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.

In every development, some new knowledge must be created. Since neither legal nor tax counsel is qualified to determine whether the taxpayer is actually performing this activity, a technical advisor should be part of the taxpayer’s team. The key is that it really is about science and research.

When patent box and when supercomputation? Read more here : https://touchit.sk/it-firmy-a-spolocnosti-ktore-robia-vyskum-mozu-vyrazne-usetrit-na-daniach/405626

You can read more about supercomputing and the patent box here.

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

Článok Peter Varga on the use of patent box and supercomputing for Touchit je zobrazený ako prvý na Highgate.

The Patent Box exempts from income tax up to 50% of the profits that a taxpayer (e.g. an IT company) makes from royalties for the grant of a right to use or for use:

• an invention protected by a patent or a technical solution protected by a utility model which results from research and development carried out by the taxpayer;
• a computer program that is the result of development by the taxpayer;

The Patent Box also allows taxpayers to benefit from this exemption from income tax if they derive income from the sale of products which are the result of research and development carried out by the taxpayer and which are wholly or partly based on an invention protected by a patent or a technical solution protected by a utility model. Read more about Patent Box and optimization for IT and development companiesin the video by Peter Varga.

The super-deduction for change is a tool by which a taxpayer (e.g. an IT company) can, for an economically unprofitable project (in the research or development phase), claim the costs of that project at least twice as much as the revenue from profitable projects. You can learn more about supercalculus in Super-deduction for research and development or at our conference.

The full interview of Peter Varga for TouchIT can be found here: IT companies and companies that do research can save significantly on taxes.

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

Článok Favourable taxation for IT companies in Slovakia. Peter Varga sa vyjadroval pre TouchIT je zobrazený ako prvý na Highgate.

Assume that the taxpayer spends the following amounts on R&D activities:

• EUR 10 000 in 2019
• EUR 50 000 in 2020
• EUR 100 000 in 2021

The Income Tax Act allows the taxpayer to reduce the tax base by:

• 200 % of the amount spent on R&D activities in 2021
• 100% of the “uplift” in costs for R&D activities in 2019-2021

The total amount of the super deduction which reduces the taxpayer’s tax base is EUR 245 000.

The taxpayer can thus save EUR 51 450 in income tax for the year.

How much will the Super Calculation save

The taxpayer can achieve an effective tax rate of 0% through the Super Calculation. As we often combine the Super Calculator with the so-called. Patent Box, the effective taxation can thus be below 5%.

Imagine a situation where an IT firm carries out experimental development after completion of which it has licensing revenue. Assume that the company will record revenues and expenses as shown in the table below (amounts are in EUR):

Legal requirements of superannuation

To qualify for the super deduction, the taxpayer must carry out one of the following research and development activities:

• – Basic research: this is theoretical or experimental investigation carried out primarily for the purpose of acquiring new knowledge of the basic principles or phenomena of observed facts, not primarily aimed at the application of the results in practice. It is an exploration, without a focused purpose for the final product.
• – Applied research: this is also theoretical or experimental research aimed at gaining new knowledge. This examination is primarily focused on achieving a specific outcome. It is thus an investigation carried out to confirm a hypothesis (e.g.: product characteristics).
• – Experimental development: is a systematic investigation combining, shaping and using existing knowledge from research and business practice to design a new or sustainably improved product, process or service. This is a very common example, especially with software companies.

In order for a taxpayer’s research and development activity to meet the necessary characteristics, it is important that it has the following elements:

• – Novelty – The search for undiscovered structures or relationships, the application of knowledge or technique in a new way, the element of novelty or novelty (within the range of possible information that may be available at the time).
• – Creativity – New concepts, not ordinary tasks, respectively. changes and routine activities. New methods developed to perform common tasks are included in the project.
• – Uncertainty – Uncertainty in the achievement of results, uncertainty in cost or timing. Project objectives set prior to implementation (in terms of achievability of objectives, how to measure outputs). Achieving the goals themselves.
• – Systematicity – To study phenomena and processes according to a definite, theoretically and practically justified plan, deliberately, purposefully and not randomly and improvisationally. Project phasing, milestones, decision-making process, staff matrix of R&D activities, staff qualifications and positions.
• – Transferability – Possibilities for transfer of new knowledge, new, deeper understanding of phenomena, relationships, principles with broader meaning, expected benefit, i.e. patent, license, protected design, etc., connection to the larger whole (e.g., other activities of the enterprise).

Eligible costs

Who will prove that these are R&D activities?

As legal and economic advisors, we are naturally unable to assess whether a client’s activity meets the characteristics of a research and development activity. Nor should it fall within the client’s remit because of conflicts of interest.
We therefore cooperate with the Czech company RESEA, which specializes only in research and development activities. Its task is to assess whether the case is indeed a research and development activity and to prepare all the necessary technical documentation.

Supercomputing and tax control

The tax authorities currently have minimal experience with superannuation. They are therefore looking for inspiration in cooperation with the Czech tax administration, which, after so many years, has a relatively rich experience in tax audits and litigation with taxpayers before the courts.

Therefore, in preparing the taxpayer for a potential tax audit, it is important to anticipate and set up the documentation and processes already in the process of implementing the super tax calculation, taking into account the existing practice in the Czech Republic. That is why we cooperate with the Czech company RESEA, which has been working on this issue for almost 15 years.

It is important to note that the procedural position of the taxpayer under the Tax Code is against the taxpayer at the first stage. If the tax administrator raises doubts about the legality of the application of the super deduction, the taxpayer has the burden of proof to prove its claims in the tax return. If the burden of proof is not sustained, it is up to the tax authority to prove otherwise.

In cooperation with our lawyers, we represent clients in a range of tax proceedings, from representation at tax audits to court proceedings where the client must be represented by an attorney.

Thus, in cooperation with us on the supercomputation, the client receives an absolutely comprehensive service from the analysis, through the setup, the tax calculation, to the eventual representation to the European Court of Human Rights.

Supercomputing and – why work with us?

Complexity:

The client in cooperation with us on the supercalculation gets an absolutely comprehensive service from the analysis, through the setup, the tax calculation, to the possible representation before the courts, where the client only needs to be represented by a lawyer.

Technical documentation:

Technical documentation:Supercomputing is also about the amount of formal as well as technical documentation that we comprehensively provide for the client. Above all, the technical documentation must be both transparent and technically robust. The documentation has to be written with the view that it will be read by the tax office one day. Since we have experience with our partners from Czech tax audits, we try to make it defensible at the end of the day.

A broad team:

A broad team: In cooperation with our Czech partner RESEA we have more than 10 years of experience in supercomputing. We have gained a lot of experience in various technical, science and IT fields. The client thus has a broad team of technical experts with whom it can navigate the defensibility of R&D activities.

Článok Super-deduction for science and research je zobrazený ako prvý na Highgate.

The full interview is available here – https://www.etrend.sk/podnikanie/advokat-varga-dovera-v-ekonomiku-sa-neobnovi-zo-dna-na-den.html

In April 2020, we also organised a webinar on the possibilities of using state measures aimed at partial compensation of entrepreneurs affected by the corona crisis, not only for our clients – http://zachranfirmu.sk/webinar/znizovanie-nakladov/.

Článok Interview for TREND on tax-legal measures related to the corona crisis je zobrazený ako prvý na Highgate.

Meanwhile, the amendment to the Income Tax Act, which is expected to be effective from 1 January 2020, introduces almost double the super deduction benefit for science and research. Technically, this change will allow businesses to include qualifying costs as tax expenditures in the tax base multiple times. This is a huge step forward from the original wording of the super deduction from the 2015 tax year. While for the 2015 to 2017 tax years, a maximum of 75% of the relevant costs could be applied as an additional deduction (even in theory), 2018 allowed up to 150% under simplified conditions. From 2020, however, this simplified additional deduction may increase to around 250%.

What is the basic condition for claiming the super deduction for science and research?

In order to claim the super deduction, it is normally necessary to identify the research and development in question, to set up a project for this research and development and then to implement it. Such a project should have its own project and accounting guidelines. It should also include a transparent costing and plan of activities. In other words, the R&D project in question must be institutionalised. Also, since not all R&D-related tax expenses are eligible for super-deduction, the relevant accounting records must be clearly recorded and demonstrable in the event of a tax audit. In addition, expenditure that has already been supported by public funds (e.g. through tax credits under Section 30b of the Income Tax Act) cannot be the subject of a super deduction.

The advantage of this tax regime is that it is not necessary to apply the activation of development costs in order to benefit from it. In other words, while in the Patent Box it is necessary that the intangible asset in question (i.e. a patent-protected invention, a utility model-protected technical solution or software) is activated in the accounts, in the Super Deduction it is not mandatory that the project in question achieves economic benefits. The taxpayer can obtain the tax advantage even though his research or development does not lead to taxable income. In such a case, if the taxpayer carries out another, profitable activity, the super deduction allows him to reduce his overall tax base.

Where is a lawyer needed?

The key to claiming the super deduction (especially for IT companies) is assessing whether their particular case is really about research and development. This should be based, for example, on accounting procedures, the State Aid Organisation Act or OECD manuals. In general, however, we can say that research costs are mainly costs of:

1. activities aimed at acquiring new knowledge,
2. exploring, evaluating and finally selecting applications from research findings or other knowledge,
3. finding alternative materials, equipment, products, processes, systems or services,
4. the formulation, design, evaluation and final selection of possible alternatives for new or improved materials, equipment, products, processes, systems or services.

In particular, development costs are considered to be:

1. making and testing prototypes and models,
2. making tools, templates, moulds and chips using new technology,
3. the construction and operation of a pilot plant that is not at the stage of economic feasibility of production,
4. the manufacture and operation of a selected alternative for new or improved materials, equipment, products, processes, systems or services.

In every development, some new knowledge must be created. Does or does not such knowledge arise in yours? In situations where tax and accounting rules do not give a clear view, law is the last tool to increase legal certainty. At our law firm, Highgate Group, we often times provide legal opinions on such unclear and uncertain issues. The client files it in a drawer for their convenience and argues it in any potential litigation with the state. In addition, we also represent clients in tax audits and before the courts. Thus, at Highgate Group you can have comprehensive services under one roof. We recently held a conference on these possibilities Tax optimization for IT companies.

How to use the Super Deduction and Patent Box?

In the context of the recently adopted tax changes to support research and development in Slovakia, it can be stated that research companies, including IT companies, may consider Slovakia as a tax haven. For the same R&D project (including the development of a computer program), a company can claim a super deduction and, after activating the costs of its development and research, can tax only half of the income from the use of this intangible asset. Taking into account the fact that the tax loss deduction is to be more favourable from 1 January 2020, the full application of both these tax institutes by the entrepreneur (i.e. the super deduction and the patent box) is quite realistic.

If you have any questions, please do not hesitate to contact us at info@hg.amcef.com

Článok Super deduction for science and research for IT companies je zobrazený ako prvý na Highgate.

At a recent conference on tax optimization for the IT sector(more information here), we discussed a number of ways IT companies can pay less in taxes and levies by default. We addressed not only foreign options, but also Slovak ones. We did not leave out the ones that the Slovak Income Tax Act has recently started to offer for the IT sector. In this article we will briefly describe them.

“Super Deduction”

In the so-called. The “super deduction” originally allowed you to increase the cost of software development only by the sum of:

• 25% of the R&D costs incurred in the tax year for which the specific tax return is submitted;
• an additional 25% of the wage costs of certain employees under the age of 26;
• 25% of the positive difference between the R&D costs incurred in the period for which the tax return is submitted and the R&D costs incurred in the immediately preceding tax year.

However, after January 1, 2018, an amendment to the Income Tax Act brought an even significantly more attractive regime under which IT companies can double a critical part of the cost of software development for tax purposes. In addition, an IT firm can further increase this doubled tax expense if it increases its software development costs year-on-year. For the purposes of claiming the benefits of the ‘super deduction’, it is important that the IT firm can demonstrate that the software solution being developed is unique, has no clear/tangible outcome in advance and has no economic utility at the time. As with other areas in tax law, the proper setup of a “super deduction” is thus left to a great deal of creativity, flexibility, and legal uncertainty.

“Patent box”

IT companies can also take advantage of the so-called. IT companies can also use the “patent box” and thus exempt up to 50% of the income from the use of their software from income tax. In other words, IT firms can pay up to half the tax of other companies. Add to this the tax benefits of the “super deduction” that a company can enjoy in relation to the same software, Slovakia really can be a tax haven without the entrepreneur having to invest thousands to tens of thousands of euros in foreign structures.

However, the use of the “patent box” for computer programs is subject to a number of different conditions than the “super deduction.” The basic condition is that the software development must be properly accounted for by the company. Another prerequisite is that the software expenditure must be capitalised in the accounts, which in practice means that the software must have the actual potential to bring economic benefits to the company. Furthermore, the firm must have an internal team of people. As the current standard, mainly due to the high levy burden, is not to employ but to work with contractors (e.g. freelancers), several IT firms have and may have problems with setting up the benefits of the “patent box”. And here it becomes clear how important it is to have a lawyer, a tax lawyer as well as an accountant in one person, or at least under one roof, in such situations. To come up with a creative and defensible solution in such situations requires not only knowledge of tax and accounting, but above all of the law.

Taxation of capital gains

In his 2016 article “Do we want to have higher salaries in Slovakia? “, our partner Peter Varga, in the context of BREXIT and the international tax revolution called BEPS, advocated the exemption of income from the sale of shares from income tax. A number of neighbouring countries had the conditions for exemption of capital gains at that time already established for a long time. It is true that this topic had been discussed for several years before, but it was only the amendment to the Income Tax Act on January 1, 2018 that brought about the exemption from income tax of income from the sale of shares and business interests after 24 immediately consecutive calendar months from the date of acquisition of at least a 10% direct interest in the share capital of a business company. Thus, from 2020, it will not necessarily be necessary to use shell companies in traditional jurisdictions such as Cyprus, Malta, the Czech Republic or Austria for the sale of shares in Slovak companies.

Slovakia can also be a tax haven today. If you are interested in this topic, read the related article by our partner Petr Varga on the portal tax administrations.sk.

Článok Slovakia can also be a tax haven for IT companies (“super deduction”, “patent box” and sale of the company) je zobrazený ako prvý na Highgate.

“There is nothing scary about everyone arranging their business to pay as little tax as possible. No one is obliged to pay more to the state than the law requires. It is hypocritical to demand more taxes in the name of morality”,

stated one of America’s most famous judges, Learned Hand, in Commissioner of Internal Revenue v. Newman (1947).

I think that the Panama Papers or the Paradise Papers may have caused more hysteria in Slovakia than legitimate anger. Having a company abroad is not in itself criminal or even immoral. There are several reasons for using a shell company, other than tax reasons. Anonymity, for example. I have several clients who do not want to be seen. With one client, employees demanded higher wages en masse just because they saw his profits and book value of assets on finstate.sk. It used to be that anonymity also protected entrepreneurs from the mafia. Someone might want a more prestigious address. Trying to get into a country with lighter regulation (for example, when setting up a venture capital fund) is also a legitimate reason.

And even if there was only a tax motive, that might not automatically be a problem. Even a well-known Slovak IT company was recently sold through a foreign shell company owned by a Slovak owner. Why did the owner set up a mailbox company? I assume that the primary reason was an attempt to avoid tax on the profit from the sale of a stake in a Slovak company, which is still payable here. Paying 25% tax and 14% health levy on EXIT is probably really unreasonable.

It is rumoured that Richard Sulík sought out Ivan Miklos, then Minister of Finance, a year ago in 2004 to place his thesis on the flat tax in his hands. Ivan Mikloš allegedly did not throw it away and it is said to have become the idea for a major tax reform, which introduced a flat 19% tax. In addition to reducing the tax rate, the tax reform brought, above all, many simplifications. It abolished a number of exemptions and removed a number of unnecessary technicalities. Today, even because of various trivialities such as 13. and 14th salaries, the income tax law has 3 times more words than it had thanks to the “Mikloš-Sulík reform”.

At a recent conference on tax optimization for IT companies, I gave a lecture on the possibilities for tax and levy optimization that Slovak law offers thanks to this departure from tax simplicity. For example, did you know that a software company in Slovakia can in some cases literally pay no taxes at all on income from the use of software? As of 2021, companies with a qualifying interest in another Slovak company will not pay tax on the sale of shares. It will no longer be necessary to travel to Vienna and set up a shell company there.

Yes, Slovakia can be a tax haven too. In the so-called. patent box or super deduction (which can also be used by IT companies), ignorance about the possibilities of their use is a frequent problem. This may also be why software companies do not properly account for the development of their computer programs. This unnecessarily disqualifies them from taking advantage of this benefit. And it is not only about accounting, but also about setting up legal and business relationships with their customers, or employees or contractors (persons working for the company through a trade or Ltd.). I recently had a client open two financial years back to back with their accountant thanks to our recommendations. Absolutely legal and legitimate, he saved tens of thousands of euros without high transaction costs (e.g. for the administration associated with it).

Several institutes, the setup of which can bring significant tax savings, can also be used by companies whose primary focus is not IT. As Slovak tax and levy laws are fragmented (i.e. they contain too many words, which leads to their incoherence), they intentionally and unintentionally provide a number of ways in which not only IT companies can pay less in taxes and levies.

It is important to understand that IT business is not limited to one country. Foreign clients create a new space for Slovak companies and questions for more effective taxation. Can I set up a company in Singapore or Hong Kong? How much will it cost and how much will I possibly save? Yes, these options exist for IT companies and can be extremely effective. In Lithuania alone, for example, taxation on software revenue is now 5%. Both Hong Kong and the UAE tax nothing at all and are not necessarily viewed negatively. By default, however, any institutionalisation of doing business abroad brings administrative pitfalls, especially for the sake of banks or other payment institutions. This is also why software companies do not primarily need to look for solutions outside Slovakia if Slovakia also offers interesting opportunities for tax optimization.

We all know to some extent that legal tax optimisation has its limits. In my legal practice as a tax lawyer, I have been trying for several years to define and, if possible, to define those limits. Economic life is extremely diverse and, as I write in this blog on the KTAG case of Andrej Kiska, that boundary cannot, unfortunately, always be reliably identified. One way or another, taxes and levies are a cost like any other and, just as when an owner saves, for example, on employee training costs, this measure can have both positive and negative consequences. It is the same with taxes. You need to get rid of those taxes and levies that you don’t necessarily have to pay. If you are interested in this topic, feel free to get in touch.

Článok Slovakia can be a tax haven too! je zobrazený ako prvý na Highgate.

Since we have IT companies among our clients, we decided to organize a conference on 24.4.2019 at the Falkensteiner Hotel in Bratislava on the topic tax optimization for Slovak IT companies.

The aim of the conference was to show in a practical way, using our examples from practice, what opportunities tax optimization brings in the IT sector. The content of the conference included a number of interesting topics presented by partners and tax experts Peter Varga and attorneys Tomáš Dem and Lukáš Makaro. We discussed what options exist for more advantageous taxation of software income (Patent box) not only for established but also start-up IT companies, how the super deduction works and what are the current trends in the optimization of operating profits. In the first part of the conference, we also discussed how to set up taxes and levies for employee shares and what tax risks should be considered when selling a company/investor entry.

We managed to put together a great discussion panel consisting of Peter Fusek (COO Instarea), Grigor Ayrumyan (CEO WEZEO) and Ivan Melay (Head of Central Europe BENDURA BANK AG) whose members talked about their practical experience with tax optimization in their IT companies.

Článok Tax optimization for IT companies je zobrazený ako prvý na Highgate.

Highgate Group as a conference partner, together with the members of the discussion panel composed of Peter Fusek (COO Instarea) and Grigor Ayrumyan (CEO WEZEO) and Ivan Melay (Head of Central Europe BENDURA BANK AG) will share their practical experience with tax optimization in the IT sector.

More information and registration can be found here: http://danova-optimalizacia-pre-it.sk/

Článok CARPATHIAN and Tax optimization for IT companies je zobrazený ako prvý na Highgate.