SLOVENIA Law and Practice Contributed by: Vid Kobe and Peter Gorše, Schoenherr Slovenia
permanent establishment in Slovenia). Under certain circumstances, the withholding tax may also apply to interest income paid by an agent who is a Slovenian resident that pays the income to the beneficial owner as an intermediary. There are various exemptions relating to withhold- ing tax under local legislation (including legislation implementing the EU Interest and Royalties Directive (2003/49/EC)) as well as under double tax treaties, which may result in a decrease of the applicable with- holding tax rate or full exemption from the withholding tax. Generally, a prior approval by the tax authority is required to benefit from the respective exemptions. For the sake of completeness, withholding tax is, in principle, also payable with respect to dividends and income similar to dividends (including hidden distri- bution of profits or profit payable in relation to loans/ securities providing for participation on profit), roy- alties and certain other income categories that are usually less relevant in the context of financing trans- actions. 4.2 Other Taxes, Duties, Charges or Tax Considerations Except for the withholding tax, there are no specific taxes, duties, charges or tax considerations to lenders making loans to (or taking security and guarantees from) entities incorporated in Slovenia (in particular, there is no stamp duty). 4.3 Foreign Lenders or Non-Money Centre Bank Lenders Some of the most common tax concerns in scenarios involving foreign lenders and/or non-money centre banks include (by way of non-exhaustive overview) the following. • Withholding tax/tax gross-up – In particular in sce- narios involving a syndicate (or a club) of lenders, or where secondary debt trading is likely, the inclu- sion of tax gross-up provisions has become rather common. These provisions essentially stipulate that, where the borrower is required to withhold the tax, it must gross-up the payment to the lender, so the lender receives the intended payment in full. In line with market standard, the gross-up obliga-
tion is commonly limited to “qualifying lenders” (or lenders who have ceased to be such as a result of a change in law) – ie, lenders to whom (based on the borrower’s local law or double tax treaty) payments under the loan documents may be made free of withholding tax. While in the international context such provisions are relatively standardised (in particular under the LMA loan documentation) and subject to limited negotiations, local deals still often involve discussions and negotiations around the point. • Permanent establishment risk – If the lender has a presence in Slovenia, there might be a risk of cre- ating a business unit ( poslovna enota nerezidenta ) (within the meaning of local tax legislation) or a permanent establishment (within the meaning of double tax treaties following the recommendations of the OECD Model Tax Convention on Income and on Capital) of the lender in Slovenia, which may have implications for the lender’s taxation in Slovenia. By way of simplification, interest income attributable to such business unit or permanent establishment will, generally, not be subject to withholding tax but will, rather, be included in the taxable income of that business unit or permanent establishment (with such income being subject to the Slovenian corporate income tax). • DAC6 reporting obligations – Cross-border financing transactions may be reportable to the tax authorities in accordance with Directive (EU) 2018/822 (commonly known as DAC6), aimed at providing tax authorities with an early warn- ing regarding potential aggressive tax planning arrangements. In certain cases, the taxpayer may be liable for obligatory reporting under DAC6, even though intermediaries are involved in the transac- tion. • Interest deductibility in case of debt pushdown – In scenarios involving debt pushdown by way of merger between the borrower and the target (which is generally permissible but subject to certain restrictions under corporate law, most notably approval by the existing creditors/employees), interest may – following the merger – no longer be tax deductible. Tax grouping is, generally, not pos- sible in Slovenia. • Transfer pricing and thin capitalisation – Interest from financing provided by taxpayer-affiliated per-
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