Unlocking Baltic Tax Secrets: Insights From a Seasoned Practitioner

In a recent episode of a riveting tax-focused podcast, a seasoned expert from Latvia, Jānis Taukačs, dives deep into the tax landscape of the Baltic region. He not only sheds light on the region’s tax priorities but also shares his remarkable journey through the intricate world of taxation.

The podcast is crafted to enlighten listeners about pressing issues in international taxation.

David D. Stewart: Welcome aboard! I’m David Stewart, the editor in chief of a leading tax publication, and today we’re taking you on an exciting journey to the Baltics.

At the end of October, our podcast crew ventured all the way to Cape Town, South Africa, for the Annual Congress of the International Fiscal Association. During this trip, we not only recorded interviews but also managed to capture the delightful sounds of penguins at Boulders Beach! You can savor those unique moments in our previous episodes.

This week, we’re thrilled to feature Jānis Taukačs, a partner at Sorainen, located in the heart of Riga, Latvia. Our engaging discussion revolves around the critical tax priorities shaping the Baltic states and Jānis’s inspiring career in the tax field. Quick heads-up: since we recorded this outside the studio, you might notice a slight difference in audio quality.

Let’s dive right into that engaging conversation!

Jānis, welcome to the podcast!

Jānis Taukačs: Thank you! It’s a real privilege to be here.

David D. Stewart: Let’s kick things off by discussing the taxation issues that are pivotal in the Baltic region.

Jānis Taukačs: At the moment, the pressing concerns extend beyond taxation itself; they’re deeply entwined with the geopolitical landscape, especially our neighbor to the east. If you look at the Latvia-Russia border, the military presence has drastically shifted, with many troops now focused on the conflicts in Ukraine. This shift undeniably influences investment flows into our region.

From a taxation standpoint, however, the Baltics remain a highly appealing option. We are nimble, adapting swiftly to global tax developments. The digitalization of our tax processes allows for rapid electronic submissions of declarations.

When you check out the latest tax system rankings, you’ll find the Baltic states shining brightly—Estonia ranks first, Latvia second, and Lithuania follows closely in fifth. Our tax systems are proving to be incredibly favorable for businesses.

I recently advised the finance minister on a tax reform initiative, and the consensus was clear: Latvia’s corporate tax regime is so attractive that most of the proposed changes were minimal. Notably, companies in both Estonia and Latvia are only taxed on profits when distributed, allowing them to reinvest their earnings without incurring immediate tax burdens.

David D. Stewart: What other features make these tax systems appealing for businesses?

Jānis Taukačs: Our expertise in the IT sector is a significant draw. We have a wealth of talented IT engineers, which has attracted substantial American investments in this area. Clients leverage our corporate income tax regime and benefit from special provisions surrounding share options, free economic zones, and other incentives. However, I believe the real standout factor is our skilled and adaptable workforce, which often outweighs tax incentives.

David D. Stewart: You’ve mentioned the thriving IT sector, which is a hot topic globally, especially with the OECD’s initiatives on taxing the digital economy. How are the Baltic states responding to these changes?

Jānis Taukačs: This is indeed a pressing issue everywhere. The entire EU needs to implement the OECD’s Pillar 2, and the Baltics are no exception. In Latvia, we have only a handful of companies that meet the €750 million threshold. Fortunately, there’s a transitional period that extends until 2030, providing us some breathing room.

As for digital services taxation, I suspect no significant changes will occur since we prioritize maintaining strong ties with the U.S. and NATO, which should keep our tax landscape stable for American investors.

David D. Stewart: You mentioned a recent review of Latvia’s tax reforms. While immediate changes may not be necessary, what are the long-term strategies to ensure the competitiveness of this tax system?

Jānis Taukačs: There’s a clear intent to protect our attractive corporate income tax framework. Discussions around payroll taxation are ongoing, focusing on reducing tax burdens for lower-income workers. The reforms aim to ensure a level playing field across the Baltic states, making it easier for everyone to thrive.

David D. Stewart: Are there any notable tensions between taxpayers and the tax authority?

Jānis Taukačs: We’ve recently appointed a new general director who is eager to foster a business-friendly environment. Both Latvia and Estonia are committed to implementing digital solutions to support businesses, recognizing that our small economies rely heavily on foreign investment. While tax disputes are inevitable, our current landscape seems comparably smooth relative to other countries.

David D. Stewart: Switching gears, I’m intrigued by your personal journey within the world of tax. What led you to this specialized field?

Jānis Taukačs: Surprisingly, my path is quite common among my peers. After finishing law school, I aimed for an international career and stumbled upon a job opening at one of the Big Four firms. I applied, got hired, and that’s where my tax journey began! Over the past 30 years, I’ve learned everything through practice rather than formal education.

David D. Stewart: What does your daily work entail?

Jānis Taukačs: As the largest law firm in the Baltic states, we’re a full-service operation. Our work encompasses everything from disputes, customs issues, transfer pricing, and M&A deals to VAT, which is currently a hot topic. My role involves managing our tax practice, a task I’ve been dedicated to for over two decades.

David D. Stewart: With such a busy schedule, it’s impressive that you’re also pursuing outside projects. I understand you run a Substack?

Jānis Taukačs: Yes, I do! It’s a passion of mine. I wake up at 5 a.m. and dedicate time to writing—whether it’s a blog or even a legal thriller. This pursuit has opened new doors for me, especially with my podcast.

David D. Stewart: I can’t let that slide! Tell us more about your book!

Jānis Taukačs: The idea’s been brewing for about five years. I’m weaving real-life tax fraud cases into a compelling narrative. One particularly shocking case involving bribery within tax authorities has inspired me greatly. I’m working with a writing coach from Scotland to help bring this plot to life.

David D. Stewart: Now, let’s circle back to your podcast. What’s its focus?

Jānis Taukačs: The podcast emerged during the COVID-19 pandemic. I’ve long followed my marketing guru, Seth Godin, and participated in his podcasting workshop. It was a game-changer! I’ve had the pleasure of interviewing fascinating individuals, including a former tax partner from a leading law firm who pivoted to become a leadership coach. The stories I’ve encountered are incredibly inspiring.

David D. Stewart: Who has been the most intriguing guest so far?

Jānis Taukačs: Bill Browder stands out as a particularly captivating guest, especially given the relevance of his experiences with the Magnitsky case in today’s geopolitical climate. I also had the privilege of conversing with Pascal Saint-Amans, the former head of OECD tax policy, among many others. I’m less focused on big names and more interested in compelling stories, regardless of the individual’s status.

David D. Stewart: For anyone unfamiliar with the Magnitsky story, we’ll share a link in the show notes to a detailed account—it’s an eye-opening narrative. Bill Browder has worked tirelessly to drive awareness surrounding his representative’s tragic fate in Russia.

Jānis Taukačs: Yes, and similar situations persist in regions like Russia and Belarus. A close friend of mine, a prominent tax lawyer in Belarus, faced persecution and narrowly escaped imprisonment, now seeking asylum in Poland. This reality underscores ongoing struggles worldwide.

David D. Stewart: Is there a dream guest you hope to have on your podcast one day?

Jānis Taukačs: Absolutely! I’d love to interview John Grisham, Seth Godin, and Dan Nadel from the UK—all inspiring figures I admire. I hope to connect with them someday!

David D. Stewart: That would be an amazing lineup! Thank you for sharing your insights and stories with us today. It’s been a truly enriching conversation.

Jānis Taukačs: Thank you for the invitation! It’s been a pleasure.