In addition, Highgate Law & Tax is also celebrating its win in the “Capital Markets” category, proving itself to be a comprehensive law firm with an extensive portfolio of expertise and the ability to successfully navigate diverse legal challenges.

The awards gala evening, which was organized by the media and educational group EPRAVO Group and the weekly TREND, was held at the Double Tree by Hilton hotel in Bratislava. For Highgate Law & Tax it was not only an opportunity to celebrate its success, but also to thank its clients and partners for their trust and support, without which this milestone would not have been possible.

This double triumph confirms Highgate Law & Tax’s excellent reputation for legal and tax services and reinforces its position as a leading player in the legal services market in Slovakia.

Článok Highgate Law & Tax and its double triumph in the prestigious Law Firm of the Year competition je zobrazený ako prvý na Highgate.

We are thus relatively intimately familiar with the related realities of this segment. Whether it is the topic of tax optimization, “employing sole traders”, investor entry, setting up a holding company, automated accounting, ESOPs, the legal, practical and tax pitfalls of scaling a business abroad, or operating with cryptos, these are all topics that we encounter in practice.

For this reason, we perceived that this conference can help many entrepreneurs to navigate through the complex tangle of more complex Slovak and foreign tax and legal issues. It was also intended to help to better understand the perspective of an investor or potential buyer in a company exit.

Sale of the company or entry of an investor :

• What are the basic situations and types of investor entry into companies?
• What are the key motivations and areas of interest for the investor and the company owner?
• What should an IT firm focus on to maximize the benefits of the investment for the firm and the business owner?
• Structured transactions and relevant tax implications from an income tax perspective (e.g. tax burden through a Slovak vs. a foreign holding company);
• Transaction Experience;

Relevant financial ratios when a company is sold or an investor enters :

• What is of interest to the investor or the buyer in accounting?
• Risks associated with incorrect accounting;
• Capitalization of the company;
• Transaction Experience;

Foreign IT contractors and work “from Bali” :

• Withholding taxes on payments to foreign contractors;
• Working from “Bali” – tax and levy implications;
• Setting up contract documentation;

ESOP – Best practice :

• What forms of shares and options can Slovak companies offer to their employees?
• Legal and practical context;
• Tax and levy context;
• Cross-border structure and practical experience;

Functioning in the crypt :

• Receiving retribution and paying contractors in the crypt;
• Types of crypto projects (token issuance, management, consulting, community token,…) and regulatory and tax aspects;
• Accounting and tax pitfalls in Slovakia and best practice when leaving Slovakia;
• Experience;

Scaling the IT business abroad :

• Do I need to have a company abroad in different business situations?
• Establishment of a permanent establishment, VAT regimes, withholding taxes;
• A company in an offshore jurisdiction from a legal, tax and practical perspective;
• Holding abroad – advantages and disadvantages;
• Investor requirements for foreign structure;
• Protection of the owner’s private property in the context of the political situation in Slovakia;
• Transfer pricing;

Software contracts :

• Framework or one-off contracts;
• Waterfall vs. agile SW development;
• Licensing Terms;
• Warranties and liability for defects in the SW;
• Problematic provisions – experience from practice;

Structuring business to the US :

• How best to enter the US market;
• Where can I get some help/information/grants?
• What is the tax and administrative burden?
• How to choose the right lawyer and accountant?
• How to get into the investors/funds horizon?
• In which state are the best conditions to enter the US market?

Tax optimization for digital and IT companies :

• Holding structure – owner protection;
• Patent Box and Supercomputing – how some IT companies do not have to pay income tax in Slovakia;
• Other tax and levy types and practical experience;
• When is tax optimisation already a criminal offence;

Schwarz system :

• Tax-tax implications and calculations;
• Impact on employees’ social insurance benefits (maternity, pension, sick leave,…);
• What impact does the change to a sole trader’s trade have on a sole trader’s pension?
• Analysis of court decisions that have dealt with the topic;
• Practice of tax administrations and labour inspectorates;
• Criminal liability;
• Setting up contracts with contractors;

Relevant financial ratios when a company is sold or an investor enters :

• What is of interest to the investor or the buyer in accounting?
• Risks associated with incorrect accounting;
• Capitalization of the company;
• Transaction Experience;

Many topics and many questions from conference participants. Companies were particularly interested in topics around ESOPs, tax optimizations or company sales. However, many attendees stayed until the end to hear the current practice in connection with the so-called In the meantime, there was a lot of interest in the practice of the shvarc system (i.e. the employment of freelancers).

We received a lot of positive feedback on the content and organisation of the conference. We are therefore very pleased that after the conference on setting up investment funds, this conference was also a success.

If you are interested in this topic, please do not hesitate to contact us.

Článok Conference on legal and tax optimization for technology companies je zobrazený ako prvý na Highgate.

People are now signing mortgages in droves, also because they believe that the bank will not raise the interest rate during the fixation period, or that the current laws will prevent it from doing so. But what if we allowed for that possibility? How many people would be willing to take out a mortgage in the face of such uncertainty? How many entrepreneurs would be willing to borrow money from a bank? Fewer. While a reduction in the number of mortgage-takers may appear positive on the surface in today’s environment, the narrowing of the options for entrepreneurs to effectively raise capital is undoubtedly a catalyst for economic decline. Uncertainty reduces confidence and freezes economic activity. And we saw the real impact such a freeze can have on tangible macroeconomic variables less than 10 years ago.

Dating with a playmate

While it may seem unfair and immoral for UBER or Taxify not to pay taxes in Slovakia, quick and compact solutions to such a situation send the wrong signal. In business, we like to work with reputable and fair partners. With such partners, you are more confident that their behaviour oscillates with low volatility. In contractual relations this is called “market standard” and in law “legal certainty”. Adherence to these principles contributes to efficiency and accelerates the economy. On the other hand, if you encounter greater uncertainty or a substandard, you demand a risk premium. If you lease a building to an unknown tenant, you naturally ask for a higher rent and a higher deposit. If someone is luring you to invest in Zimbabwe, you demand a higher potential ROI. And if you want to date a playmate, you have to factor in a life on Instagram.

The primacy of international law?

From the perspective of public international law, Slovakia applies the so-called. The monistic approach, which in the case of Slovakia is characterised by the explicit primacy of international law over domestic law. This principle was introduced into the Slovak legal order only in 2001. Theoretically, we can thus imagine that for countries with which Slovakia concluded a double taxation treaty before that year, a digital tax could be defensible. But even this is highly questionable. Section 1 of the Income Tax Act itself, which provides for the digital tax, says that this law applies only if the international treaty does not say otherwise. And it says something different in the case of digital tax.

Legitimate expectations

In investment law (and not only there) there is the term legitimate expectations. You invest a lot of money in a business in a country and you expect that the state will not, for example, increase taxes by 10% from one year to the next. Of course, the state has every right to raise taxes however it wants. However, dramatic changes in the legislative environment undermine a country’s credibility as an investment partner and may be actionable by the investor because they are contrary to the investor’s legitimate expectations. This is an oscillation with high volatility. It is also like preparing all year for a wedding only to have your partner finally say no at the altar. Couldn’t he have known this sooner?

However, Slovakia’s action in introducing a digital tax is not just about contradicting legitimate expectations. It is about contravening one of the fundamental principles of international law – pacta sunt servanda – agreements are to be respected. Here you are not only concerned about your partner’s ‘no’ at the altar, but also about a unilaterally increased cancellation fee at the hotel. And the hotel also extorts it from you by forcing your guests to hand over the prepared envelopes to the SBS after the church under threat of violence, since the wedding has been cancelled.

Perhaps the right, honest, fair and in line with legitimate expectations would be to force companies affected by the digital tax that are currently doing business illegally in Slovakia to do business legally in Slovakia. And this could have been done even without the recent decision of the Court of Justice of the EU in the UBER case. Indeed, doing business in accordance with Slovak law would very likely entail an obligation to pay taxes on profits in Slovakia. And as a sweetener, the state would perhaps protect Taxify or UBER drivers from the risk of criminal prosecution for unauthorised business activities, which a critical part of these drivers are committing.

But why booking.com?

One can understand the anger of the state in the case of some digital platforms, but why address the digital tax to booking.com as well? Its profits from Slovakia are, after all, significantly different in content from the profits generated in Slovakia by the activities of UBER or Taxify. While UBER and Taxify largely determine the content of the underlying service(summarised by Advocate General Szpunar), booking.com merely publicises the offer of accommodation services in a more efficient way. Booking.com cannot be said to be doing business in Slovakia. If Slovakia wants to tax the booking.com portal, it must also tax the booking systems of hotel chains.

If we simplify it all, Slovakia has sent a signal to the world that legal certainty in Slovakia cannot be fully counted on. This is confirmed, incidentally, by the recent decision of the district court in the Taxify case, which differs significantly from the UBER decision, despite the fact that they are identical services in terms of content. In addition, however, Slovakia has demonstrated that the Treasury Department probably cannot be bothered to make a more thorough and comprehensive recognition of the material differences between UBER’s digital platform and booking.com. Such oversights are probably quite unnecessary on politically neutral topics such as this.

Článok Slovakia has committed a grave sin with the digital tax for UBER, Booking, Taxify and others je zobrazený ako prvý na Highgate.

How does Slovak law regulate the sharing economy? Which legislation regulates it?

As such, the sharing economy does not have its own separate, coherent legal framework. Its external and internal relations therefore fit into existing legal and fiscal frameworks. If the sharing economy is understood as two neighbours sharing a single drill, the legislation is generally only in the realm of civil relations and occasional taxation. However, the sharing economy can also be interpreted in a very expansive way, thus including, for example, the environment around existing commercial online platforms. In this case, these relationships are also governed by commercial regulations such as the Commercial Code, the Trade Licensing Act or the VAT Act.

How does the Civil Code regulate the sharing economy?

The Civil Code does not contain any institutes specifically designed for the sharing economy. In its legal grasp, we must make use of the general and existing ones. If we associate the sharing economy only with a non-commercial environment (e.g.: two neighbours sharing a drill), the Civil Code knows, for example, a share ownership, a loan agreement or a lease agreement.

What problems is Airbnb preparing for the state and officials? There are voices calling for a ban on Airbnb. How do you rate it?

If I have an apartment and I go on vacation for a month and rent it out through Airbnb, it’s basically the same sharing economy as the aforementioned drill. However, if I buy more apartments to rent them out, I’m in business. And when I run a business, I face several other regulatory pitfalls. In the case of Airbnb, it is perhaps worth mentioning the problems with the taxation of Airbnb as well as the landlords themselves, or compliance with consumer protection regulation.

In the case of Airbnb, I don’t think the problem is primarily with some backward regulation. We can probably all agree that if the guesthouse pays the taxes, the Airbnb landlord should pay them too. However, if, for example, we want to protest against consumer protection regulation because of the flexibility of Airbnb, then it is certainly necessary to look at the whole regulation conceptually and in its entirety. It has been “brainstormed” for years and by many people, so it is not enough to talk superficially about the advent of mobile applications and to talk about the sharing economy over and over again. This is absolutely devoid of any legal or logical significance in this regard. Booking.com also has an app and is just as flexible in matching supply with demand. And in this respect, a guesthouse on booking.com is the same sharing economy as an apartment on Airbnb that was bought because of Airbnb.

So it is only natural that if you do not respect the rules of the game that your competitors must respect, there will be voices calling for a ban. It is certainly not possible to see as a fair competitive environment where one competitor has 20% lower prices simply because it has no regulatory costs (e.g. it does not pay taxes). And the state may not only have a “tax problem” with this , but it may also be disturbed by the fact that it undermines its efforts to bring the economic environment closer to perfect competition.

What is the current state of taxation of accommodation sharing services such as Airbnb? Can taxpayers effectively apply tax rules to Airbnb?

From the perspective of the Slovak perception of the functioning of Airbnb, taxation has basically three levels. And in general, it’s safe to say that all of these levels are somehow glitchy in the case of Airbnb. As such, Airbnb has been criticised for not paying a fair tax on its European income – it is too tax-optimising. This is due to a combination of Ireland’s tax advantages and the wording of international tax treaties that exempt Airbnb from taxation in the country where it generates its income. The result is that income from Slovak rentals is not taxed in Slovakia and, at the end of the day, is not relevantly taxed in Ireland itself.

Another tax element is taxation at the landlord level. Unlike Airbnb as such, landlords have relatively clear tax rules and so the only problem may be that they don’t have to declare that income. And the third area is usually local taxes. Again, the landlord has to pay local taxes, but due to perhaps currently weak controls and a lack of readily available information on landlords, the payment of local taxes in practice is perhaps more on the level of a voluntary principle.

Are those who use Airbnb (or even other types of sharing economy) really “stealing” from the state, as some EU countries claim?

The concept of “stealing” can be perceived not only subjectively but also objectively. If a landlord or a taxi driver driving for Taxify does not declare income or does not pay VAT, we can probably confidently say that Slovakia is being ripped off. However, if we are talking about the tax structures of Airbnb, Uber or Taxify, the notion of “ripping off” can only be seen in a subjective context through the prism of morality and fair tax collection. These companies are legally taking advantage of existing tax-law frameworks and thus are not paying taxes at a level that perhaps a critical part of society would consider fair. Several cases have been reported in the media. It is worth noting the case of Google, which allegedly paid a tax of EUR 47.8 million on its EUR 22.6 billion revenue from Europe, the Middle East and Africa. And this can be seen as unfair not only in relation to states, but also in relation to competitors who cannot implement such structures. And, yes, it can be confirmed that European countries, the EU as a whole or the OECD have very strong reservations about companies like Airbnb, Uber, Apple or Google using tax havens like Ireland or the Netherlands. I would just remind you here that measures are now being implemented progressively at global level to make the taxation of global companies fairer. I say “on a global level” because the Slovak invention “digital tax” is in stark contradiction with international law and therefore also with the Slovak Income Tax Act.

How has the situation around Uber in Slovakia developed? Recently, the courts ruled that Uber will be banned altogether. Has anything changed?

I am not aware that anything has changed.

Do you think there is a chance that Uber will be allowed again in Slovakia? If so why? If not why not?

Unless new regulation is in place to accommodate Uber, I assume Uber will not return. But that’s just my incorrect assumptions. From a legal point of view, this is a relatively straightforward issue. The EU Court of Justice has confirmed that Uber has to adapt to our regulation of road transport in Slovakia. Uber didn’t do that, so the court preliminarily banned it. The attack on Uber in Slovakia, however, came from a side I might have expected less. The primary problem with doing business through Uber was that Uber drivers were doing business illegally. That is, unless Uber operates in accordance with the old or already new regulation, it has no reason to be “allowed”. It must be said, however, that the Taxify case demonstrates the existence of a very wide range of discretion in our courts in cases factually limiting to equality, and so anything is indeed possible.

Are any EU or US countries changing their stance on Uber? Or they continue to apply strict regulations resp. prohibitions on its use?

I confess that I don’t follow the fate of Uber in other states to any greater extent than the general consumer of internet information. Each country has its own rules of the game, and thus the approach of states to Uber as well as Uber’s approach to the relevant regulation can be quite different. But whatever it is, I don’t think it would have any significant predictive value as to how we should view Uber’s compliance/non-compliance in Slovakia. Approaches from abroad as well as Uber’s approach from abroad can only be seen as inspiration for how to potentially legislate this type of business in Slovakia. If, also on the basis of experience from abroad, a company for which the state acts feels that the existing regulation of taxi services is unfashionable, it obviously needs to be changed. However, the only reason for this cannot be the existence of a mobile app, because Hopin also has one and its drivers have a TAXI sign on their cars. Nor do I think that in a state governed by the rule of law, such illegal business or non-payment of taxes should be immune from sanctions just because the sharing economy is arbitrarily invoked.

Is there any change planned at global, European or national level in the legal regulation of the sharing economy?

I do not think that there is, and I cannot imagine that there could be, objectively, any global concept of regulating the sharing economy. The EU only legislates in areas where it has a mandate from Member States. Nor am I aware of any general initiative that aims to adopt tangible solutions for the sharing economy. And I don’t even think there’s a need to create a blanket legal framework for the sharing economy. For example, if a company has a problem with the regulation of taxis, the state can amend the Road Transport Act. If the state wants to create a regime for Uber drivers other than the binary regime, entrepreneur/non-entrepreneur, it will regulate, for example, the Commercial Code or the Income Tax Act. It would probably make our legal system more complicated, but if there is such a social or technological order, why not.

Článok Payment of taxes, tax optimization and other peculiarities around the so-called platforms. sharing economy je zobrazený ako prvý na Highgate.