Slovakia

1) REFERENCES

Commission Opinion [COM(97) 2004 final - Not published in the Official Journal]

Commission Report [COM(98) 703 final - Not published in the Official Journal]

Commission Report [COM(1999) 511 final - Not published in the Official Journal]

Commission Report [COM(2000) 711 final - Not published in the Official Journal]

Commission Report [COM(2001) 700 final - SEC(2001) 1754 - Not published in the Official Journal]

Commission Report [COM(2002) 700 final - SEC(2002) 1410 - Not published in the Official Journal]

Treaty of Accession to the European Union [Official Journal L 236 of 23.09.2003]

2) SUMMARY

In its July 1997 Opinion, the Commission took the view that the transposition of the Community acquis in the direct taxation field should not pose major difficulties for Slovakia. As regards indirect taxation, the Commission felt that, provided a sustained effort was made, Slovakia should be able to comply with the acquis on VAT and excise duties within the next few years. According to the report, it should also be able to start participating in the mutual assistance arrangements with the Member States provided its tax administration developed its expertise in this respect.

The November 1998 Report concluded that substantial efforts were still required to align Slovakia's VAT legislation with that of the Community. It noted that the Slovak excise scheme differed in a number of important respects from Community requirements. Further efforts were therefore needed in legislative alignment, and the report urged that a timetable for future compliance be established.

The November 1999 Report indicated that Slovakia had gradually established a VAT system which was relatively close to the Community system. Gradual alignment of excise duties had also taken place, but targeted efforts were still required.

The November 2000 Report noted that Slovakia had made some progress, particularly in the field of excise duties.

The November 2001 Report stated that Slovakia had made limited progress, especially with the reform of its tax administration. With regard to excise duties, legislative changes had been made with a view to continuing alignment with the acquis (tax warehouses, structure of taxable operations and rates). However, there had been no progress on VAT and direct taxation. The legislation on mutual assistance (direct taxation and recovery of claims) and on administrative cooperation (VAT) allowed partial alignment with the acquis. The tax administration had been strengthened and the new structure organised the distribution of tax management at three levels (national, regional and local), yet there had been little improvement on tax discipline.

The October 2002 Report notes that Slovakia has made good progress in aligning its tax legislation with the acquis. The reform of the tax administration has also advanced.

The Treaty of Accession was signed on 16 April 2003 and accession took place on 1 May 2004.

COMMUNITY ACQUIS

The Community acquis in the area of direct taxation mainly concerns certain aspects of corporation taxes and capital duty. The four Treaty freedoms have a wider impact on national tax systems.

The legal framework for indirect taxation consists primarily of harmonised legislation in the field of value added tax (VAT) and excise duties. This includes the application of a non-cumulative general tax on consumption which is levied at all stages in the production and distribution of goods and services and requires equal tax treatment of all domestic and import transactions.

In the field of excise duties, the acquis comprises harmonised tax structures and minimum rates of duty together with common rules on the holding and movement of excisable goods (in particular, the use of tax warehouses).

EVALUATION

Value Added Tax

Slovakia's current VAT system has been based on the main principles of Community VAT legislation. It is therefore a solid foundation for future alignment with the Community VAT rules, although it is relatively general in its application.

Foreign traders are not able to be registered for VAT in Slovakia. Since Slovakia does not operate any arrangements for the refund of VAT to non-registered foreign taxable persons, VAT represents an extra cost to such traders.

For the Slovak Republic, joining the European Union requires additional adjustments to bring its VAT legislation into line with the requirements of existing Community legislation, particularly as regards the tax regime.

The Slovak national action plan for implementing the recommendations of the White Paper regarding VAT initially gave priority to restructuring VAT rates and to the tax-exempt treatment of supplies of goods and services to foreign air and shipping companies.

Since July 1997 the Slovak Republic has continued the process of aligning its value added tax (VAT) legislation on that of the Community acquis specifically as regards to the scope of the reduced rate for VAT.

Little attention has been given to aligning VAT legislation.

The changes made to VAT legislation in April 1999 consisted in introducing a tax on non-regular international bus transport effected within the country by foreign carriers, reclassifying olive oil from the standard VAT rate to the reduced rate and exempting interest earned on debt securities. The reduced VAT rate was increased from 6% to 10%, although that was not required for the purposes of alignment.

Progress in 2000 was limited to an amendment of the law on the basis of assessment (bankruptcy and other forced sales) but nothing was done to align the scope of the reduced rate. Nevertheless, the system in place conformed in general with Community requirements.

In 2001, Slovakia had to step up its efforts to adjust the level of its VAT rates.

The amendments to the VAT legislation which entered into force in January 2002 aligned Slovakian legislation with the acquis as regards the place of taxation for services provided to foreign business entities and the tax refund for foreign natural persons exporting goods of a non-commercial nature. A mechanism for tax refunds applicable to taxable persons not established in Slovakia and the special scheme for travel agents were also introduced. Following amendments passed in July 2002, further alignment will be achieved as of January 2003, in particular on the right of deduction and on reducing the scope of the VAT reduced rate.

Alignment is still required, in particular on the scope of reduced VAT rates and exemptions, on special schemes and on VAT intra-community trade.

Excise duties

There are significant discrepancies between the Slovak excise regime and the rules in force within the European Community, particularly concerning the lack of a warehousing system. In order to ensure that the Community excise legislation is correctly applied, it is essential that the Slovak Republic set up a warehousing system based on the Community model as soon as possible, and adapt the structure and level of its excise rates in such a way that they comply with Community requirements.

However, since the July 1997 Opinion, no progress has been made in this area, apart from a change in the rates as regards hydrocarbon fuels and lubricants. Further efforts are therefore needed in legislative alignment, and a timetable for future compliance should be established.

In April, and again in July 1999, duty on petrol, diesel oil, cigarettes and cigars was increased with a view to alignment with minimum Community levels.

In November 2000, progress was noted and Slovakia is increasing its rates gradually but steadily. In January 2000, the rates applied to spirits and beer were increased. An adjustment of the excise duties on ecological fuel produced in the country has also entered into force and the duties on petrol and diesel have come closer to Community levels. Finally, the excise duty rates on cigarettes were raised. However, the rates applied were still below those required by the Community for most products. Slovakia should give consideration to the structure of the taxes applied to cigarettes and on certain protection measures relating to mineral oils.

In 2001, Slovakia had to step up its efforts to adjust the level of its excise duties.

The Act on mineral oils, which entered into force on January 2002, has introduced tax warehouses, the regimes of duty suspension covered by a financial guarantee, the modalities for registration of traders, licensed users and warehouses and the structure of the taxable transactions. Furthermore, the Act ensures equal taxation of all mineral oils irrespective of their origin. As for alcohol and alcoholic beverages, amendments passed in July 2002 have significantly increased rates on beer and intermediate sparkling products as of January 2003, introduced provisions on small breweries and adjusted the definition of beer.

Administrative capacity

The Slovakian tax administration and its capacity for tax collection now need to be improved. Certain measures have, however, been implemented during 2000 in order to modernise the tax administration and increase efficiency. The reform has resulted in a reorganisation at both central and local level based on activities rather than on types of taxes, and, the tax collection powers of the administration have been reinforced. The management of the duties applied to mineral oils has been transferred to the customs authorities. However, Slovakia should pay greater attention to improving its administrative capacities, particularly with regard to the collection of taxes and the management of VAT reimbursements. Efforts should also be made to increase the number of staff in the central administration and improve the training of human resources.

In 2001, the measures taken to modernise the tax administration had to continue. Efforts were required to increase the number of staff in the tax department and to improve the scope of audits, the revenue from controls concerning the main taxes and the management of VAT collection. Slovakia needed to ensure that its IT system for tax information is compatible with the Community systems.

In 2002, some important weaknesses remained. In particular, the VAT system is characterised by an excessive volume of refunds and by the problem of fraud. At a more general level, tax collection remains weak, as shown by the still high percentage of tax arrears. The tax administration suffers from limited autonomy from the Ministry of Finance in managing its own budget, which remains insufficient. Human and information technology resources devoted to audit activities are not adequate and control methodologies need to be improved.

Direct taxation

With regard to direct taxation, in November 2000 there was partial alignment on the acquis (capital gains on mergers, deduction at source for parent companies and subsidiaries and a system for the prevention of double taxation). Moreover, a presumptive income taxation system has been introduced for small companies. However, the transposition of the acquis was not yet complete.

In November 2001, Slovakia should take measures to eliminate preferential tax systems and to respect the principles of the Code of Conduct for Business Taxation.

In January 2002, the transposition of the Merger Directive moved forward, with the entry into force of an amendment to the Income Tax Act governing mergers, modification or spin-off of companies. Slovakia still has to transpose this directive in full. Legislation will have to be reviewed in order to eliminate potentially harmful tax measures, so as to comply with the Code of Conduct for Business Taxation.

Administrative cooperation and mutual assistance

In the field of administrative cooperation and mutual assistance, legislation is only partly aligned on the acquis. The concept of 'tax secrecy' has nevertheless been introduced in order to permit the exchange of information with other countries on a reciprocal basis.

In 2001, further alignment in this field was called for.

In 2002, Slovakia's progress in this area was still limited, pending the adoption of the relevant legislation. A plan has been drafted laying down all key milestones of the implementation of a VAT Information Exchange System. The Central Liaison Office is scheduled to be set up by 1 January 2003. However, no plans for establishing the Excise Liaison Office have been produced so far.

Last updated: 21.11.2002