any such incidents (if significant subject to the delegated and implementing acts by the European Commission and the further guidance provided by individual Member States), would be subject to the reporting requirements imposed by the Proposal for NIS Directive, it is not entirely clear whether there is such a requirement under the Proposal for NIS Directive.

In the above context, it is reasonable to expect that in case of security incidents targeted against the systems of the market operator’s customers, doubts will arise whether such security incidents should be deemed as significant and whether they should be reported, in accordance with the requirements of the Proposal for NIS Directive.

Gjorgji Georgievski, Partner


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.

Contact: ivo.grlica@odilaw.com


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 http://ceelm.com/index.php/analysis/item/2689-privatization-a-driving-force-in-the-adriatic

Contact: slovenia@odilaw.com


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.

Contact: slovenia@odilaw.com


May 7, 2015


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

Introduction

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%.

dd8717d03149543c5feef7a66595fa19_XL

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).

Conclusion

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.

Contact: ivo.grlica@odilaw.com

Back to top