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Slovakia is making sure digital travel-booking platforms pay corporate income tax in the country by enforcing a tax compliance registration on Expedia and planning the same for Booking.com, according to the tax administration’s internal correspondence seen by Bloomberg Tax.
The move follows changes to the country’s income tax act, netting digital platforms as of Jan. 1. Lawmakers expanded the scope of taxable presence in Slovakia to include the “repeat brokering of transportation and accommodation services, including via a digital platform.”
According to the internal correspondence seen by Bloomberg Tax, Expedia Lodging Partner Services Sarl, of Switzerland, had a permanent establishment registered by legal authority on June 14.
The correspondence names Booking.com B.V. of the Netherlands and three other companies—Germany’s Hotel Reservation Service Robert Ragge GmbH, the Czech Republic’s Previo s.r.o., and Hungary’s Szallas.hu—as being in the process of having a permanent establishment registered.
“Operators of digital platforms are obligated to register a permanent establishment whether or not they are from countries with which Slovakia signed a double taxation treaty,” Ivana Skokanova, spokeswoman for the Financial Administration of the Slovak Republic, told Bloomberg Tax in a July 30 email.
A spokesperson for Booking.com told Bloomberg Tax in a July 30 email that the company planned to challenge Slovakia’s position.
“Booking.com disagrees with the recent move by the Slovakian government to create a permanent establishment for Booking.com B.V. in Slovakia as it violates existing tax treaties in place between the Netherlands and Slovakia and opens up the company to unfair double taxation within the European Union,” the spokesperson wrote. “As a Dutch company headquartered in the Netherlands, Booking.com plans to challenge this decision and is initiating conversations with both the Dutch and Slovakian governments to find an amenable resolution.”
Expedia hasn’t yet responded to Bloomberg Tax’s requests for comment.
The government’s move makes good on its earlier pledges that international digital platforms that derive income from Slovakia and fail to register a local permanent establishment voluntarily will be registered “ex-officio”—by legal authority.
The move ranks Slovakia among “pioneers” when it comes to efforts to tax the digital economy, according to Miroslav Marcincin, a member of the presidium of the Slovak Chamber of Tax Advisors, said. However, it also sets it on a collision course with a range of double-tax treaties that are currently in place.
“Registration ex-officio is only the first step,” Marcincin told Bloomberg Tax July 30. “What is not clear is what happens next with the companies registered ex-officio. Will they be unified in filing a nil income tax return next year or will some decide to tax those transactions that occurred in Slovakia?”
Either way, there is potential for conflict, he added.
Marcincin noted that filing a nil income tax return could lead to tax audits and litigation with Slovak tax authorities while the companies’ decision to tax some income locally could lead to disputes between Slovakia and countries where the companies are officially registered for tax.
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