THIN CAPITALISATION (CorporateTax in Slovenia)

1. THIN CAPITALISATION(CorporateTax in Slovenia) DARKO KONČAN Secretary General Chamber of Tax Advisers of Slovenia

2. Slovenian Tax System Slovenia has developed in last 20 years very modern new Tax System: • First CorporateTax and Personal Income Tax Law by the end of 1990 with implementation from 1st of January 1991 • Thin Capitalisation ration at that time was 1:10 as result of efforts to promote private business, entrepreneurs, economic development , progress on capital markets, low capital base for Ltd – 90% • First changes in 1993 and from 1994 Slovenia does not have any formal Thin Capitalisation rules

3. Recent developments from 1.1.2006 New Thin Capitalisation rules has been implemented in some phases of decreasing ratio between basic capital and the whole amount of owners loans: (incl. owners with minimum 25% of shares in capital) • 2007 1:8 • 2008 1:6 • 2009 1:6 • 2010 1:6 • 2011 1:5 • 2008 1:4

4. What are basic goals of Thin Capitalisation for owners (mother company) Owners of company could assure capital for financing the common business, further development, new projects, etc.: • With increasing basic capital from the minimum (not so often, regarding some legal and administrative processing, not so convenient to get capital back in a short time • Or with giving appropriate sum of money through loans (free decision of owners, interests could be deducted from Tax base, very liquid form to get money back) • Owners could finance not only by giving loans but with buying bonds or some other types of financial instruments

5. What are basic goals of Thin Capitalisation for owners (mother company) – cont. In Slovenian Law has been included all types of different ways of financing - not only loans. The interest rate has been limited for tax purposes (to be deductible from tax base or be recognised as tax esxpenses) to the average rate of market interests. The higher interests as the difference are taxable. But the common rule is also that all such loans should be given for business purposes, which finally increase the whole tax income in that year. Special rules: how to calculate all interests for such loans and all other types of owners financing - are on yearly base .

6. What are basic goals of Thin Capitalisation for owners (mother company) – cont. The most important provisions is about the % of ownership: • 25% or higher • Means direct or indirect percentage of ownership: • through other intermediate owners or daughter companies (A is the mother company, give loan directly to C, but B is also daughter company of A and give their own loan to C – in such cases all this loans are calculates) • Could be also included the appropriate sum of different insurance of loans given by others, where owners provide garanties for such loans • But it is not applicable for sisters companies

7. Double Tax Treaty between Russia and Slovenia article 11: • The interests (like dividends) which have been paid from the company of one state to the company of the other could be taxed in this other state. (A to B – in B) • But also the interests which have been paid from the company of one state to the company of the other could be taxed in this first state but no more than 10%. (A to B – in A) • The ministries of finance should defined the technical way and conditions of such taxation. • . Obresti, ki so nastale v državi pogodbenici in so bile izplačane rezidentu druge države pogodbenice, se lahko obdavčijo v tej drugi državi pogodbenici. • 2. Obresti iz prvega odstavka tega člena se lahko obdavčijo tudi v državi pogodbenici, v kateri so nastale, v skladu z njenimi zakoni, vendar če je prejemnik dejanski uporabnik obresti, tako odmerjeni davek ne sme presegati 10 odstotkov bruto zneska obresti. Pristojni organi držav pogodbenic se medsebojno dogovorijo o načinu uporabe te omejitve.

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