Connected persons in tax legislation in Slovenia/EU

Connected persons in tax legislation in Slovenia EU

Connected persons in Slovenia – what is the definition?

Do you plan to do business in Europe? In a Slovenian company you need to make sure to understand what connected persons are. They are defined as natural persons or as legal persons. It is important to know the definition of who they are in business. This is because there are certain limits in doing business with them.

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Connected persons – what if they are natural persons?

Natural persons are connected persons under the Personal Income Tax Act if they are a family member.

Other persons who control another entity also fall under this category. This is the case when a person has an ownership share of at least 25% in the form of the value of all shares or in the form of a voting right based on ownership shares in a specific entity.

In the case you pay income between connected persons, you have to use  the market prices as a basis for the amount of the tax base

Self-employed persons consider transfers of assets as well as disposals or acquisitions of assets as related party transactions.

Connected persons also strongly influence the taxation of a sole trader. The total turnover may not exceed the legal limits, but only if they perform the same activity.

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What if they are legal entities?

In the Companies Act, we consider that connected persons are companies that are in a mutual relationship in such a way that:

  • one company has a majority share in the other
  • one company is dependent on the other
  • they are consortium companies;
  • the two companies have a reciprocal shareholding or
  • they are related by business contracts.

The definitions of the connected parties in companies are further clarified in the Corporate Income Tax Act. Companies need to clearly identify their connected persons, both legal and natural. This is because you need to pay attention to mutual transactions. If the mutual cooperation of connected companies takes place at the same prices as with other partners, ie at market prices, then there is no special feature. Are you not sure about the process? Ask our legal experts for help!

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But what if the values ​​of trade in goods and services deviate from the usual? Then you need to calculate comparable market prices for the correct taxation of a company. For this we use a special Rule on transfer prices. They set out the methods of valuing prices for connected persons. We distinguish:

  • the method of comparable free prices;
  • pre-sale price method;
  • method of cost supplement;
  • profit distribution method; or
  • net profit margin method.

Who can get pension in Slovenia/EU?

What are the interests between connected persons?

Special rules are also laid down for interest on the loans granted to related parties. Also for these cases, we have the Rules on the recognized interest rate. On the basis of it we calculate the interest rate at the time when they approve the loan. The interest rate may be lower. But in this case the obligor must prove that in the same or in similar situations he would give a loan at a lower interest rate even to borrowers who are not connected persons.

Despite the above, not all interest between the related parties fall under expenses. If the loans exceed four times the amount of the person’s share in the company, then the interest on the excess of loans does not reduce the tax base on which income tax is paid. There is an exception. This is if the debtor proves that he would have received the same loan from another lender, an unrelated person.

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