David D. Stewart: Welcome to the podcast. I'm David Stewart, editor in chief of Tax Notes Today International. This week: A view from the Baltics.

At the end of October, the podcast team traveled to Cape Town, South Africa, for the International Fiscal Association Annual Congress. While there, we recorded several interviews, as well as the penguins at Boulders Beach, which you heard at the beginning of the episode. We've been releasing these interviews over the past month, and you can find the other episodes in the show notes.

This week's episode features Jānis Taukačs, a partner at Sorainen in Riga, Latvia. Our discussion focuses on the tax priorities of the Baltic region and on Jānis's career in tax. And one note before we get to the interview, since we had to leave the studio for this, the audio may sound a bit different than our usual interviews.

All right, let's go to that interview.

Jānis, welcome to the podcast.

Jānis Taukačs: Thank you. I'm very honored to be here.

David D. Stewart: Why don't we start off with talking about the issues of taxation that are most important in the Baltic region?

Jānis Taukačs: Unfortunately, the current issue is not so much related to taxation. It's more geopolitical situation, the neighbor we are having next to us. But currently I would say that if you look at the border between Latvia and Russia, then there has always been a lot of military presence on the Russian side. Now there is nobody, so everybody's in Ukraine, so of course this impacts the volume of investments coming in. But from the taxation perspective, I would say Baltics are fairly attractive because they are small, adapting very quickly to the modern tax developments around the world. Very digitalized, the tax declarations can be submitted electronically very quickly.

If you look at the latest charts on the tax system rankings, then the Baltic states, all three Baltic states, are very high on those charts. So, quite recently there was one by Tax Foundation — Estonia was first, Latvia was second, Lithuania was fifth. Basically, all three Baltic states are doing really well from the tax perspective.

And I was advising the minister of finance with our tax reform quite recently and, basically, there were no major changes that we should make at the end of the day in Latvia as a result of their form. They made certain changes regarding the payroll taxation, but nothing dramatic. I think the corporate tax regime that we are having, that's really attractive for companies because companies don't pay corporate tax until distribution of profits. Both Estonia and Latvia, we have this very interesting regime and because of that, many companies are reinvesting their profits to their business without any corporate tax applicable.

David D. Stewart: Are there other features of these tax systems that are attractive to business?

Jānis Taukačs: Well, I would say we are very knowledgeable on IT sector. We have a lot of IT engineers, and for that reason there are lot of American investments coming to that particular sector, I would say. That's what I have seen from my clients and for that reason they are utilizing this corporate income tax regime. They are utilizing, there are special features regarding share options. There are different possibilities regarding free economic zones and also definitely there are other minor possibilities. But I would say overall it's the skill and attitude of the labor force that would be even more important than the tax investment scheme or tax investment climate.

David D. Stewart: You mentioned a large amount of IT sector, and that is an area that's posing a problem for a lot of countries right now, where we have the OECD project on taxation of the digital economy. What has been the regional reaction or response to the two pillars? Is this something that fits within the tax regimes that they have?

Jānis Taukačs: Definitely, that's a big headache everywhere because the whole European Union needs to implement pillar 2, and Baltic states are no exception. But on the other hand, Baltic states, for example, Latvia has only, I think, five or six companies which qualify for this €750 million threshold as the headquarters. But for that reason we have extension period, transitional period until, I think, it's 2030?

Regarding digital service taxation, I'm sure nothing will happen because we are part of NATO and we want to preserve good relations with the U.S. And then for that reason I think politically nothing will change in that respect also regarding the U.S. investments there.

David D. Stewart: Now, you said in Latvia there was a tax reform review. There's nothing to do immediately, but are there any sort of long-term goals of things that would need to be implemented to keep this competitive tax system in place?

Jānis Taukačs: Well it's clear they want to preserve this attractive corporate income tax system, and then there was even no debate that this will stay for a long time. And the major focus was on somehow making this labor force, which is low-paid labor force until a couple of thousand euros per month, then how to decrease the taxation level on payroll for those persons working, then maybe counting every euro that they are receiving. And they achieved that aim through the reform. And from that perspective, now the playing field is pretty even in all the Baltic states.

David D. Stewart: Are there any areas of friction between taxpayers and the tax authority?

Jānis Taukačs: Actually, we have a new general director. I actually had [the] general director of Latvia and general director of Estonia on my podcast. So we were discussing that they are both very keen to be as business-friendly as possible, so they want to implement all sorts of digital globalization possibilities, and they understand that these small economies are really depending on foreign investment and also on the exporting companies. And for that reason they do whatever it takes to be as friendly as possible. But I would say there are tax disputes, of course, but they're everywhere. But currently I don't see anything special about our tax dispute arena comparing to the other countries.

David D. Stewart: Now, you mentioned your podcast, which sort of brings me to the other reason why we wanted to talk to you today, which is to learn a bit about you because we found you to be a fascinating practitioner in the world of tax. But just to set the scene, I do like to ask everyone whenever I get a chance, how did you end up in tax?

Jānis Taukačs: I'm asking the same question also to some of my podcast guests as well. And I have to say that I have a pretty similar story to the other guests as well. So basically, I finished the law school and then I understood I want to do something international and then I just saw an advertisement by one of the Big Four audit firms, and I applied and then I got hired. So as simple as that. And from that moment I just started to learn about tax. I started to learn about customs, and I was a customs practitioner at that moment and developed into taxation. And now it's what I have been doing for 30 years. So everything I've learned I've learned from the practice, I would say, not from school.

David D. Stewart: All right. What are you doing on a daily basis? What sort of client work are you engaged in?

Jānis Taukačs: We are largest law firm in the Baltic states, so we are full-service firm. So we are doing anything that is necessary for the clients. We have a lot of disputes, as you can imagine. We have a lot of customs issues, transfer pricing, M&A deals — you name it. VAT is very high right now on the agenda, and we try to have specialists in every single area of these different kinds of specialization needs. And I'm trying to manage that tax practice. I've been doing this for more than 20 years now.

David D. Stewart: Given all of your day-to-day responsibilities, I find it fascinating that you've decided to take on a significant amount of outside work. I understand you have a substack that you run?

Jānis Taukačs: I do, yeah.

David D. Stewart: What do you do on there?

Jānis Taukačs: That's sort of one of my hobbies, just so I am waking up quite early, 5 a.m. in the morning, and then the first thing I do, I try to write something, either that's a blog or I'm writing a book, legal/tax-thriller. So it's another hobby I have. And these podcasts have been a big revelation for me as well. So these all are like, I can say that these are my hobbies, let's say.

David D. Stewart: All right, we will get to the podcast, but I can't let that pass without asking you about your book. Can you tell me more about this?

Jānis Taukačs: The idea has been in my mind for some five years already. I'm compiling real-life tax fraud cases, and I'm trying to mix this into a story. There has been a very harsh case for one of my clients that has been biggest inspiration for the story, regarding the bribing within the tax authorities and quite nasty things related to that. But I'm developing this as a story developing throughout the world, and then I just hired a writing coach from Scotland to help me with a plot. So it's been developing nicely.

David D. Stewart: OK. Let's now talk about your podcast. Could you tell me about that?

Jānis Taukačs: Well, yeah, it's a side effect from COVID times, I should say. I've been following for many years my marketing guru, so to say, Seth Godin, and I attended one of his workshops. Initially, there was a creativity workshop, and then afterwards I saw his podcasting workshop. So I did that as well. And then I met, in the podcasting workshop, interesting people. And one of them was one my first persons who I was interviewing. And that's a fascinating story about a guy from Cyprus who was tax partner of the leading Cyprus law firm. And he quit his job and did something completely different: He wrote a book about happiness. He's a sort of leadership coach. And these kind of stories are so inspiring — that life could be open to anything in the world. And you meet those people; that's really fascinating.

David D. Stewart: Absolutely. And who has been the most interesting guest that you've had on your podcast?

Jānis Taukačs: Well, I would say Bill Browder was one of the most interesting, definitely, and very relevant in today's geopolitical situation with his story about Magnitsky case in Russia. If somebody has not heard, this is really important story to hear about and understand what's going on in Russia. But I would say definitely one of the highlights was the former head of OECD tax policy, Pascal Saint-Amans, absolutely amazing person, and many more. But I don't focus on some big names only. I want to hear the story of the person, and if I am fascinated by the story, then it could be anybody. It could be a person on the street.

David D. Stewart: Yeah, absolutely. And for listeners that want to become familiar with the Magnitsky story, we actually can link in the show notes to a news story I wrote many years ago when I was a reporter. It's a fascinating and horrifying story. Bill Browder has been doing a lot of work to try and raise awareness of what happened to his representative in Moscow.

Jānis Taukačs: Yeah. And those things are still going on in Russia, in Belarus. For example, recently one of my friends who is one of the leading tax lawyers in Belarus, he was put into prison in Belarus for no reason, and he miraculously escaped from that prison and then went to live in Poland and asked for political asylum there. So he's now a political refugee in Poland. So basically, this is still going on.

David D. Stewart: Now, is there any guest that you just really would like to get at this point? Is there somebody that you'd love to be able to talk to on your podcast?

Jānis Taukačs: Oh yeah, definitely, many. My wish list is John Grisham, of course. My wish list is Seth Godin. My wish list is Dan Nadel in U.K. So those guys, they are amazing personalities and I hope one day to talk to them as well.

David D. Stewart: I think it would be great to hear you talk to them. And thank you so much for coming and talking with me. It's been a great conversation.

Jānis Taukačs: Oh, thank you very much for inviting. That's been pleasure.

David D. Stewart: And now, coming attractions. Each week we highlight new and interesting commentary in our magazines. Joining me now is Acquisitions and Engagement Editor in Chief Paige Jones. Paige, what do we have for us?

Paige Jones: Thanks, Dave. In Tax Notes Federal, four staff members with NYU's Tax Law Center explore problematic tax planning strategies that pair Granite Trust transactions with basis shifting. Nathan Smith considers whether the excitement surrounding interest capitalization is justified. In Tax Notes State, Michael Puzyk examines the New Jersey tax division's position in their recently released technical bulletin on passthrough income sourcing. Allen Braddock examines the recent state transfer pricing enforcement trends. In Tax Notes International, Reuven Avi-Yonah and Nessa Ní Chasaide argue that the EU's Court of Justice was misguided in the recent Apple ruling. Samuel Dorhetso examines the relationship between the environmental costs of mining and the sector's contribution to Ghana's economy. And finally, in featured analysis, Nana Ama Sarfo discusses recent Kenyan tax legislation meant to replace the country's failed Finance Bill 2024.

David D. Stewart: That's it for this week. You can follow me online @TaxStew, that's S-T-E-W. And be sure to follow @TaxNotes for all things tax. If you have any comments, questions, or suggestions for a future episode, you can email us at podcast@taxanalysts.org. And as always, if you like what we're doing here, please leave a rating or review wherever you download this podcast. We'll be back next week with another episode of Tax Notes Talk.

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