The Ministry of Finance is currently considering the chance of re-initiating thin capitalization rules into Slovak tax law. With the help of an internal document the Ministry of Finance highlights that low capitalization expresses an effective tax optimization technique for the hidden profit allocation. According to the proposal of the ministry, the new thin capitalization provisions would affect all existing loan arrangements regarding those already entered into before January 1, 2015 and if enacted, the new rules would apply as of January 1, 2015.
In accordance with the draft, the re-initiated thin capitalization rules could be formulated to refuse claims of tax reductions for interest costs attributable to direct expenses (excluding interest costs attributable to the acquisition value of fixed assets) computed from the average debt portion held during a tax period by the taxpayer’s foreign related-party creditors exceeding:
- Loans and borrowings for recipients that are banks and insurance companies—6 times or 10 times the equity determined as at the first day of the tax period for which the interest costs are computed
- Rest o the taxpayers—4 times or alternatively, 6 times the equity determined as at the first day of the tax period for which the interest costs are computed.
