THE AMENDMENT TO THE INCOME TAX ACT ALSO INTRODUCES CFC RULES FOR NATURAL PERSONS

#20The amendment to the Income Tax Act also introduces CFC rules for natural persons

The amendment in question introduces into the Act No. 595/2003 Coll. Income tax Act rules for the taxation of income of foreign persons, which are controlled by natural persons – tax residents of the Slovak Republic, the so-called CFC rules. CFC rules are intended to ensure that profits from economic activity are taxed where they occur to economic activity and thus where there is value creation.

The intension of the legislator is therefore an effort to motivate the behavior of natural persons not to avoid tax liability in the Slovak republic by diverting income to foreign companies located in jurisdictions with low or no tax burden. The amendment eliminates the connection between the place of effective management and the place where management and business decisions of statutory bodies or supervisory bodies are taken, and replaces the place where management and business decisions are made or taken for the legal entity as a whole, even if the address of this place is not entered in the commercial register.

It follows transitional provisions of the Income tax Act that the CFC rules will be applied for the first time to the amount of income taxable to a taxpayer from the profit of a controlled foreign company for the tax period ending during 2021. days. However, the real results will be available only after the filing of tax returns for the year 2021 – i. in 2022. Therefore, it will be interesting to see what real benefit this amendment will bring, not only in terms of tax collection, but also in terms of changes in behavior of individual tax entities.