IB ServiceGrant Thornton Newsletter September 2016

Topic

1. The New Union Customs Code

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1. The New Union Customs Code

2. Amendment of the Act on Administration of Taxes Amendment of the Income Tax Act

3. Prepared amendment of the Act on Value Added Tax

4. Obligatory activation of electronic mailboxes from 1 August 2016

5. Simple Joint-Stock Company, Breakthrough for venture capital in Slovakia

• Council Regulation (EC) No. 1186/2009 setting up a Communitysystem of reliefs from customs duty

• Common Customs Tariff.

3. e-CustomsIt must be noted that as the electronic communication among thecustoms authorities is not technically ensured, according to theCommission Delegated Regulation (EU) No. 2016/341 the customsadministration will use procedures and forms according to oldregulations on a transitional basis until 31 December 2020 at the latest.

The new Community Customs Code (hereinafter “CCC”) enteredinto force within the territory of the European Union on 1 May2016. Its adoption is regarded as an important milestone in thearea of customs regulations of the European Union. In thefollowing article we inform you about some news brought by thenew CCC and related implementing regulations.

1. Objectives of CCCThe new CCC pursues the following objectives:• Simplification of the rules in the customs area and increasing of

The New Community Customs Code

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regulations on a transitional basis until 31 December 2020 at the latest.

4. Centralized clearanceThe ambition of the new customs regulations effective from 1 May2016 is to introduce so-called “centralized clearance”, in which onecustoms clearance procedure will be conducted at two customsauthorities: the releasing customs authority (to which the customsdeclaration was submitted) and the checking customs authority (towhich the goods were submitted for checking).

For example, a Slovak entrepreneur learns that goods it wishes toimport to the EU are situated in Hamburg. Instead of submitting thecustoms declaration in Germany or through a representative, theentrepreneur will be able to apply for clearance of the goods inHamburg by submitting the customs declaration with the customsauthority in Slovakia.

• Simplification of the rules in the customs area and increasing oftheir effectiveness

• Full transition from paper communication to electroniccommunication (so-called “paperless” customs system)

• Strengthening of the position of authorized economic operators(SHS/AEO)

• Introduction of a new hierarchy of customs regulations.

2. Hierarchy of customs regulations in the European UnionFrom 1 May 2016 the hierarchy of customs regulations in theEuropean Union consists of:• CCC - Regulation (EU) No. 952/2013 of the European

Parliament and of the Council• Commission Delegated Regulation (EU) No. 2015/2446• Commission Implementing Regulation (EU) No. 2015/2447• Commission Delegated Regulation (EU) No. 2016/341

7. Right of to be heardThe new in the customs procedures is so-called “right to be heard” bya customs authority. It will always be applied before the issue ofa decision adversely affecting the applicant. It means that beforeissuing such decision the customs authority shall always inform theapplicant about the reasons underlying the decision of the customsauthority, and allow the applicant to submit comments. In this mannerit will be possible to avoid the issuance of negative decisions by thecustoms authority, against which an appeal could be lodged. Thecustoms authority will thus learn comments of the applicant to thefindings before issuance of the decision and can take them intoaccount in its decision-making.

However, the introduction of centralized clearance into thepractice will be postponed until the moment when the respectiveinformation systems at the individual customs administrations ofthe European Union are put into operation.

5. Authorized economic operatorsAs regards so-called “authorized economic operators(SHS/AEO)“, according to the new legislation the customsauthorities will be entitled to issue two types of authorizations:• Authorization for simplified procedures, which allows the holder

to use certain simplified procedures according to customsregulations, and

• Authorization for the area of security and safety, which entitles

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8. Validity of decisions relating to binding informationOn the basis of CCC the period of validity of decisions relating tobinding tariff information (“decisions on BTI”) or decisions relatingto binding origin information (“decisions on BOI”) is reduced from 6to 3 years.

9. Extension of validity of guaranteeIn the framework of the institute of guarantee for a customs debt, thenew CCC extends the validity of a guarantee: the guarantee applies notonly to the amount of import or export duty, but also to otherpayments made in respect of import or export of goods. Otherpayments in connection with import mean among others VAT orconsumption taxes.

• Authorization for the area of security and safety, which entitlesthe holder to use facilitations with regard of security and safety.

6. Validity of authorizations after 1 May 2016The new customs regulations effective from 1 May 2016 providethat authorizations issued according to preceding regulations, thatare valid on 1 May 2016 and the validity of which is not limited,shall be revised according to the new CCC. They shall remain inforce until such revision.

On the other hand, authorizations issued according to precedingregulations, that are valid on 1 May 2016 and the validity of whichis limited, shall remain in force until the expiration date or until 1May 2019, whichever occurs earlier.

is not regarded as a customs regime; according to the newlegislation goods may remain in temporary storage for 90 days atthe most, without possibility of prolongation of this period.

12. Permanent establishmentThe new CCC introduces the term “permanent establishment”. Itwill mean that a legal person with registered office situatedoutside the customs territory of the European Union will beregarded as a person established within the EU customs territory,if it has a permanent establishment within the customs territoryof the Union. The permanent establishment means a permanentplace of business with permanent presence of required humanand technical resources, through which activities of the affected

Moreover, according to the new legislation a guarantee applies tothe amount of import or export duties, which corresponds to thecustoms debt, as well as to other payments made for all goodsindicated in the customs declaration or released on its basis,irrespective of whether the customs declaration is correct or not.It means that a guarantee can be used for customs duties andother payments in respect of goods, which were not indicated inthe customs declaration, but which were detected by physicalcheck (e.g. if the goods were concealed or indicated incorrectly inthe customs declaration).

10. Customs regimesAccording to the new CCC the following categories of customs

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and technical resources, through which activities of the affectedperson related to the customs system are performed fully orpartially. It must be noted that this term should be interpretedseparately and that the term „permanent establishment forcustoms purposes“ should not be confused with the term“permanent establishment for the purposes of VAT”.

According to the new CCC the following categories of customsregimes are recognized:• Release for free circulation• Export• Special customs regimes

Special customs regimes mean:• Transit (external transit and internal transit)• Storage (customs warehousing and free zone)• Special use (temporary use and end-use)• Processing (inward processing and outward processing)

11. Temporary storage of goodsIt must be noted that according to CCC so-called “temporarystorage” (of goods from their submission to the customsauthority until their release for proposed customs regime)_______

JUDr. Ing. Peter SchmidtKrižkova 981103 BratislavaT +421 2 593 004-74F +421 2 590 004-10E peter.schmidt@sk.gt.com

Strengthening of preliminary measures through so-called“super-securing order”If the tax administrator reasonably assumes that the tax not due or notassessed will not be paid or become enforceable by the maturity dateand that the amount determined by the tax administrator as securitydeposit will probably not be paid, it may issue a decision imposing onthe taxpayer to pay a security deposit on account of the taxadministrator, or limit the taxpayer´s right to dispose of the assetsspecified in the decision. Such decision issuing a preliminary measurewill constitute an execution title, i.e. it will be immediately enforceable.

The Ministry of Finance (“MF SR“) has prepared a draftamendment of the Act on Tax Administration, to be effectivefrom 1 January 2017, as well as amendment of the Income TaxAct. The main changes proposed in the amendments are listedbelow.

Introduction of the new institute “reduced assessmentprocedure”The amendment introduces a new method of tax assessmentapplicable in a reduced assessment procedure in cases where ataxpayer does not remove the deficiencies affecting the amount of

Amendment of the Act on Administration of Taxes

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Extension of tax executionIn case of tax execution proceedings the prepared amendmentintroduces the possibility of tax execution against persons differentfrom the tax debtor, e.g. members of the VAT group.

taxpayer does not remove the deficiencies affecting the amount ofthe tax in the tax return within a time-limit determined in therequest of the tax administrator. The tax administrator in this casewill issue the tax assessment order instead of determining the taxusing tools. The tax assessment order will be issued on thecondition that the tax audit has not been initiated in the case. Thetaxpayer can lodge a justified appeal against the tax assessmentorder; in this case the standard process of tax assessment (taxaudit and tax assessment procedure) will be initiated.

Amendment of the Income Tax Act

-resident, if such natural person is actual owner of these dividends.This rate may be later decreased on the basis of a double tax treaty.

Introduction of the tax on dividend – effective from 1January 2018The amendment proposes the application of the withholding taxof 15% to the amount of dividends (not decreased by expenses)paid to a natural person, whether Slovak tax resident and non-´´´´

4. the respective activity does not have an economicjustification.No transitional provision is provided for this provision.

The amendment also provides conditions under which thetaxpayer may apply the tax administrator for approval to the useof a specific transfer pricing method. As the amendment doesnot provide that the tax administrator shall approve the arm´slength character of prices used in transactions with dependentpersons, the extension of the provisions on approval of a specifictransfer pricing method has minimum practical importance.

As regards legal persons, paid dividends (not decreased byexpenses) will be encumbered by the tax at the rate of 35% forSlovak tax residents in the following cases:1. They are paid by a taxpayer from a non-contracting State (State

not appearing in the list of contracting States issued by MFSR), and

2. The Slovak tax resident is actual owner of these dividends, i.e.it can use the dividends without obligation to transfer them toa third party.

The withholding tax at the rate of 35% will also be applied todividends paid by Slovak tax resident to a taxpayer from a non-contracting State, who will also be their actual owner.

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contracting State, who will also be their actual owner.

Reduction of the corporate income tax rate - effective from 1January 2017The amendment proposes a reduction of the corporate income taxrate from 22% to 21%. The reduced tax rate will be applicable tothe tax periods beginning not sooner than on 1 January 2017.

Completion of provisions in the area of transfer pricingThe amendment introduces the possibility of doubling the fine(which may be imposed according to the Act on TaxAdministration) for taxpayers who use transfer pricing in order to:1. evade the tax, or2. gain a tax advantage, to which they would not be eligible

otherwise, or3. decrease their tax liability, and at the same time.

Ing. Mgr. Vladimír KovárKrižkova 981103 BratislavaT +421 2 593 004-74F +421 2 590 004-10E vladimir.kovar@sk.gt.com

This regulation will concern tax audits started after 1 January 2017, aswell as “older” tax audits not terminated as at 1 January 2017. It meansthat by tax audits finished as at 31 December 2016 the compensationclaim shall not arise.

2. Application of self-taxation for import of goods from thirdcountriesThe Ministry has revised and postponed the date of application of theprovision relating to self-taxation for import of goods from third

In August 2016 the Ministry of Finance of SR (hereinafter “MFSR”) submitted to the government an amendment of the Act No.222/2004 Coll. on the value added tax (hereinafter “VAT Act”).The following changes are proposed:

1. Compensation for withholding of the overpaid tax duringtax auditMF SR proceeds with legal regulation of compensation (interest)

for withholding of the overpaid tax during a tax audit. It is

Prepared amendment of the Act on Value Added Tax

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provision relating to self-taxation for import of goods from thirdcountries. Instead of a determined date (01 January 2017) a regulationis proposed, according to which the provisions in question would takeeffect depending on the result of comparison of the data on theamount of public debt, as published for the respective budget year byEurostat (the actual amount of debt of public administration of SR),and the upper limit of debt of public administration determined forthis budget year according to the Constitutional Act No. 493/2011Coll. on fiscal responsibility.

It means that provisions concerning self-taxation for import of goodsfrom third countries will not take effect from 1 January 2017, i.e. VATfor import of goods will continue to be paid exclusively to thecustoms authority in 2017.

for withholding of the overpaid tax during a tax audit. It isproposed that the State should compensate the VAT payers, whoseoverpaid tax was withheld during a tax audit, by granting themcompensation (interest) in the amount of 1.5% p.a. of the amountof refunded overpaid tax. They will receive this compensation incase the overpaid tax was not returned within six months from thedate, when the original legal period for refund of the overpaid taxafter submitting the VAT return has elapsed.

In simple terms, the claim for compensation will arise only if theoverpaid tax is not returned within six months since the originalperiod has elapsed and it will arise only for the days following thesix-months period. The rate of 1.5% p.a. will be applied. However,the period for which compensation is provided as well as theamount of compensation fall behind the expectations of the expertand professional public.____

3. Reverse charge by construction workBased on the comments from the comment procedure, theMinistry introduces a fiction to assist by the classification ofconstruction works and by increasing legal certainty forpurchasers of construction works, especially if the supplier andthe customer have differing opinions about exercising of reversecharge.

More precisely, if the provider (VAT payer) provides works andconsiders these works as works that shall be reverse-charged tothe purchaser, and at the same time the invoice created by theprovider contains the exact formulation “reverse charge”, thepurchaser (VAT payer) has a personal obligation to pay the tax –

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purchaser (VAT payer) has a personal obligation to pay the tax –the purchaser is reverse charged.

JUDr. Ing. Peter SchmidtKrižkova 981103 BratislavaT +421 2 593 004-74F +421 2 590 004-10E peter.schmidt@sk.gt.com

If a message is the subject of personal delivery such message isregarded as delivered not later than on the last day of the 15-daystorage period.

The issue of activation of electronic mailboxes of companies with aforeign executive is being addressed. As a foreign person does nothold a Slovak ID card such person can use a replacement identifier forlogging in to the electronic mailbox. As the form of a replacementidentifier has not been published yet, a person with Slovak nationality

On 1 August 2016 according to Act No. 305/2013 Coll. on e-Government all electronic mailboxes of legal persons establishedfor the purpose of two-way electronic communication betweenpublic authorities and legal persons will be activated.

The electronic identification card of a person authorized to act onbehalf of the company, the identification card reader and theallocated personal security code will be required for access to theelectronic mailbox. As many companies do not have technical

Obligatory activation of electronic mailboxes from 1 August2016

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identifier has not been published yet, a person with Slovak nationalitymust be authorized for disposal of the electronic mailbox at the sametime.

electronic mailbox. As many companies do not have technicalequipment required for the use of electronic mailboxes, the Actgives them a five-month transition period to get ready for smoothtransition to the electronic communication.

The process of obligatory activation starts without request of theelectronic mailbox owner by the provision of access to theelectronic mailbox on 1 August 2016. The process of electronicmailbox activation is completed by the first logging in to theelectronic mailbox. If the first logging in does not occur beforethe end of year 2016 the electronic mailbox will be automaticallyactivated on 1 January 2017. From this date all documentsreceived in the electronic mailbox are regarded as delivered on theday immediately following the date when they have been put intoan active electronic mailbox. From this moment all statutoryperiods, if any, start to run.

Ing. Zuzana AčováKrižkova 981103 BratislavaT +421 2 593 004-74F +421 2 590 004-10E zuzana.acova@sk.gt.com

What makes the difference?In a nutshell, the simple joint-stock company (j.s.a.) will be:

LeanIt is basically a lean version of the joint-stock company with aminimum registered capital of EUR 1, a minimum nominal share valueof 1 Eurocent, and a lean structure (thus suitable also for initialstages): a one-man board of directors is possible, a supervisory board

On 12 November 2015, the Slovak parliament adopted theamendment of the Slovak Commercial Code, introducing a whollynew type of legal vehicle – a simple joint-stock company (j.s.a.). AsTaylor Wessing Slovakia was among the principal drafters anddriving forces behind the adoption of this piece of legislation, andspent many months intensively involved in its drafting,brainstorming with the Ministry of Finance and holding expertdiscussions with the Ministry of Justice, we are proud that we took

Simple Joint-Stock CompanyBreakthrough for venture capital in Slovakia

stages): a one-man board of directors is possible, a supervisory boardis only optional; circular resolutions of shareholders are possible.

Flexible and contractualThis is the "heart" of the new vehicle: it gives shareholderssubstantial and in the Slovak company law unparalleled freedom toflexibly shape their relationships both on the level ofi. Articles of Association: The j.s.a. can issue various classes of shares

to which different rights may be attached (there is no explicit limiton these rights) thus allowing the creation of various classes ofshareholders reflecting their position and time of "arrival" (e.g.employees, founders, investors); the implementation of ESOPschemes will be substantially easier; and

ii. Shareholders' agreements (SHA): SHAs may contain, besides anyarrangement between shareholders not prohibited by law, explicitlyregulated agreements on drag-along/tag-along right and shoot-out(deadlock); the voluntary registration of drag along and tag along inpublic registers leads to enhanced enforceability.

discussions with the Ministry of Justice, we are proud that we tookthe long journey and look forward to its application.

For the first time since the adoption of the Commercial Code in1991 (in what was then Czechoslovakia), the Slovak legislator foundenough courage to stir the stale waters of Slovak company law andintroduced a new type of corporate entity into the Slovakcorporate landscape (disregarding the mandatory and rather sloppytransposition of EU legal vehicles - SE and European CooperativeSociety). It is also a breakthrough on another level: at last, theSlovak legislator abandons the perpetually failing idea of protectionof creditors by tightening the rules for registered capital (theminimum capital of j.s.a. being set at EUR 1) to which it stuck forso long.It should be very encouraging for the start-up community that theaim of the new vehicle is to serve start-ups and VC investors,though it will certainly have a much more versatile use - all formsof joint venture projects come to mind first as natural recipients

User-friendly - bringing together entrepreneurs and investorsLow incorporation requirements and a simple corporate structure (withor without supervisory board) serving initial stages and a variety ofshare classes together with statutory drag-along and tag-alongregulations serving investment scenarios are designed to accommodateboth requirements of entrepreneurs as well as the goals and strategiesof investors.

Takes off in January 2017At first sight it may be disappointing that the act will not enter intoforce until January 2017; however, this (at least in Slovakia) unusuallylong transitional period is necessary to establish and implement new

TransparentElectronic registration of all shares and their transfers; list ofshareholders available online in a public register kept by centralsecurities depositaries.

PrivateThe simple joint-stock company cannot go public or offersubscription of shares publicly without prior transformation to aregular joint-stock company; the reason behind this is to avoid anapplication of several restrictive obligations concerning themaintenance of capital stipulated in the Second Company LawDirective.

JUDr. Radovan Pala

long transitional period is necessary to establish and implement newpublic registries that will be kept with the central securities depositaries.In the meantime, it will be a crucial safeguard that the registration feeswill be set at a reasonably low level.

Directive.

Self-enforcingInsofar as it provides protection to VC through the self-enforcingnature of a registered drag-along right that will allow to execute thedrag along without being forced to initiate court/arbitrationproceedings. We also expect that the explicit regulation ofarrangements in SHA in combination with an application of thenew Slovak Arbitration Act (2015) and arbitration courts in Slovakiaon shareholders' disputes can change the situation and lead toeffective and timely enforcement of shareholders rights (founders orinvestors).

BratislavaPanenská 6SK-81103 BratislavaT +421 2 5263 2804F +421 2 5263 2677E bratislava@taylorwessing.com

JUDr. Andrej Leontiev

SLOVAKIA (Bratislava | Prešov)

IB Grant ThorntonKrižkova 9

SK-811 04 BratislavaT +421 2 593 004-00F +421 2 593 004-10E office@sk.gt.com

IB Grant ThorntonFloriánova 2

Grant Thornton

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SK-080 01 PrešovT +421 51 7710 328

Ing. Silvia HallováTax Partner

Dr. Wilfried SerlesManaging Partner