Slovak athletes, including world-famous ones like cyclist Peter Sagan and tennis player Daniela Hantuchová, will have a difficult time avoiding taxes in Slovakia. Until now, they could live in countries like Monaco – considered a tax haven – and not pay taxes in Slovakia if they did not have permanent residence here.
Now, Finance Minister Peter Kažimír proposes an amendment to the law on income tax that has already passed in the first reading in the parliament. The amendment would tax athletes unless they live abroad for the rest of their lives, tax advisor and BMB Leitner founder Renáta Blahová points out in her blog.
The ministry explains, as cited by the Sme daily on September 26, that it wants to stop the aggressive tax planning and transfer of profits abroad. The amendment should be effective at the beginning of next year.
To pay taxes where they live
The law on income tax enabled some, especially famous personalities, to avoid paying taxes: the taxpayer with unlimited tax duty is defined as someone who has permanent residence in Slovakia or who spends more than 183 days in a year here, i.e. at least six months. Such people are obliged to pay income taxes from anywhere in the world.
However, if such people spend a mere day less in the country, they do not have to pay taxes in Slovakia – despite their family living here or their children attending school here. Thus, some athletes legally avoid paying taxes in their homeland, like Sagan or tennis players Hantuchová and Dominik Hrbatý. Tennis player Dominika Cibulková is also alleged to consider taking such steps.
If the ministerial draft amendment is passed, they would have to prove they really live abroad and have the centre of their life interests outside of Slovakia, tax advisor Alica Orda Oravcová explained for Sme. This means, in effect, that they would have to move their whole family to a given country.
Such rules are nothing new and have been in effect in other European countries for years.
The government plans to boost “the level of protection against aggressive tax planning and moving profits outside the Slovak territory”, the Denník N daily wrote.
Some shell companies will be taxed
Kažimír’s proposal also tackles the taxation of shell companies. If the Slovak tax authority finds in selected foreign companies that the tax paid abroad is smaller than half the tax it would pay according to Slovak regulations, it would have to tax the remaining profit in Slovakia. The shell company will not be allowed to pay a lower tax than it would pay in Slovakia.
This amendment is due to be effective as of January 2018. The tax duty will be automatic.
However, the new rules will not include shell companies controlled by natural entities. Thus, the draft amendment is not as bold as it seems at first sight. If natural entities would also be included in the change, state coffers could be boosted by a nice sum, Denník N concluded.