5th May 2016

11th AmCham Regional Tax Conference - summary of debate: Balance is the key.

On May 5, 2016 the 11th AmCham Regional Tax Conference took place in Bratislava, Slovakia. Representatives of V4 countries’ (Visegrad Four: the Czech Republic, Hungary, Poland and Slovakia) governments and businesses, as well as OECD and EU experts discussed current tax issues and plans in the region.

Dana Meager, State Secretary of the Slovak Ministry of Finance expects 3.2% growth in Slovakia in 2016 despite worsening environment. The structure of growth will be balanced and focus will be on activities with higher added value. The Government manifesto draft includes, among others, reduction of income tax rate to 21%, or shifting tax return submission date to April. Slovakia supports EU-compliant implementation of BEPS.

President of AmCham Slovakia Todd Bradshow pointed out that out of V4 countries only the Czech Rep and Slovakia has no CFC rules. But it is not a question of “If”, but a question of “when”. Interesting phenomenon in this part of the world is that taxing labour is much higher than taxing profits.

Alena Schillerova, Deputy Finance Minister of the Czech Republic mentioned the fact that labor costs have been rising and the question is how far this will affect investors’ decisions. The 19% corporate income tax rate is low, compared with other EU member states, and there is no political pressure in the Czech Republic that would push the rate up. As for the future, there are no plans to increase the corporate income tax rate. The aim of the Ministry is to fight tax evasion, primarily in the field of indirect taxes. The plan is to improve tax collection rather than increase tax rates, write a brand new income tax act, also integrate the collection of taxes and social security payments. 

Zoltán Pankúcsi, State Secretary for Taxation at the Hungarian Ministry of the National Economy said the government is thinking about one digit rate for personal income tax. Currently, the effective corporate income tax rate for large companies is 8% (nominal rates are 10%, 19%), for large manufacturing companies 6%. The plan is to introduce one rate somewhere between 10 and 19% (closer to the current 10% rate); the effective tax rate will be even lower.

Cezary Krysiak, Director of Tax Policy Department of the Polish Ministry of Finance said the government plans to introduce new tax rate of 15% for small tax payers (income below of 1.2milEUR) and wants to merge tax and customs administrations.


More detailed expert debate - a short summary of some issues discussed:

As for the issue of taxing labor, the expets agreed that the problem is linked to the pension systems in the region and how they are financed. The problem is not how to transform tax system, but how to finance social security. Everybody agrees that it should be changed, but so far there is no best solution.

Talking about frequent changes in the tax legislation and about making V4 countries more attractive for investors by making their tax law, systems simpler, there was a note by Will Morris, AmCham EU’s Tax Committee Chair, that tax is not simple. Zoltán Pankúcsi of the Hungarian Finance Ministry admitted that changes in tax law are often fine tunings. Taxes are a living system. But often the fine tunings benefit the business community. It is about finding the balance; we are making too many changes and we are trying to slow down, he admitted.

In the discussion about OECD’s anti- Base Erosion and Profit Shifting BEPS measures and EU’s Anti-Tax Avoidance Directive ATAD, Will Morris of the AmCham EU said there is a good reason to have CFC rules, but no good reason to have bad CFC rules – and that is where we are getting. Robert Maccafferty of Flex, representative of the business community, noted that BEPS are not all bad news, as it gives opportunity to create synergies in transfer pricing, for example.

As for CFC rules, in Poland the rules have been effective since 2015. Effects are not clear yet, as first filings will be submitted at the end of September 2016, C.Krysiak of the Polich Finance Ministry said. CFC in Poland does not relate to BEPS, it was a „local idea“. CFC rules in Poland apply also to individual shareholders. EU does not go that far.

V4 countries are competing for investment and have to figure out how they can comply with BEPS without jeopardizing foreign investment. The Government is very cautious and works with the business community, said Tibor Palszabo, Tax Partner EY, AmCham Hungary.

Another issue discussed were tax rulings/interpretations of tax law. In Hungary, any tax and accounting question can be asked. 17,000EUR is a basic price and there are approximately 500-600 rulings issued by the tax administration per year. In Poland, the fee for issuance of a tax ruling is 10EUR; the service is very popular among tax payers and the administration issues 35,000 rulings per year. There are five offices to handle the agenda. The service is meant as a form of protection and the aim is to avoid solving a company’s individual taxation problem. In this way, we can address some issues in the tax system in advance. The tax dispute sometimes shifts from the real tax cases towards the rulings where your have hypothetical situations, said C.Krysiak of the Polish Finance Ministry. Slovakia so far has zero rulings for transactions. The main concern is the administration of rulings, said Tomáš Balco, General State Counsel at the Slovak Ministry of Finance. Romero Tavares, researcher and lecturer at the Global Tax Policy Center, Vienna University of Business and Economics suggested that tax rulings on CFC, ATAD, BEPS might be the key to success of the new rules. V4 countries could cooperate more and share best practices, connect the rulings.

Still, companies are concerned that if, under the new rules, information are shared among states, businesses will lose competitive advantage. Will Morris of the AmCham EU added that it could be too much information for governments to handle; countries already have problems to deal with all the data they possess.

Also, Tomáš Balco of the Slovak Finance Ministry talked about EU Tax Outlook in the light of the Slovak Presidency of the Council of the European Union. The Slovak presidency Tax agenda will be influenced by

  • Global developments (secret bank accounts/ undeclared income, Lux Leaks, Multinationals paying little or no taxes - BEPS, Panama Leaks – tax advisers, intermediaries, beneficial ownership registers).
  • Leftovers: Interest-Royalty Directive (relevance of Patent Box, Outbound Payments), Code of Conduct (e.g. criteria for harmful behavior of governments), Anti-Tax Avoidance Package ATAP (BEPS, Public disclosure issues added after Panama Leaks, Common external strategy – defining rules for putting countries on a black list).
  • New issues: Dispute Resolution (elimination of double taxation, possibility to establish a special judicial body), Re-launch of CC(C)TB proposal, Public country-by-country reporting (NGOs, public access to information) and more.

More details about the conference are available here.

Members of the American Chamber of Commerce in the Czech Republic