What are we talking about? Confidentiality of advocates, tax advisors and auditors who provide consulting services to their clients. Governments (not only the Czech one) see advisors as one of the reasons for tax evasions. Changes in legislation are supposed to deter tax advisors from conducting so called aggressive tax advisory.

I will now attempt to recapitulate the situation from the viewpoint of the laws and directives concerned so that everyone can arrive at their own opinion by the end of it.

The story begins with the implementation of the EU DAC 5

In 2011, the European Commission adopted the Directive on Administrative Cooperation in Taxation (DAC). The Directive is continuously being supplemented with new obligations. It includes the so called automatic exchange of information. DAC 5 – allows access to information given to the financial administration for the purposes of the fight against structures for money laundering, financing of terrorism and criminal activity.

In addition to the Administrative Cooperation Directive, the European Commission also implements the Anti Tax Avoidance Directive (ATAD) to fight against base erosion and profit shifting. This Directive builds on the OECD BEPS (Base Erosion and Profit Shifting) initiative. The Directive applies only to legal persons and their permanent establishments.

At the beginning of this year, the ministry of Finance proposed an amendment to the Tax Code in the chamber of deputies. This amendment should, according to the Ministry of Finance, implement the EU DAC 5 into our legislation. The chamber has passed the amendment and handed it over to the senate on April 3^rd, 2018. The DAC regulates obligations of financial institutions under the so called automatic international exchange of information. However, you will not find anything about the new obligations of advocates and tax advisors in it.

What is actually written in the amendment to the Tax Code?

According to the proposal, those obliged (e.g. advocates, tax advisors, auditors, and notaries) have a new obligation to inform the financial administration about a suspicious

person at the request of the administration. In other words, all obliged persons designated by the Act on selected measures against legitimisation of proceeds of crime and financing of terrorism (act on money laundering) have the obligation to provide information stated by the law at the request of the administration; only within the so called international letters rogatory. The scope of such letter rogatory is not defined anywhere. The way I understand this is that if I, as an auditor or tax advisor, have the requested information, I am obliged to submit it to the tax administration without regard to confidentiality. Does this mean I am obliged to denounce my client? In this point, the law is newly breaking the confidentiality of the tax advisor, advocate, auditor, and notary.

What is really said in the act on money laundering?

According to the act on money laundering, a suspected trade subject to the obligation to notify is trade which aims to legitimise proceeds of crime or finance terrorism3. This law states that tax advisors are obliged to report suspicious trade activity to the Chamber of Tax Advisers if the client asks for legal advisory in order to legitimise proceeds of crime or to finance terrorism. Tax advisors do not have an obligation to report anything if they are representing the client in e.g. tax management.

What is the opinion of lawyers and judges on the breaking of confidentiality?

All that was mentioned received a harsh reaction from, for example, the Czech Bar Association in its public statement or from Mgr. Tomáš Rydval in his article on e-právo.

The amendment proposed by deputy Jakub Michálek, rejected by the Chamber of Deputies, was to make the cited breaking of confidentiality even stronger. According to it, advocates and tax advisors would literally become helpers of the tax administration upon tax collection. They would have to denounce their own clients if they acquired information “pointing at facts” that the client “did not or will not” fulfil a tax obligation surpassing 500 000 CZK.

And what does the Ministry of Finance have to say?

The Minister of Finance of failing government JUDr. Alena Schillerová, Ph.D. offers the following comment on the website of the Ministry:

“The tax administration shall be able to request information from the members of chambers of professionals only within the scope of DAC 5, that is for the purposes of international exchange of information. Concerning advocates, tax advisors, notaries, bailiffs, and auditors with regard to the specific status of these professions, the proposal of the government sticks to the minimum necessary for a proper implementation of this directive. Advocates and other legal professions will provide specifically e.g.: information concerning the area of real estate administration, lawyer trusts, or brokering. What they will not be providing is information concerning the area of legal aid which is the focus of their work (e.g. defence in criminal proceedings, advice concerning a tax dispute).” I wish that what the Minister is saying proves to be true, even though in my opinion it does not follow from the amendment to the Tax Code.

What about tax advisory services following the amendment?

If the senate and the president do pass the breaking of confidentiality in this way, then advocates, tax advisors, and auditors will start warning their clients to rather not disclose information to them which they do not want the tax administration to know. And in such cases, they will not be able to advise well. Tax advisors may avoid risks with planned transactions by advising against them. But tax opinions on already conducted transactions will bring some risk. There is a possibility that this situation may lead to an increase of prices for advisory services due to the risks that the “brave advisors” will take.

The mission of a tax advisor is to help the client with their business. One of the aims of society is to support entrepreneurs in their beneficial activities. In order to be able to conduct these activities, they need advocates, tax advisors, and auditors to help them navigate the complicated and regulated legal and tax environment which the state and the EU create with their directives and laws.

That’s why I’m staying optimistic. I don’t believe that the legislature really wants to completely exclude tax advisors from providing tax services. Because no one wants to pay taxes higher that the law requires. This is not in the interest of society. Or is it?

Ivan Fučík