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September 05, 2023 | News September 2023 | The repeal of CFC rules for natural persons

The National Council of the Slovak Republic (parliament) has adopted an amendment to Act No. 595/2003 Coll. on Income Tax, under which the rules for controlled foreign companies (CFC) applicable to natural persons were abolished. With effect from August 1, 2023, these rules were completely deleted from the Income Tax Act. The CFC rules applicable to legal entities remain in force.

The proponents of the draft amendment had justified the deletion of these provisions by referring to the issues that arose in application practice regarding the proportionality and effectiveness of these rules. The CFC rules for natural persons are not regulated by EU legislation.

The proponents argued that “the Slovak Republic has the option to decide whether to introduce these rules, including the scope of these rules and the method of application, or to decide not to introduce these rules at all.” According to information available to the proponents, only five EU Member States have introduced such rules for natural persons and, moreover, with conditions more lenient than those adopted in Slovakia. On the other hand, all EU Member States have adopted the CFC rules for legal entities.

In order to ensure legal certainty, the amendment also introduced a transitional provision pursuant to which the obligation to pay tax under the repealed provisions ceases. If such tax has been paid, this payment is considered a tax overpayment – to refund it, the relevant provisions of the Tax Code are to be applied. The adoption of the amendment was met with general criticism in the local press.