In this podcast, Peter Varga provides insight into the issue and discusses in more detail:

• When does VAT apply to the sale of property and land?
• How to calculate and deduct VAT correctly?
• Methods and rules for VAT exemption or carry forward?
• How about holiday properties and apartments?
• Important exceptions and specifics that every dealer should know.
• Practical advice and examples from real practice.

VAT exemption: when and how?

One of the most interesting moments of the podcast was the explanation of the situation when the sale of real estate can be exempt from VAT. In practice, we encounter attempts, mainly by smaller developers, to sell properties as individuals. More was said by Peter Varga in the podcast.

Legal Persons and Transfer of Tax Liability

For legal entities Peter Varga explained the application of the “reverse charge” mechanism or otherwise the transfer of VAT tax liability. This mechanism is only possible for the sale of certain buildings, not for the sale of the land itself. The podcast also covers other practical aspects, such as how to calculate and deduct VAT correctly, specifics regarding holiday properties and apartments, and more. For real estate professionals, sellers and buyers, understanding these rules is key to avoiding potential mistakes and financial losses. So don’t miss this opportunity to watch the full interview with Peter Vargo VAT on property sales.

Make sure you don’t neglect your obligations related to income from the sale of real estate, which we wrote about in our article Taxation of income from the sale of real estate. Take advantage of this valuable information and make sure your sale goes smoothly and in compliance with all legal standards, if you have further technical questions, feel free to consult with Peter Varga.

You can book a consultation with Peter Varga here:

Článok How does VAT control the sale of real estate? Peter Varga bol hosťom vo videopodcaste Národnej asociácie realitných kancelárií (NARKS) je zobrazený ako prvý na Highgate.

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.

Článok Hello world! je zobrazený ako prvý na Highgate.

For those who did not attend the conference, we have provided a more detailed overview of the topics covered at the conference in a separate article. The article can be found at this link. At the same time, if you would like to watch the whole conference, or just some parts of it, we have video recordings of the conference available for you, which can be found at this link.

Taxation of Slovak funds

The form and amount of taxation for Slovak funds depends primarily on the legal form of the fund. By default, there are transparent and non-transparent forms, whereas in the case of mutual funds we see a hybrid between the two.

It is the analysis of a fund’s tax set-up that can be crucial to the efficiency of the fund structure and ultimately the investor’s return.

Taxation of foreign funds

During the lecture at the conference, as well as during the methodological days of the Chamber of Tax Advisors, we also devoted a certain part to various foreign fund structures and individual income from the perspective of classification according to Slovak tax and general legal regulations. In some fund structures, given the incompleteness of Slovak law, it may also be the case that the income from the fund, as well as the income of the fund itself, will not be taxed at any level.

In general, however, there are a number of non-tax reasons why fund managers or founders choose a foreign structure. At the conference we talked about the following:

Thus, taxes are only one consideration and should not be the primary consideration for purposes of defending a foreign fund’s tax position.

VAT

In the lecture we discussed in detail the topic of management fees in fund management. The problem with the interpretation of our VAT Act was caused by the Slovak legislator who forgot to amend the VAT Act when introducing the SICAV legal form. Today, in principle, funds in Slovakia may face the risk of a mechanical interpretation that would be contrary to EU law and could significantly harm the fund structure (including investors).

However, it is important to note that not every fund administration is exempt from VAT, and in practice it is relatively common to find that trustees (including institutional trustees) are not sufficiently knowledgeable on the subject. When setting up the fund structure, it is therefore essential to bear this in mind and try to set up the structure as efficiently as possible within the legal framework.

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

Článok Petr Varga’s lecture at the methodological days of the Chamber of Tax Advisors on the topic of taxation of funds in Slovakia je zobrazený ako prvý na Highgate.

In our practice, we often encounter structures where it is not entirely clear whether or not they should be regulated. Unfortunately, in some cases, ignorance can even lead to criminal law. Peter Varga demonstrated this risk with examples at our conference, which focused on real estate financing through various regulatory and tax structures. However, Peter Varga also spoke briefly about this at the TA 3 investment conference.

Scams with funds, bonds or other investment structures and opportunities?

As the regulatory jurisdiction of the NBS and the OČTK is often territorially limited, many investors in Slovakia fall victim to fraud. However, some of these fraudulent schemes are purely Slovak.

Taxation of funds in Slovakia?

At the time of the conference, there was a law in place that gave tax advantages to certain types of fund structures that was to be effective January 1, 2024. Although Peter Varga described the new tax regime, he quite astutely stated that the debate on the taxation of funds may be premature given the activities of the new government.

We have been actively dealing with the topic of funds in our practice for a long time, if you are interested in this topic, we attach links where we deal with it in more detail, namely:

in the following articles or lectures:

at our successful unique conference:

or in our video podcasts and online training:

Tokenised financial instruments and real estate

Tokenisation of assets undoubtedly brings with it a number of benefits, but also challenges. Peter Varga summarized them at the conference as follows.

If you are interested in the topic of tokenised financial instruments, we have covered it in more detail in the following article:

Taxation of portfolio rebalancing

In most cases, Slovak tax law has the ambition to tax the generation of income when rebalancing portfolios. However, there are institutes where taxation on rebalancing does not occur. Peter Varga also commented on this at the conference.

Článok Peter Varga on financial regulation and taxes at TA3 conference on investing je zobrazený ako prvý na Highgate.

Good and bad news at the beginning

In practice, during a tax audit, we often encounter a scenario where the views of the tax administrator (tax authority, tax inspector) develop differently from the position of the tax subject (VAT payer, trading company, etc.) declared in the tax return and fail to reconcile them. Subsequently, such a dispute is decided by the court: the regional administrative court, the Supreme Administrative Court of the Slovak Republic, the Constitutional Court of the Slovak Republic or the Court of Justice of the European Union.

A new trend in the decision-making practice of the Slovak courts, which has been noticeable in the EU for a long time, is a departure from the tendency to primarily examine the (non-)fulfilment of the substantive conditions for the creation of a right to deduction. Instead, the focus is shifting to VAT fraud, where the State loses funds through the deliberate and targeted actions of the entities involved in the fraud. The following messages follow:

• Good news: During a tax audit, the tax administration should be less concerned with “endlessly” calling on the taxpayer to provide evidence that the supply under examination was actually made.
• The bad news: State financial penalties related to VAT fraud can potentially apply even to a taxpayer who has not acted explicitly unlawfully, has not directly benefited financially from the fraud, or even had no certain knowledge of its existence.

More on the good news

In its decision C-610/19 Vikingo, the CJEU addressed the scope of the circumstances in which a taxpayer’s right to deduct cannot be limited. Vikingo is a wholesaler of confectionery which claimed a VAT deduction on the packaging machines it purchased. However, after checking with the suppliers, the tax authorities concluded that the machines had been acquired from an unknown person, so that the supply had not been made between the persons named on the invoice.

In order to qualify for the deduction, the substantive conditions (the goods or services have actually been supplied, the recipient has used them in the course of his economic activity) and the formal conditions (primarily the existence of an invoice) must be met. In the case cited above, the Court concluded that it was not possible to deny the right to deduct VAT on the ground that the invoices were not reliable on the ground that:

1. the supplier named on the invoice did not manufacture and deliver the machines because these persons did not have the necessary human and material resources,
2. accounting legislation has not been complied with,
3. the supply chain was not economically justified and
4. there were irregularities in previous transactions involving the delivery under examination.

However, this is assuming that the company is not involved in the tax fraud and could not and should not have known about it (see below for more on bad governance).

It follows from the above judgment that the taxable person claiming the right of deduction is not liable for the subcontractors and should not bear the consequences of any irregularities at the upstream stages of the supply chain. Nor does the tax administration have the right to refuse a VAT deduction on the basis of its (often subjective and more or less emotional) conclusion that the supply chain does not have an economic justification. A VAT deduction is also to be granted where there are doubts about the supplier’s ability to carry out the supply because of insufficient staff and material resources.

However, all of the above applies provided there is no VAT fraud in the chain.

How VAT fraud works

The aim of the fraud is to collect VAT from the state budget without complying with the obligation to pay it, usually at another stage of the supply chain. So-called Carousel frauds have different schemes of operation, but their aim is to reclaim more VAT from the State budget than to remit VAT to the State. They use white horses, foreign companies and cross-border transactions, a combination of input VAT deduction and exempt supply at the output, fictitious transactions and invoices, significantly inflated prices and the inclusion of a genuine and honest company in the carousel.

Risks of VAT fraud

The ambition of this blog is to raise awareness of the risks of engaging in VAT fraud transactions and to provide tips to help avoid engaging in such illegal transactions. It is important to be aware of what the consequences of engaging in a set of fraudulent transactions may be, even if these transactions are not illegal in themselves:

• the right to deduct input VAT may be lost; or
• VAT may be due on supplies within the EU that were originally exempt, i.e. VAT-free, if the related transactions are fraudulent.

More on the bad news

The CJEU has ruled in several decisions that a claim for deduction may be refused if the taxable person was part of a chain in which VAT fraud was committed, if the taxable person actively participated in the fraud (even though he or she may not have directly benefited financially from it) or knew or should have known that the transactions carried out were part of the fraud.

In Case C-439/04 Axel Kittel, the Court of Justice developed the following algorithm applicable to tax fraud:

1. Proving the existence of tax evasion, i.e. that there has been tax evasion at some stage of the supply chain (the so-called objective test).
2. Proof of the objective fact that the taxpayer knew or should have known and could have known about the tax fraud (the so-called subjective test).
3. An assessment of whether the tax entity has taken reasonable steps to prevent its involvement in a possible tax fraud (the so-called Due Diligence test).

Under the objective test, fraud is proven. This may be the case where the supplier has failed to declare the supply on his tax return or has declared it but has deliberately failed to pay his tax liability. It also combines fictitious invoices, either directly with the taxable person under examination or as input invoices with his supplier.

The subjective test examines the active or passive involvement of the taxpayer in the fraud. An indication of knowledge is e.g. an unusually low price, a personal connection, a non-standard approach to the tax entity by the supplier, a non-existent legal or natural person, payment to an account in another country, etc.

The Due Diligence test then examines how the tax entity has verified the supplier and how it has responded to any indications of risk. Of course, the written documents proving the manner and extent of the verification before or during the transaction under review are particularly relevant in a tax audit.

The concept from the Axel Kittel case law has been adopted in other decisions of the CJEU as well as in the decision-making work of administrative courts in the Slovak Republic.

How does the tax office deal with fraud?

The CJEU has ruled in several cases concerning VAT fraud that:

• a taxable person who knew or should have known that he was involved in a fraudulent transaction by purchasing the goods may be refused the right to deduct the related input VAT;
• a taxable person who knew or should have known that the supply was part of a tax fraud committed by the buyer may be denied the right to exempt the intra-EU supply to that buyer.

The tax authorities shall apply the principles set out in those cases where they are satisfied, having regard to objective factors, that the taxable person knew or ought to have known that he was involved in a transaction involving VAT fraud and failed to take all reasonable steps within his power to prevent his own involvement in that fraud.

Risks for VAT-exempt supplies

A frequent finding in tax audits is that the taxpayer fails to prove the entitlement to VAT exemption. Especially critical is the situation when goods are supplied to another Member State and the supplier does not have sufficient evidence of the supply of goods with transport outside the Slovak Republic, or the customer does not acknowledge the supply in his own State.

A seemingly simple situation hides many aspects that need to be taken into account when claiming and documenting the exemption, such as. whether the transport is provided by the supplier, the customer or the postal company, whether the transport is carried out by the customer’s own means of transport, what documents are certified by the customer, how the contractual terms are agreed, how and when the customer’s VAT registration is checked.

A useful aid in setting up processes to eliminate the risks of non-recognition of exemption is the EU Regulation on the documentation of exemption, which sets out for each type of transport a set of documents that create a rebuttable presumption of proof of exemption, thus significantly narrowing the possibilities of the tax administrator to require more and more documents proving exemption.

Guarantee for tax to be paid by the supplier

The tax authority may require the taxable person to reimburse the tax that should have been paid by the supplier who supplied the goods or services to the taxable person, even if the invoice has been paid to the supplier. The institute of liability for tax arises in the following situations:

1. The delivery price is unreasonably high or low without economic justification.
2. The supplier and the tax entity/customer are related persons.
3. The delivery price was paid into an account other than the supplier’s bank account published on the website of the Financial Administration.

When defending against a possible recourse on the grounds of liability, it is important to have documents proving that the legal conditions for liability were not met at the time of delivery or payment, e.g. the price did not show signs of unreasonableness or the supplier’s bank account was published in the relevant lists of the Financial Administration of the Slovak Republic. Thus, it is not sufficient to carry out the verification alone, but it must also be documented and be able to be proven in the event of tax proceedings.

Final recommendations

For a successful long-term operation, it is advisable for the tax entity to know where its potential tax risks are. This includes, for example, an analysis of how the business operates in terms of tax and specifically VAT aspects. Subsequently, the identified weaknesses need to be eliminated by appropriate procedural or commercial-legal adjustments.

For example, in order to prevent VAT fraud and tax evasion, it is beneficial for the tax entity to set up and actually carry out and archive checks on its business partners. Business partner checks are also recommended for reasons other than tax, e.g. In order to eliminate the risk of non-payers and reputational risk.

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

Článok VAT risks or how bad things can happen to good people je zobrazený ako prvý na Highgate.

SMART watch for business

With SMART watches, it seems easy to argue for their use for the purposes of texting, time keeping, navigation and other functions that are practical for business. However, unlike a mobile phone, a watch feels more “private” and therefore, in the worst case scenario, the tax office may want you to prove that you only used it for business purposes. And at worst, it might want to show that you did not use it for private purposes (although it is relatively settled that no one can fairly be asked to prove the non-existence of a particular legal fact).

Luxury watches for business

With luxury watches, oddly enough, it can be easier. Here, though, it looks at first glance like a “representation”, which is not recognised as a tax expense by default. However, there are other types of “representation” that are recognised as a tax expense. Why can a superior office space (i.e., location, classification, or reception desk appearance) be recognized as a tax expense and a luxury watch not? After all, we don’t necessarily need both “representations” for business? However, the problem arises in how we can construct the argument that we are only using them for business purposes. Thus, while unique office spaces in themselves indicate their use only for business purposes, luxury watches do not automatically enjoy such an attribute.

Watches for business

Something extra must therefore be done to make them tax deductible. To give them the hallmark of corporate use. For example, get a safe for your office.

Photos from weddings of family and friends must exude a different watch. Don’t buy “ROLEXes.” With ROLEXs as standard, you can harden up in winter, go to the beach in summer, and the more expressive ones with their sleeves rolled up can imagine a Friday outing to a more student-oriented area in them. However, brands such as A. LANGE & SÖHNE or NOMOS Glashutte look much more authentic when worn exclusively for work purposes. And perhaps even as much as those office spaces.

Tax check watch on the company

However, a dispute with the tax office can take less pleasant forms. That is to say, the financial administration’s penalties are based on the amount of the ECB’s base interest rate, and these have already reached a threshold beyond which the penalties are higher than we have been used to for many years. In addition, there is the risk of taxation of the employee’s/statutor’s non-cash income, or the legal risks (including liability for private assets) associated with the deposit return institution. Either way, in the context of lower political (and therefore legal) predictability, this is another reason confirming how important it is to pay at least basic attention to prevention in the context of asset and business protection. For example, through the legal structuring of business and asset ownership.

I also dealt with a similar topic in my lecture “Paying for holidays with a company card” – what about the law and taxes?which is available on our website.

If you have any questions, feel free to contact me. For more of this information, subscribe to our newsletter.

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

Článok Can I put a luxury watch “in expenses”? 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.

VAT audits form the most extensive area of our representation in tax proceedings. In fact, VAT audits occur much more frequently than income tax audits (e.g. in connection with illegal tax optimizations). VAT is the main source of revenue for public budgets in Slovakia. It is the most profitable tax and only the income from social levies is more significant for the state. If we analyse the period of the last 10 years (cash methodology), VAT has on average a 44% share in the total tax revenues of the state. By comparison, corporate income tax only accounts for 18% of the state’s revenue.

The second reason for which it is possible to understand why the state places so much emphasis on VAT is the problem of the so called “VAT”. VAT tax loopholes. This loophole represents a kind of estimate of VAT evasion, as VAT ranks the state among the highest risk taxes in terms of tax evasion. The peak of inefficiency of VAT collection in Slovakia was in 2012, when the VAT tax gap reached 40% of the VAT collection potential. Today, the gap is much smaller, but still relevant. This is a relatively significant step forward, and this is also the reason why the state has decided to relax some of the institutes of the VAT Act (for example, the abolition of the mandatory security).

While one can generally agree with the dynamism and emphasis that the state has placed on VAT collection and related tax controls in recent years, this approach has its limits. And it seems that in many cases these limits have been exceeded, which should not be the case in a state governed by the rule of law. And it is up to the courts to be able to identify those limits reliably and consistently, in order to cultivate the much-needed legal certainty in the business environment. And it is our job as tax attorneys and tax advisors to sensibly inform the courts of these oversights by the tax authorities.

You can also find interesting facts from tax audits in our media outputs or articles or seminars. We often talk about this at our conferences (click here to link to conferences). However, we pay particular attention to interviews for Trend (Advocate: tax audits are often purposeful and absurd) or ( You should have known! How taxpayers hunt for healthy companies ) but the Economic Newspaper (Are tax audits still a problem even for honest companies?)

Článok VAT controls je zobrazený ako prvý na Highgate.

The topic of VAT and crypto is significantly profaned by the CJEU’s first crypto ruling in the Hedqvist case. Indeed, in the wider public, the crypto business is considered “not subject to VAT” precisely because of the aforementioned 2015 ruling. However, the field of crypto-assets is constantly changing and adding new and novel elements to its complexity. Thus, this decision cannot be applied to any crypt relationships in today’s widespread practical realities.

In our legal and tax and accounting practice alone, we have encountered several projects where such simplification is not an option at all. For example:

• ITOs with an investment component of issued tokens;
• STOs with a utility component of issued tokens;
• intermediation services provided by exchange platforms;
• mining crypto-assets;
• digital wallet services;
• supplies of goods/services paid for in the crypt.

And this is where VAT considerations can be key in deciding on the structure or jurisdiction of a particular project. Just for a traditional issue of so-called “VAT”, the VAT rules may also be a factor in the decision-making process. In the case of utility tokens sold at a price higher than the real value of the service/good in question (i.e. utility), an incorrectly set up VAT regime of issuance can have fatal effects on the feasibility/profitability of the project.

The lecture was also attended by representatives of the Financial Administration and the Ministry of Finance of the Slovak Republic, which inevitably increased the legitimacy of the lecture’s outputs. VAT is an area that is highly harmonised by European Union law. Therefore, any outcomes or conclusions on the topic can be seen as applicable in other jurisdictions of the European Union.

There is no recording available of the lecture in question. However, if you have any questions, please do not hesitate to contact us.

Článok Peter Varga lectured on crypt and VAT at the Slovak Chamber of Tax Advisors je zobrazený ako prvý na Highgate.