Interview with Joanna Stawowska, Tax & Legal Leader, Deloitte Central Europe
What is the most significant change to your region/jurisdiction’s tax legislation or regulations in the past 12 months?
One area that I would like to highlight is the advanced digitalization of taxes in many Central European jurisdictions. For example, currently, in Poland, most of the taxes, including SAF-T files, are reported to the tax authorities via electronic means. Romania has just introduced SAF-T filing, e-invoicing, and e-transport. E-invoicing has also recently been implemented in Serbia, along with e-fiscalization that kicked off this year, while in Hungary this solution has already been available for several years.
Apart from digitalization, there were several changes to the tax regimes in jurisdictions across Central Europe which impacted companies with operations in the region. In Hungary, several new special taxes were implemented in specific sectors, such as banking, insurance, aviation operation, retail, and energy. To further advance research and development (R&D), Serbia implemented a very generous salary tax incentive scheme aimed at individuals engaged in R&D activities. 2022 has been a year of significant changes to the entire Polish tax law system, as legislators introduced a package of changes (called the Polish Deal), impacting business and individual taxation alike.
What has been the most significant impact of that change?
Digitalization means a switch from paper to e-filing, which often leads to redefining the compliance and reporting processes of the companies and increases the demand for tax technology projects and resources.
The newly introduced taxes in Hungary, some of which were even introduced with retrospective effect, were burdensome for companies in the mentioned sectors (sectors mentioned in point 1). The business plans of many companies had to be amended.
The complex changes to the Polish tax system created for both multinational capital groups operating in Poland and Polish entities not only require additional compliance obligations but also a need to plan well in advance on how to protect themselves from a potential transitional impact on their cash flow and how to compensate for additional tax costs.
How do you anticipate that change impacting your work and the market moving forwards?
The recent tax law changes have created a significant shift from traditional tax advisory to tax technology advisory and tools. This requires entirely new competencies—technology and business advisory skills are at the top of the list. This new environment has also created an opportunity for tax advisers to offer more complex support in tax compliance processes, including outsourcing support, as well as the development of tax tools to address these needs.
The changes in Hungary and Serbia were implemented with little or no notice, and there were a lot of interpretation questions. As a result, clients needed more support from tax advisers. The Polish Deal also created a number of uncertainties and led to an additional flow of projects related to supporting clients in adopting the new regulations.
How has this changed the way you offer tax advice?
In Romania and Serbia, it was crucial to offer not only advice regarding the interpretation of the new regulations but also to provide tools and technology solutions that support compliance processes and allow the transfer of data to tax authorities in a revised format.
In addition, the complex changes in Hungary and Poland have broadened the scope of our (Tax consultants) tax advice, as we (advisers) strive to alleviate the impact of the new rules on our clients by assisting them in advance planning of a secure and effective approach. For example, apart from the usual advice on the withholding tax (WHT) process, we assist our clients in applying for WHT advance opinions and, in some cases, in vetting the conditions for an exemption. This means that the tax advisory work related to, e.g., WHT obligations, starts much earlier than before, sometimes at the stage of designing intra-group payment flows.
What potential other legislative/regulatory changes are on the horizon that you think will have a big impact on your region/jurisdiction?
Further digitalization is expected, for example, the introduction of structured invoices in Poland in 2024, and the extension of digitalization to all taxpayers in Romania (from just the big ones in the initial stage). In Serbia, e-invoicing will become fully mandatory for business-to-business as of January 2023, and the digitalization of delivery notes is also on the horizon in the next 2-3 years.
At the beginning of next year, the e-VAT return will be implemented in Hungary and will result in companies having to increase their internal controls to be very precise when reporting.
In many of the Central European jurisdictions, we expect the implementation of several European Union (EU) directives, namely OECD Pillar II—global minimum tax rules—and the EU directive regarding minimum substance requirements.
Newly revised transfer pricing rules will be introduced in Hungary, determining how tax authorities will audit companies and the penalties for non-compliance.
The introduction of the windfall tax covering the electricity, oil and gas, and banking sectors are expected next year in the Czech Republic. According to recent media reports, a windfall tax is also being planned by Polish legislators with a much more extensive scope than the one discussed at the EU level.
What are the potential outcomes that might occur if those changes are implemented?
Further digitalization of taxes will, once again, significantly impact the compliance processes and might require upgrading technology systems (ERP) or using additional tools.
In general, companies will have to cope with more taxes, adapt their internal processes, and face higher administrative burdens.
Do you think that change will have a positive effect on both your practice and the wider regional/jurisdictional market?
The enhanced digitalization of reporting represents an opportunity for tax advisory business as we have the capacity to assist our clients in both regulatory and technical aspects while also relying on the Deloitte network’s experience and resources.
On the other hand, I believe that any increase in taxes does not have a major positive effect on the market. Today's difficult economic situation in Europe, however, calls for certain measures.
It has been widely discussed that the implementation of the EU directive Pillar II – global minimum tax rules, might have a negative impact on tax support for research and development or investment incentives, which are popular tax instruments in many countries.
If windfall taxes become applicable, they will pose a great challenge to both the taxpayers and their tax advisers to assist clients in compliance with an ever-increasing number of tax burdens and resulting compliance obligations.
Are there any regulatory/legislative changes you believe should be implemented in your jurisdiction?
I see an opportunity for improvement in focusing not only on particular changes to the tax law systems but also on the quality of the legislative process and the stability of the tax systems. The dialogue between legislators, tax law practitioners, and businesses has an important role in that.
How do you believe those changes would help improve the tax landscape in your market?
As mentioned above, the quality of the legislative processes and the stability of the tax systems are key for developing the markets, attracting investors, and creating new jobs. New rules introduced with no notice period, sometimes even with retrospective effect, don’t support the development of the business environment.
How are issues surrounding the taxation of the digital economy affecting your work?
In Poland, currently, only video-on-demand (VOD) platform operators (such as Netflix) need to pay 1.5% tax from the subscriber’s fee. When the digital tax will be introduced and regulations are known, we will need to address it. In Hungary, the advertisement tax is aimed at targeting the digital economy. It will provide more advisory work as there are a lot of interpretation problems.
The Czech Ministry of Finance considered the introduction of a digital tax in the past. However, this plan was eventually withdrawn and replaced by the expected implementation of the Pillar II Directive. Furthermore, as of 1 January 2023, a new notification obligation will apply to all the operators of internet platforms that allow sellers to offer and sell goods and selected services via their web interface (implementation of the EU DAC 7 Directive).
How would you describe the tax authorities’ approach in your region/jurisdiction?
The tax authorities’ approach differs in individual jurisdictions. For example, the Czech financial authorities have a strong focus on transfer pricing, R&D deductions, and intra-group restructurings. The Polish tax authorities tend to apply a strict approach as well, which is becoming increasingly apparent in terms of tax audits. Statistically, the authorities have initiated fewer tax audit proceedings than in the previous years, yet the average amount of additional tax liabilities determined during tax audits have increased. In Hungary, tax litigation is decreasing as there are fewer problematic topics with the tax authorities. Recently, the authorities have taken a stricter approach to transfer pricing, and that is the area creating more tax litigation.
In other Central European countries, the tax authorities are primarily focused on formal, easily verifiable requirements and rather uncomplicated findings. However, there is also an increased focus on transfer pricing and intra-group restructurings.
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