Tax Stories podcast

Ronny Langer (KMLZ) on his Tier 1 VAT boutique

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40:53
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VAT & Customs boutique

Ronny was modest to relate this great achievement to a lack of competition (at least initially). He was also inspired at the beginning by the UK consultants who said that about 40% of their work is in VAT advice. 

More VAT than management 

Despite the company management duties Ronny still does client work ca 50-60% of his time. Being in a good shape technically gets the clients’ trust. For the business the international expert groups are also important, like VAT Europe network of friends and participation in the VAT expert group with the European Commission. 

Predictions

It was an interesting story how Ronny started to work with VAT – by a chance, like many things happen in our lives. His predictions are that there will be no major changes to the VAT system, also the US will not adopt VAT most likely, and that IT impact in the firm will grow until it’s about 50/50 IT and tax firm. Ronny sees some good IT development also with the tax authorities in Europe, like real time reporting, e-invoicing, but not in Germany. Because of Covid-19 Ronny is working from home already for some 15 months, and many colleagues have become more efficient, because of the time saved for daily travelling, so flexible home offices might stay. 

Let’s go criminal

In Germany it is very easy to end up with criminal proceedings regarding a tax offence. For example, if there is a VAT return amendment for above EUR 5k a special unit of criminal investigations decides if it is worth opening criminal proceedings against the management of a firm, even if they just made a mistake, not committed a fraud. For large companies it’s very easy to exceed the thresholds. For example, it took KMLZ some 4-5 years to get the criminal charges dropped where the management of a client just made a mistake. Therefore companies in Germany are paying careful attention to VAT issues. So, during the last years companies have invested heavily into the tax risk assessments and compliance procedures, that is now often digitalised. We also discussed an aftermath and bugs of the new VAT system for e-commerce effective as of 1 July 2021. But overall Ronny was sceptical about any changes to the system that could prevent the fraudsters from doing their stuff. 

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    For many years both, Dr. Hannes Gurtner and Dr. Clemens Nowotny are tax partners of a leading tax firm in Austria and CEE – LeitnerLeitner. Hannes is specialised on VAT, but Clemens – on international tax, although both are auditors as well. Social media, reading, direct contactWe started the conversation about LinkedIn and social media at all – Hannes is not there, because he rather prefers a personal contact. This seems to be a luxury Hannes enjoys – not to check the screens every 5 minutes and dedicate time to the family. It’s an interesting approach – reading mostly technical literature, no focus on social media, just client direct relations. I recently read in a book by a psychologist that this nowadays becomes a privilege of strong personalities, but a correct one – to set borders between work and personal life. Teaching as an artNot only both love teaching, but Hannes compared it to an entertainment, almost like an artist on a stage. One can feel how much both enjoy their profession and do it with all their hearts. Why Austria is 14th richest country?It was revealing to learn that many high net worth individuals move to live in Austria. Clemens well describes – why and is it because of the tax system. In Austria the highest personal income tax bracket is above EUR 60k – 50%; > 1m – 55%. Salaries average from 4k to 17k. Clemens explained why this high tax did not create an emigration of the best brain from Austria, but had quite an opposite effect. SchumpeterWe also spoke of Mr. Schumpeter – the Austrian Minister of Finance a century ago. A column in the Economist is named by him. He’s been praised as a champion of innovation and entrepreneurship. We touched upon – could he have an impact on the current tax system in Austria. Also - Wikipedia says Austria is the 14th richest country in terms of GDP per capita – is it partially because of the tax system?1896 tax reformAustria had a tax reform in 1896. There was a high distrust in the system & evasion before the reform. “It was the high rates that dug the grave for the Austrian tax morale.” The reform introduced the ability-to-pay principle; lowered taxes on businesses and real estate, commissions by taxpayers – intermediaries between taxpayers and authorities; stricter penalties (3x –> 9x), more rights by taxpayers to defend and reach a fair result. The reform lasted for 15 years, with a substantial increase of taxes collected. Some authors say it was a break-though in the Austrian tax system. One taka-away might be that politicians are looking for short term results (3-4 years), whereas tax policy should be a long term play. VAT fraud still killing the economyIn many CEE countries the tax authorities more often attack exporters rights to apply 0% VAT on the sales, based on the murky answers by the foreign buyer to their tax authorities – we discussed with Hannes - could these attacks ever end, e.g. with the new VAT system approaching soon in the EU? He admits that it kills the economy that 0.1% fraudsters cause the authorities to scrutinise 99.9% of the others with heavy compliance burden. Hannes rather sees technology advancement as a solution, but it needs a unified approach. 
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    Meir Linzen (Herzog, Fox & Neeman) - How can I pay 23% while my secretary – 40%?

    35:57

    Mair Linzen manages to chair both the largest law firm of Israel (Herzog, Fox & Neeman) and its best tax practice, as recognised by many independent reviews. Links with LatviaWe started the conversation with a fact that not many in Israel now the Baltic states and Latvia, but there is a lot in common. Meir’s spouse is from Latvia and he told about a lot of significant connections between those two countries – it was a miracle how a person with Latvian origins helped to preserve Hebrew language, for example. Also, Latvian chocolate factory Laima belonged to a Jewish family before the World War. The government forced them to sell Laima and with that money the family established a similar factory in Israel – so their chocolate to a large extent has Latvian roots. Musician Mischa Maisky was born in Riga, and there are some good examples of Israeli politicians with the Latvian roots. For your reading tableMeir has an extensive variety of interests besides the work – reading (non-fiction, especially on history), classical music, travelling. For your reading table Meir suggested Israeli writers Amos Oz, and two Nobel Prize winners in literature - Shmuel Agnon and Isaac Bashevis Singer.Immigration boost to the economyWhen about 1 million people came from the ex-Soviet Union when it collapsed many thought it will destroy the economy of Israel, but quite the opposite happened. Now the IT sector is booming to a large extent thanks to the 2nd generation of those immigrants. Tax storyThe tax story this time has a funny element – will not spoil the fun – you have to listen to it for yourself. How fair is progressive income taxWe also discussed how fair is the progressive income taxation. Meir kindly shared his view that the more educated and paid have a certain responsibility for the less well paid. Also in the times like with the Covid-19 crisis the governments took most of the burden. In times like that the less educated are also less protected, have less choices. He explained this moral responsibility through his own example – professionals may work through a company and pay 23% on dividends, while the secretary would pay 35-40%. Thus Meir chose to work as an individual and pay 50% tax. Any country needs a well-functioning government, state defence, health-care and education systems. The balance of the progressive income taxation is that there is a rule of thumb that people should be left with at least 50% of their income. On meaningful tax incentivesPost-war Seoul built a part of the city by granting tax incentives for moving there. Meir mentioned some examples of tax incentives in Israel that can impact behaviour – for those living in the periphery, for technological companies, big US multinationals that have presence in Israel pay only 4% of corporate tax. Cat and mouse game will go onMeir predicts that despite the latest transparency and fair taxation initiatives people and businesses will use their rights to pay as little tax as the law permits, with a help of creative tax lawyers. For the quality tax lawyers any structure so far already went hand in hand with its economic substance – in that sense the latest OECD initiatives are nothing new. 

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