Non-cooperative jurisdictions

What it means

Non-cooperative jurisdictions are countries and territories that do not cooperate with others on exchanging tax information or that operate harmful tax regimes. The EU keeps and regularly updates its own list of non-cooperative jurisdictions for tax purposes, the so-called blacklist, and a grey list of countries that have committed to corrective measures.

The Slovak Income Tax Act uses the concept of a non-treaty state: a country with which Slovakia has no double tax treaty or tax information exchange agreement and which is not a party to the multilateral convention on mutual administrative assistance. The Ministry of Finance publishes the list of treaty states.

Payments to non-treaty states are taxed more heavily: withholding tax on taxable income is 35 % instead of the usual rates, and tax securing applies to other payments. The aim is to discourage shifting profits to countries where the Slovak tax authorities cannot see them.

How it works in practice

Before paying a foreign supplier, especially for services, licences, interest or advice, we check its tax residence and whether the country is a treaty state. For a non-treaty state, 35 % tax must be withheld, paid over and reported, otherwise the payer is liable for the tax.

For transfer pricing, transactions with persons from non-treaty states are treated as transactions with a related party even if they are not economically related. The transfer pricing and documentation rules therefore apply to them.

Structures with subsidiaries in low-tax countries are also subject to CFC rules and DAC6 reporting duties. The lists change, so before every significant transaction we check them again rather than relying on last year’s status.

What to watch out for

The most common mistake is paying an invoice to a company in an exotic country without checking, because the service was real and the price reasonable. Even for a legitimate deal the 35 % withholding tax applies, and if the company does not withhold it, it must pay it from its own funds with a penalty.

Watch for changes to the lists too. A country that was non-treaty last year may since have signed an information exchange agreement, and vice versa. The status on the day of payment is what counts, so for recurring payments to the same country we recommend checking it regularly.