Global Forum on Transparency and Exchange of Information for Tax Purposes: Peer Reviews : Global Forum on Transparency and Exchange of Information for Tax Purposes Peer Reviews: Czech Republic 2012
Peer Review Report Phase 1 Legal and Regulatory Framework -:HSTCQE=V[]\^Y: ISBN 978-92-64-16879-4 23 2012 05 1 P Global Forum on Transparency and Exchange of Information for Tax Purposes PEER REVIEWS, PHASE 1: CZECH REPUBLIC The Global Forum on Transparency and Exchange of Information for Tax Purposes is the multilateral framework within which work in the area of tax transparency and exchange of information is carried out by over 100 jurisdictions which participate in the work of the Global Forum on an equal footing. The Global Forum is charged with in-depth monitoring and peer review of the implementation of the standards of transparency and exchange of information for tax purposes. These standards are primarily reected in the 2002 OECD Model Agreement on Exchange of Information on Tax Matters and its commentary, and in Article 26 of the OECD Model Tax Convention on Income and on Capital and its commentary as updated in 2004, which has been incorporated in the UN Model Tax Convention. The standards provide for international exchange on request of foreseeably relevant information for the administration or enforcement of the domestic tax laws of a requesting party. Fishing expeditions are not authorised, but all foreseeably relevant information must be provided, including bank information and information held by duciaries, regardless of the existence of a domestic tax interest or the application of a dual criminality standard. All members of the Global Forum, as well as jurisdictions identied by the Global Forum as relevant to its work, are being reviewed. This process is undertaken in two phases. Phase 1 reviews assess the quality of a jurisdictions legal and regulatory framework for the exchange of information, while Phase 2 reviews look at the practical implementation of that framework. Some Global Forum members are undergoing combined Phase 1 plus Phase 2 reviews. The ultimate goal is to help jurisdictions to effectively implement the international standards of transparency and exchange of information for tax purposes. All review reports are published once approved by the Global Forum and they thus represent agreed Global Forum reports. For more information on the work of the Global Forum on Transparency and Exchange of Information for Tax Purposes, and for copies of the published review reports, please visit www.oecd.org/tax/transparency and www.eoi-tax.org. Please cite this publication as: OECD (2012), Global Forum on Transparency and Exchange of Information for Tax Purposes Peer Reviews: Czech Republic 2012: Phase 1: Legal and Regulatory Framework, OECD Publishing. http://dx.doi.org/10.1787/9789264168800-en This work is published on the OECD iLibrary, which gathers all OECD books, periodicals and statistical databases. Visit www.oecd-ilibrary.org, and do not hesitate to contact us for more information. CZECH REPUBLIC P e e r
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R E P U B L I C 232012051cov.indd 1 26-Jan-2012 1:54:57 PM Global Forum on Transparency and Exchange of Information for Tax Purposes Peer Reviews: Czech Republic 2012 PHASE 1 March 2012 (reflecting the legal and regulatory framework as at December 2011) This work is published on the responsibility of the Secretary-General of the OECD. The opinions expressed and arguments employed herein do not necessarily reflect the official views of the OECD or of the governments of its member countries or those of the Global Forum on Transparency and Exchange of Information for Tax Purposes. This document and any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area. ISBN 978-92-64-16879-4 (print) ISBN 978-92-64-16880-0 (PDF) Series: Global Forum on Transparency and Exchange of Information for Tax Purposes Peer Reviews ISSN 2219-4681 (print) ISSN 2219-469X (online) Corrigenda to OECD publications may be found on line at: www.oecd.org/publishing/corrigenda. OECD 2012 You can copy, download or print OECD content for your own use, and you can include excerpts from OECD publications, databases and multimedia products in your own documents, presentations, blogs, websites and teaching materials, provided that suitable acknowledgement of OECD as source and copyright owner is given. All requests for public or commercial use and translation rights should be submitted to [email protected] Requests for permission to photocopy portions of this material for public or commercial use shall be addressed directly to the Copyright Clearance Center (CCC) at [email protected] or the Centre franais dexploitation du droit de copie (CFC) at [email protected]. Please cite this publication as: OECD (2012), Global Forum on Transparency and Exchange of Information for Tax Purposes Peer Reviews: Czech Republic 2012: Phase 1: Legal and Regulatory Framework, OECD Publishing. http://dx.doi.org/10.1787/9789264168800-en PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK CZECH REPUBLIC OECD 2012 TABLE OF CONTENTS 3 Table of Contents About the Global Forum. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Executive Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Information and methodology used for the peer review of the Czech Republic . . 9 Overview of the Czech Republic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Recent developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Compliance with the Standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17 A. Availability of information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17 A.1. Ownership and identity information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 A.2. Accounting records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 A.3. Banking information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 B. Access to information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 B.1. Competent Authoritys ability to obtain and provide information . . . . . . . . 50 B.2. Notification requirements and rights and safeguards. . . . . . . . . . . . . . . . . . 55 C. Exchanging information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 C.1. Exchange-of-information mechanisms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 C.2. Exchange-of-information mechanisms with all relevant partners . . . . . . . . 66 C.3. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 C.4. Rights and safeguards of taxpayers and third parties. . . . . . . . . . . . . . . . . . 69 C.5. Timeliness of responses to requests for information . . . . . . . . . . . . . . . . . . 71 PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK CZECH REPUBLIC OECD 2012 4 TABLE OF CONTENTS Summary of Determinations and Factors Underlying Recommendations. . . . 73 Annex 1: Jurisdictions Response to the Review Report . . . . . . . . . . . . . . . . . . 77 Annex 2: List of All Exchange-of-Information Mechanisms in Force . . . . . . . 79 Annex 3: List of Laws, Regulations and Other Relevant Material . . . . . . . . . . 84 PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK CZECH REPUBLIC OECD 2012 ABOUT THE GLOBAL FORUM 5 About the Global Forum The Global Forum on Transparency and Exchange of Information for Tax Purposes is the multilateral framework within which work in the area of tax transparency and exchange of information is carried out by over 100 jurisdic- tions, which participate in the Global Forum on an equal footing. The Global Forum is charged with in-depth monitoring and peer review of the implementation of the international standards of transparency and exchange of information for tax purposes. These standards are primarily reflected in the 2002 OECD Model Agreement on Exchange of Information on Tax Matters and its commentary, and in Article 26 of the OECD Model Tax Convention on Income and on Capital and its commentary as updated in 2004. These stand- ards have also been incorporated into the UN Model Tax Convention. The standards provide for international exchange on request of foreseeably relevant information for the administration or enforcement of the domestic tax laws of a requesting party. Fishing expeditions are not authorised but all fore- seeably relevant information must be provided, including bank information and information held by fiduciaries, regardless of the existence of a domestic tax interest or the application of a dual criminality standard. All members of the Global Forum, as well as jurisdictions identified by the Global Forum as relevant to its work, are being reviewed. This process is undertaken in two phases. Phase 1 reviews assess the quality of a jurisdictions legal and regulatory framework for the exchange of information, while Phase 2 reviews look at the practical implementation of that framework. Some Global Forum members are undergoing combined Phase 1 plus Phase 2 reviews. The Global Forum has also put in place a process for supplementary reports to follow-up on recommendations, as well as for the ongoing monitoring of jurisdictions following the conclusion of a review. The ultimate goal is to help jurisdictions to effectively implement the international standards of transpar- ency and exchange of information for tax purposes. All review reports are published once approved by the Global Forum and they thus represent agreed Global Forum reports. For more information on the work of the Global Forum on Transparency and Exchange of Information for Tax Purposes, and for copies of the pub- lished review reports, please refer to www.oecd.org/tax/transparency and www.eoi-tax.org. PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK CZECH REPUBLIC OECD 2012 EXECUTIVE SUMMARY 7 Executive Summary 1. This report summarises the legal and regulatory framework for trans- parency and exchange of information in The Czech Republic. The international standard, which is set out in the Global Forums Terms of Reference to Monitor and Review Progress Towards Transparency and Exchange of Information, is concerned with the availability of relevant information within a jurisdiction, the competent authoritys ability to gain timely access to that information, and in turn, whether that information can be effectively exchanged with its exchange of information (EOI) partners. 2. The Czech Republic, until 1 January 1993 a part of Czechoslovakia, is a prosperous Central European state with slightly more than 10 million inhabitants. The service sector constitutes the largest component with 60.0% of GDP, followed by industry (37%) and agriculture (2.6%). The main indus- try sectors are car manufacturing and electrical engineering. The car-related industry is the largest single industry and accounts for as much as 20% of Czech manufacturing. 3. Relevant entities are subject to comprehensive requirements under commercial, tax, anti-money laundering and accounting legislation to maintain and have available relevant ownership and bank information. Such information is generally available for EOI purposes. However, some gaps remain with regards to ownership information on foreign companies having their place of effective management in the Czech Republic. More signifi- cantly, there are insufficient mechanisms in place to ensure the availability of ownership information for bearer shares which are frequently issued by public limited companies. As a result, element A1 is not in place. 4. Czech accounting law requires all Czech legal entities as well as branches of foreign enterprises to keep adequate accounting records including underlying documentation for a minimum of five years. In respect of banks and other financial institutions, Czech AML, banking and accounting legisla- tion imposes appropriate obligations to ensure that all records pertaining to customers accounts as well as related financial and transactional information are available. PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK CZECH REPUBLIC OECD 2012 8 EXECUTIVE SUMMARY 5. The Czech tax administration has broad powers to access relevant information from any person and from public authorities. Non-compliance can be sanctioned with penalties. The confidentiality of bank information is protected by law but is lifted when banks are requested by the Czech tax administration to provide information. The Czech tax administration can apply their domestic powers, including sanctions, for the purpose of answer- ing international requests for information, including in cases where it does not have an interest in the information for Czech tax purposes. The scope of professional privilege in the Czech Republic is considerably broader than the exemption for legal professional privilege under the international standard. 6. The Czech Republic has a considerable network of 81 double tax conventions and 6 tax information exchange agreements that provide for exchange of information in tax matters. The vast majority of these agree- ments are in force and to standard. In addition, the Czech Republic is able to exchange information in tax matters with other European Union Member States under EU legislation. Nevertheless, the Czech Republic should update the small number of agreements which were found not to be fully in line with the standard. 7. The Czech Republics response to the findings in this report, in particular the recommendations made, as well as the application of the legal framework and the implementation of the international standard in practice, will be considered in detail in the Phase 2 review of the Czech Republic, which is scheduled to commence in the first half of 2013. In the meantime, a follow up report on the steps undertaken by the Czech Republic to answer the recommendations made in this report should be provided to the PRG within six months after the adoption of this report. PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK CZECH REPUBLIC OECD 2012 INTRODUCTION 9 Introduction Information and methodology used for the peer review of the Czech Republic 8. The assessment of the legal and regulatory framework of the Czech Republic was based on the international standards for transparency and exchange of information as described in the Global Forums Terms of Reference to Monitor and Review Progress Towards Transparency and Exchange of Information, and was prepared using the Global Forums Methodology for Peer Reviews and Non-Member Reviews. The assessment was based on information available to the assessment team including the laws, regulations, notices and exchange of infor- mation mechanisms in force or effect as of January 2012, the Czech Republics responses to the Phase 1 questionnaire and supplementary questions, information supplied by partner jurisdictions, and other relevant sources. 9. The Terms of Reference breaks down the standards of transparency and exchange of information into 10 essential elements and 31 enumer- ated aspects under three broad categories: (A) availability of information; (B) access to information; and (C) exchange of information. This review assesses the Czech Republics legal and regulatory framework against these elements and each of the enumerated aspects. In respect of each essential ele- ment a determination is made that: (i) the element is in place; (ii) the element is in place, but certain aspects of the legal implementation of the element need improvement; or (iii) the element is not in place. These determinations are accompanied by recommendations on how certain aspects of the system could be strengthened where relevant. A summary of the findings against those elements is set out on page 73 of this report. 10. The assessment was conducted by a team, which consisted of two expert assessors and one representative of the Global Forum Secretariat: Ms Heidi-Lynn Sutton, Financial Services Counsel, Ministry of Finance, Nevis Island Administration, Saint Kitts and Nevis; Mr. Natsuki Arai, Deputy Director, International Operations Division, National Tax Agency, Japan; and Mr. Beat Gisler from the Global Forum Secretariat. PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK CZECH REPUBLIC OECD 2012 10 INTRODUCTION Overview of the Czech Republic 11. The Czech Republic is a landlocked country with a territory of approximately 79 000 square kilometres and a total population of slightly more than 10 million inhabitants (2010 figures), located in the centre of Europe. The Czech Republic is bordered by the Slovak Republic, Poland, Austria and Germany, which are all members of the European Union. With a population of about 1.162 million people 1 , Prague is the capital and the largest city. Formerly part of Czechoslovakia, the Czech Republic became an inde- pendent state on 1 January 1993. 12. Following its separation from the Slovak Republic in 1993, the Czech Republic has undergone a transition from a centrally planned economy to a free market economy. The national currency is the Czech Crown (CZK). 2 Although the Czech economy also was affected by the global economic crisis of 2008-2009, it continued to show a moderate growth in the period from 2006-2009. However, a significant downturn in the economy was recorded in 2009, with real gross domestic product (GDP) growth swinging briefly to minus 4.1%. It rebounded to 2.3% in 2010 largely due to economic integra- tion with the Euro area which allowed the Czech economy to benefit from the recovery in trading partner countries, particularly Germany 3 . Its 2010 the gross domestic product (GDP) was USD 266.1 billion (EUR 196.9 billion 4 ) and its per capita GDP was USD 25 299 (EUR 18 720). 5 13. Most of the Czech economy has been privatised. The service sector accounts for the largest component of GDP at 60.0%, followed by industry (37%) and agriculture (2.6%). 6 The main industries are car manufacturing and electrical engineering. The auto industry is the largest single industry and, together with its suppliers, accounts for as much as 20% of Czech manu- facturing. In 2010, over 80% of the cars produced were exported. The Czech Republics main trading partners are Germany, the Slovak Republic, Poland, France, Austria, Italy, the Netherlands, Russian Federation, United Kingdom, China and the United States 7 . 1. CIA, The World Factbook, https://www.cia.gov/library/publications/the-world- factbook/geos/ez.html, accessed 1 November 2011. 2. As of 1 November 2011: 1 EUR = 25.5 CZK. Source: Czech National Bank. For the purpose of this report: 1 EUR = 25.0 CZK. 3. CIA, The World Factbook, www.cia.gov/library/publications/the-world-factbook/ geos/ez.html, accessed 1 November 2011. 4. As of 1 November 2011: 1 USD = 0.7400 EUR. Source: US Treasury. 5. OECD Factbook 2011-2012. 6. Ibid. 7. US Department of State, www.state.gov/r/pa/ei/bgn/3237.htm, accessed 13 November 2011. PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK CZECH REPUBLIC OECD 2012 INTRODUCTION 11 14. The Czech Republic joined the European Union (EU) in May 2004. It is a member of the Council of Europe, the Organisation for Economic Co-operation and Development, the North Atlantic Treaty Organization (NATO), and the Intra-European Organisation of Tax Administration. The Czech Republic is further a member of the Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism MONEYVAL. Governance and legal system 15. The Czech Republic is a parliamentary democratic republic with a multi-party system. The head of state is the President, selected by a joint ses- sion of the parliament for a five-year term. Most executive power lies with the Prime Minister, who is the head of government and is appointed by the President on the basis of the general election results. The remainder of the Cabinet is appointed by the President on the recommendation of the Prime Minister. The Parliament is bicameral and consists of the Senate (members elected by popular vote to serve six-year terms; one-third elected every two years) and the Chamber of Deputies (members are elected by popular vote to serve four-year terms). 16. The country is divided into fourteen administrative regions and sev- eral thousand municipalities which are self-governing units which can issue by-laws, regulations and decisions but these must not contravene any laws or the constitutional order of the Republic. 17. The Czech legal system is based on civil law. The Constitution, rati- fied on 12 December 1992, is the supreme law of the Republic. The basic rights and obligations of individuals and legal persons, ownership and certain types of contracts are laid down by the Civil Code. The Commercial Code stipulates the general rules governing business relationships as well as the rules related to companies and other business entities. Constitutional laws and other laws are adopted by the Parliament. Once enacted, laws are signed by the Chairman of the Chamber of Deputies, the President of the Republic and the Prime Minister and become valid once promulgated. Ministries, other administrative agencies and territorial self-government bodies may issue regulations on the basis and within the scope of a law. A complete list of all the relevant legislation and regulations is set out in Annex 3. 18. The Supreme Court is the supreme judicial body with respect to mat- ters which are under the jurisdiction of courts, save matters ruled on by the Constitutional Court or the Supreme Administrative Court. The Constitutional Court does not form a part of the system of ordinary courts. Its function is above all to protect fundamental rights and freedoms arising from the Constitution, the Charter of Fundamental Rights and Freedoms, and further constitutional acts of the Czech Republic, and to guarantee the constitutional character of the exercise PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK CZECH REPUBLIC OECD 2012 12 INTRODUCTION of state power. There are further superior, regional and district courts. Judges are appointed for life by the President of the Republic. The 15 Constitutional Court justices have to be approved by the Senate and they are appointed for a ten year period. Tax cases are heard by specialised branches of the regional courts and the Supreme Administrative Court. 19. Double taxation conventions (DTCs) and taxation information exchange agreements (TIEAs) are negotiated by the Ministry of Finance. After an approval process involving all government ministries and other interested parties the agreement is approved by the Council of Ministers and sent to the Parliament by the Prime Minister. Once an agreement has passed both chambers of the Parliament it is ratified by the President. The counterpart juris- diction is then informed of the ratification through an exchange of notes. The agreement comes into force on the day it is published in the Official Journal for International Treaties. Under the Constitution, international treaties override any contradictory domestic laws. A complete list of the agreements which have been concluded by the Czech Republic is set out in Annex 2 to this report. Tax system 20. Czech income tax is levied according to the Income Tax Act (ITA, Act No.586/1992). The ITA contains the rules for corporate income tax as well as for individual income tax. The administrative aspects of taxation are governed by the Tax Procedure Code (TPC, Act No.280/2009). In 2008, the Czech government implemented a major overhaul of the personal income tax (PIT), replacing the previous progressive rate schedule with a single 15% flat rate levied on an enlarged base. This was accompanied by significant changes to the corporate income tax (CIT) and an increase in the concessionary rate of value added tax (VAT) applied to many goods and services. 21. Taxpayers in the Czech Republic are subject to a 19% 8 corporate tax (a 5% corporate tax rate applies for pension and investment funds) and the above mentioned 15% flat personal income tax. Personal and corporate income taxes are levied on the worldwide income of individuals or companies who are Czech tax residents as well as on the Czech-source income of non- residents individuals and companies. An individual is a Czech tax resident if that person has their permanent address or a usual residence (183 days rule) in the Czech Republic. A company is deemed to be resident if it has its legal seat or place of effective management in the Czech Republic (s. 17(3) ITA). Permanent establishments of foreign companies are generally taxed on Czech-source income only. Income and gains derived by resident and non-resident individual owners in resident companies are generally included in the aggregate income, which is subject to the 15% flat rate tax. Equally, 8. All tax rates and standard values mentioned are applied for 2010 or 2011. PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK CZECH REPUBLIC OECD 2012 INTRODUCTION 13 capital gains on the sale of shares in a resident company by resident corporate shareholders are included in ordinary corporate income. 22. The government levies a 20% value-added tax (VAT), reduced to 10% on food, books and special healthcare products. The VAT system is har- monised with the European VAT legislation. Persons (individuals and legal entities) having a seat, place of business or fixed establishment in the Czech Republic, who carry on economic activities and whose turnover exceeded CZK 1 million (EUR 40 000) in the past 12 successive calendar months, are liable to register with the local tax administration for VAT purposes. VAT registration is, without threshold, obligatory for foreign persons (taxable persons without seat or VAT establishment in the Czech Republic) once they start to perform taxable activities in the Czech Republic. 23. The government further levies an inheritance tax (0.5%-20%), gift tax (1%-40%) and various excise taxes and real estate tax. It also collects social security (pension and unemployment) and health insurance contribu- tions on gross salaries. The rates are 11% for the employee (with a cap of 72 times the average monthly salary 9 ) and 34% for the employer. 24. No local taxes have been introduced in the Czech Republic to date. Though, local fees for various purposes are levied. 25. The total tax revenues in 2010 amounted to 34.9% of the GDP 10 . International issues and exchange of information 26. The International Assistance in Administration of Taxes Act (EOI Act, Act No.253/2000) lays out the procedure and conditions under which the competent authority of the Czech Republic can access and exchange infor- mation with another jurisdiction for tax purposes. It applies to EOI based on international agreements and EU legislation (s. 1). The Czech Ministry of Finance and the tax administration designated by the Ministry are the Czech competent authority for EOI purposes (s. 3(1)). 27. The Czech Republic also exchanges information in tax matters under the EU Mutual Assistance Directive 77/799/EEC and the EU Savings Directive (EU-SD) under which the Czech Republic sends and receives auto- matically on an annual basis information on interest payments received by natural persons from/to EU members. 9. The official average monthly salary is set quarterly based on official statistics and is currently CZK 24 089 (EUR 964) based on statistics for the third quarter of 2011. 10. Source: Czech authorities. PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK CZECH REPUBLIC OECD 2012 14 INTRODUCTION Overview of the financial sector and relevant professions 28. The financial sector comprises the following types of entities which all require authorisation from the Czech National Bank (CNB) 11 : banks (44), credit unions (14), insurance companies (54), investment firms (54), management companies (26), collective investment funds and unit trusts (203) and pension funds (10). While banks take the form of public limited liability companies, Credit Unions are organised as cooperatives that carry out activities for their members (including the State and its organisational units). The largest share of the banking sector in the Czech Republic is owned by foreign banks (primarily from France, Germany and the United States). Only one small bank is owned by Czech entities. 12 In addition there exist payment institutions and non-bank foreign currency exchanges (887) and entities authorised under the Capital Market Undertakings Act to provide investment safekeeping services (409). 29. The above mentioned entities are regulated by the Ministry of Finance and the CNB (National Bank Act, Act No.6/1993). The Czech finan- cial market is part of the EU single financial market and is open to credit and other financial institutions that offer cross-border financial services in line with the principle of the free movement of financial services. 30. Statistics for the year 2005, provided in the 2007 MONEYVAL Third Round Detailed Assessment Report on the Czech Republic, show that there were: 7 784 persons registered as members of the Czech Bar Association; 3822 members of the Chamber of Tax Advisers; 445 registered notary offices; 1 260 registered auditors, 978 assistant auditors and 327 audit com- panies; and 36 940 permissions granted to conduct real estate activities. 31. Anti-money laundering/combating financing of terrorism (AML/ CFT) in the Czech Republic is primarily regulated by the Act on Selected Measures against Legitimisation of Proceeds of Crime and Financing of Terrorism (the AML Act, Act No.253/2008). This Act implemented the EU Third Money Laundering Directive and other related EU Regulations and 11. Numbers in parenthesis indicates the number of each type of registered entity as at October 2011. 12. Section 688 MONEYVAL Report on Fourth Assessment Visit of the Czech Republic, www.coe.int/t/dghl/monitoring/moneyval/Evaluations/round4/CZE4_ MER_MONEYVAL(2011)01_en.pdf, accessed 1 November 2011. PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK CZECH REPUBLIC OECD 2012 INTRODUCTION 15 Directives 13 into Czech domestic law. Monitoring of AML issues is under the overall control of the Ministry of the Interior and the Ministry of Finance. The Financial Analytical Unit within the Ministry of Finance is the Financial Intelligence Unit (FIU) supervising the financial industry with regards to money laundering. Recent developments 32. The new Tax Code became effective on 1 January 2011. It provides for suspension of the statutory time bar for Czech tax assessments until a request for information made by the Czech authorities is answered or until the end of the second calendar year after effective conviction of a tax crime. The Act on Criminal Liability of Legal Persons and Proceeding (Law No. 418/2011) came into force on 1 January 2012 and introduced criminal liability of legal entities, including for tax related criminal offenses. 33. The following legislative changes are anticipated in the near future: legislation abolishing the paper form of bearer shares has been intro- duced to the Parliament and is scheduled to coming into force on January 2014; transposition of EU Directive No.2010/24/EU concerning mutual assistance for the recovery of claims relating to taxes, duties and other measure, coming into force on 1 January 2012; and transposition of EU Directive No. 2011/16/EU on administrative cooperation in the field of taxation. 13. Directive 2005/60/EC of the European Parliament and of the Council of 26 October 2005 on the prevention of the use of the financial system for the pur- pose of money laundering and terrorist financing; Commission Directive 2006/70/ EC of 1 August 2006, laying down implementing measures for Directive 2005/60/ EC of the European Parliament and of the Council as regards the definition of politically exposed person and the technical criteria for simplified customer due diligence procedures and for exemption on grounds of a financial activity conducted on an occasional or very limited basis; Regulation (EC) No 1889/2005 of the European Parliament and of the Council of 26 October 2005 on controls of cash entering or leaving the Community and Regulation (EC) No 1781/2006 of the European Parliament and of the Council of November 15, 2006 on information on the payer accompanying transfers of funds. PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK CZECH REPUBLIC OECD 2012 COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION 17 Compliance with the Standards A. Availability of information Overview 34. Effective exchange of information requires the availability of reliable information. In particular, it requires information on the identity of owners and other stakeholders as well as accounting information on the transactions carried out by entities and other organisational structures. Such information may be kept for tax, regulatory, commercial or other reasons. If informa- tion is not kept or the information is not maintained for a reasonable period of time, a jurisdictions competent authority may not be able to obtain and provide it when requested. This section of the report assesses the adequacy of the Czech Republics legal and regulatory framework on availability of information. 35. Czech commercial, AML and accounting legislation ensure that up- to-date ownership information is generally available for relevant commercial entities. An exception applies to bearer shares issued by public limited liabil- ity companies. There are insufficient mechanisms in place that ensure the availability of information allowing for identification of owners who own less than 25% of such shares in non-publicly traded companies. 36. Foreign companies and partnerships need to register their Czech branch in the commercial register, but continue to be regulated by the laws of their jurisdiction of incorporation. However, they are subject to Czech accounting law and are therefore required to maintain ownership informa- tion for owners who own at least 20% of the voting rights or who, alone or in PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK CZECH REPUBLIC OECD 2012 18 COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION concert with others, own at least 40% of the shares. Entities may further have to keep ownership information under the tax law for the purpose of transfer pricing and carrying forward of losses. However, in the case of companies, these requirements are not sufficient to ensure that ownership information is available in all cases. General partners in foreign partnerships doing business in the Czech Republic have to file tax returns and limited partnerships have to keep accounting records identifying limited partners who make contribu- tions to or receive profits from the partnership. 37. Trusts are not recognised under Czech law and there is no registration requirement for foreign trusts. However, a combination of accounting, tax and AML legislation requires all types of Czech trustees of foreign trusts to keep information regarding settlors and beneficiaries of such trusts. 38. Czech law allows the forming of foundations. They have to be reg- istered in the Foundation Register and are under an obligation to disclose the identity of the founders and the members of their statutory bodies. Foundations are non-profit entities with public benefit purposes. Members of their statutory bodies cannot be beneficiaries of the foundation. 39. Enforcement provisions are in place to ensure that relevant entities maintain information as required under the various laws. While no sanctions apply for public and private limited liability companies and cooperatives that fail to maintain a register of their shareholders/members, private limited liability companies are required to file and update shareholder/member infor- mation with Commercial Register and appropriate sanctions apply to address the risk of non-compliance. The effectiveness of these enforcement provisions which are in place in The Czech Republic will be considered as part of its Phase 2 Peer Review. 40. Czech accounting law requires all Czech legal entities as well as branches of foreign enterprises to keep adequate accounting records including underlying documentation for a minimum of five years. Czech accounting, tax and AML legislation require trustees of foreign trusts acting in a business capacity to keep complete accounting records for the assets and activities of such a trust Czech tax law further requires professional and non-professional trustees of a foreign trust to keep records necessary in order to disprove tax liability for income from assets they hold in trust. 41. In respect of banks and other financial institutions, Czech AML, banking and accounting legislation imposes appropriate obligations to ensure that all records pertaining to customers accounts as well as related financial and transactional information are available. Banks are expressly prohibited from establishing business relationships with or carrying out transactions for anonymous customers. PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK CZECH REPUBLIC OECD 2012 COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION 19 A.1. Ownership and identity information Jurisdictions should ensure that ownership and identity information for all relevant entities and arrangements is available to their competent authorities. 42. The Commercial Code (CoC, Act No.513/1991) recognises and regu- lates a set of commercial entities which have legal personality. They are in this report described under the section for companies (private LLC, public LLC, European Company and cooperative) and partnerships (general partner- ship, limited partnership and European Economic Interest Grouping). Their incorporation requires registration in the Commercial Register (CR). For certain commercial activities as defined in the Trade Act (Act No. 455/1991) a trade licence or a concession must be obtained. Companies (ToR 14 A.1.1) Types of entities 43. Czech legislation recognises the following types of companies: private limited liability company (spolecnost s rucenim ome:enym) Private LLC 15 : Private LLCs are the most common legal form for a business entity in the Czech Republic. They are separate legal entities with registered capital made up of contributions paid by their owners. A private LLC can have between one and 50 owners who are liable for the obligations of the company only up to the amount of their unpaid contribution to the company capital. 16 The registered capital must be at least CZK 200 000 (EUR 8 000). There were 330 498 pri- vate LLCs in the Czech Republic as at November 2011; public limited liability company (akciova spolecnost) Public LLC 17 : In a public LLC, the registered capital is divided into nominal or bearer shares. The minimum number of shareholders is one or if all shareholders are individuals two. Shareholders of the company are not liable for the obligations of the company. A public LLC formed on the basis of a public offering of shares must have at least 14. Terms of Reference to Monitor and Review Progress Towards Transparency and Exchange of Information. 15. Articles 105 to 153e CoC. 16. A limited liability company with a single founder cannot become a single founder or partner of another limited liability company. A natural person may be single partner in no more than three limited liability companies (s. 105(2) CoC). 17. Articles 154 to 220zc CoC.; PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK CZECH REPUBLIC OECD 2012 20 COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION CZK 20 000 000 (EUR 800 000) in registered capital. Otherwise, the minimum capital is CZK 2 000 000 (80 000 EUR). There are no restrictions regarding the number of shareholders. There were 24 651 public LLCs in the Czech Republic as at November 2011; European Public Limited Liability Company (Societas Europaea) SE 18 : An SE is a company with a European dimension, and does not strictly fall under the territorial scope of the legislation relating to domestic companies in force in the country where it has been incor- porated. The minimal capital is EUR 120 000 (Art. 4 EEC Council Regulation). The rules applicable to Czech public limited liability companies with regards to keeping ownership information and sub- mitting such ownership information to the CR apply equally to SEs (Arts. 9(1)(c)(ii) EEC Council Regulation and s. 7 Act No.627/2004). There were 553 SEs in the Czech Republic as at November 2011; and cooperative (druzstvo) 19 : Cooperatives are formed by at least five members (or at least two legal entities) to undertake business for the economic or social benefit of their members. Members are not liable for the debts/obligations of the cooperative. There were 15 577 coop- eratives in the Czech Republic as at November 2011. 44. Private and public limited liability companies as well as coopera- tives are created and incorporated at the moment they are registered with the CR. They are set up through notarised articles of incorporation, except for a public LLC with a single founder which is set up through a deed of formation (s. 162(1 and 2) CoC). Information provided to government authorities Commercial register (CR) 45. Companies and cooperatives have to be registered in the CR (Arts. 27(1) and 34(1)(a) CoC), which is maintained by the regional registra- tion courts (s. 27(2)). Each entry, including alterations or deletions, is publicly available and also submitted to the tax administration and to any authority which issued the entity with trade or other business authorisations (s. 27(4)). 46. The following documents have to be submitted the CR (s. 38i(1)): 18. SEs are regulated by Council Regulation (EEC) No.2157/2001 on Statute for a European Company which was transposed in the Czech Republic by Act No.627/2004. 19. Articles 221 to 260 CoC. PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK CZECH REPUBLIC OECD 2012 COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION 21 the agreement of association, deed of association or memorandum of association of a public or private LLC, a copy of a notarised deed containing resolutions of the constituting general meeting of a public LLC or constituting meeting of a cooperative, articles of association of a public LLC, a private LLC or cooperative if they are to be issued under the agreement of association; as well as any later update of the aforementioned documents; the decision, which must be in writing, on the election or appoint- ment or removal or termination of office of persons who are the statutory body or its members, liquidators, insolvency trustees or heads of a branch of an enterprise or who are entitled to bind the company or represent it in court or who share in the companys man- agement or control; and annual reports, ordinary, extraordinary and consolidated financial statements and, if so required by a law or regulation, the proposal for profit distribution and its final status or settlement of loss, unless already a part of ordinary financial statements, the auditors report on the auditing of financial statements and the report on relations between affiliated persons. 47. The agreement of association of a private LLC has to include the name of the company, registered office; the identity of the companys owners; the amount of their share of the capital; and the name and address of each member of its statutory bodies (s. 110 CoC). Subsequent changes of owner- ship have to be submitted to the CR (s. 118). 48. The memorandum of association of a public LLC must contain the business name, registered office; the number of nominal and bearer shares and their nominal value; and the number of shares subscribed by the founder (s. 163). No shareholders have to be identified unless there is only one owner (s. 36(d)). 49. The notarised deed containing the resolutions of the constituting meeting of a cooperative has to include an annex with the list of its members and value of the individual membership contributions to which they commit- ted at the founding meeting (s. 224(6)). Nevertheless, there is no requirement to update this information when a change of ownership occurs. However, the cooperative has to maintain a register of members, see below. 50. Documents submitted to the CR are kept for at least 20 years (Archives and Records Management Act, Act No.499/2004 and Shredding Order Relating to the Registration Courts of the Ministry of Justice, Order No.94/2007-OIS-ST of 19 December 2008). PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK CZECH REPUBLIC OECD 2012 22 COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION Information provided to tax administration 51. Taxpayers with business income in the Czech Republic, such as companies and cooperatives, have to register with the tax administration (s. 125 TPC). When registering, the taxpayer must provide the office address, location of business activity, or the delivery address and information about the individuals authorised to act on behalf of the entity (s. 127(1) and (2)). The taxpayer has to notify the tax administration of any changes regarding this information (s. 128(1)). Information regarding owners of companies and cooperatives is not required to be filed with the tax administration as part of registration. 52. Any accounting entitys 20 annual financial statement and its annexes are an integral part of the Czech tax return (Instructions for completing corporate income tax returns). The annex to the annual financial statements has to identify any party exercising significant or controlling influence over this entity. This information has to include percentages of such holdings and description of changes (s. 39(1) Decree on Double-entry Accounting for Commercial Entities, Decree No.500/2002). Significant influence is defined as holding 20% or more of the voting rights (s. 22(5) Accounting Act, No.563/1991) (s. 1(2))). Controlling influence is defined as owning alone or in concert with other persons more than 40% of the entity (s. 66a(13) CoC.). 53. The Czech authorities advise that all taxpayers can be subject to a tax enquiry concerning their tax position and compliance with tax obligations in the Czech Republic. The tax base for corporate income tax is based on profit and loss calculations in accordance with Czech accounting rules (s. 23(2)(a) ITA). Therefore, necessary documentation for commercial entities to prove tax positions taken are the financial statements including its mandatory attachments, accounting books and underlying documentation (i.e. contracts, invoices , etc.). Information held by companies 54. A public LLC has to keep a list of all holders of nominal shares. This list has to include the type and form of the share, its nominal value, the name and address of the shareholder and any changes in this informa- tion. If the company has issued shares in uncertificated (dematerialised) form, the articles of incorporation may designate that the list of sharehold- ers is replaced by the records of uncertificated securities kept according to 20. The term accounting entity includes all legal Czech entities, all foreign persons with business activities in the Czech Republic, i.e. branches of foreign entities, sole proprietors and other entities with a statutory obligation to apply accounting (s. 1(2) Accounting Act). PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK CZECH REPUBLIC OECD 2012 COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION 23 specific legislation 21 (s. 156(2) CoC). In the latter case, the Central Security Depository 22 (s. 92 Capital Market Undertakings Act, No.256/2004) or the Register for Investment Instruments (s. 93) maintains a register with owner- ship details (s. 111). The transfer of registered shares is not effective with respect to the company before the change of ownership is registered in the shareholders register. The company shall update the register without undue delay after such change has been demonstrated to it (s. 156(6) CoC). 55. As mentioned above, the articles of incorporation of a private LLC have to include the name, seat or address of its owners (s. 110 CoC). The transfer of any shares takes effect once a copy of the transfer contract is deliv- ered to the company (s. 115(4)). As soon as a change of ownership has been proven to the company, this change has to be entered into a list of sharehold- ers and submitted to the CR (s. 118). 56. Membership in a cooperative can be established during its foun- dation, after approval of a written membership application, transfer of membership or other means stipulated by the law (s. 227 CoC). Cooperatives are under the obligation to keep a list of all their members (s. 228). 57. Where a company or cooperative is liquidated, the liquidator must file a petition for the company to be struck off the CR together with a statement from the locally competent state archives confirming that the safeguarding of the dissolving companys archive and documents has been secured (s. 75a CoC). 58. Documents such as incorporation records, statutes and articles of association have to be kept throughout the lifetime of the entity after which they can be chosen for unlimited archiving subject to public interest (Act on the Archives and Records Management (s. 3(2) and Annex I). The Czech authorities advise that shareholder/members registers have to be kept accord- ing to rules regarding financial statements, i.e. a minimum of ten years (s. 31(2)(a) Accounting Act). Foreign companies 59. A foreign company engaged in business activities in the Czech Republic through a branch is subject to Czech commercial legislation, includ- ing accounting law (s. 1(2)(b) Accounting Act). The company has to register that branch with the CR (s. 34(b) CoC). The following information has to be 21. Capital Market Undertakings Act. 22. The Central Security Depository is a legal person authorised by the CNB to maintain the central register of securities in the Czech Republic, assign identification numbers to securities according to the international securities iden- tification numbering system (ISIN) and to operate a settlement system (ss. 100 and 103 Act on Business Activities in the Capital Market No.256/2004). PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK CZECH REPUBLIC OECD 2012 24 COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION provided to the register: name and address of the branch, the name of the foreign enterprise and its identification number in the jurisdiction of incor- poration as well as its annual accounts, agreement or articles of association or similar documents and their amendments and full versions thereof (s. 21(4), 38h and 38j). There is no requirement to file information identifying all owners of the foreign company. 60. The branch has to be registered with the tax administration and pro- vide the same information as required for Czech legal entities as described above (s. 125(4) TPC). Foreign companies have to submit as mandatory part of their tax return their annual financial statements which have to include information identifying any party exercising significant or controlling influ- ence over the foreign entity as described previously in this report. Thus the annual statement of a branch of a foreign company will have to identify owners of that company holding alone or in concert with others at least 40% of the shares or at least 20% of the voting rights. However, this will not necessarily ensure that ownership information is available in all cases. A foreign-incorporated company having its place of effective management in the Czech Republic is considered to be resident for tax purposes (s. 17(3) ITA). As such it will be subject to Czech tax law to the same extent as a Czech incorporated entity. 61. Certain tax provisions require taxable entities, including permanent establishments of foreign entities or foreign entities centrally managed and controlled within the Czech Republic and thus considered resident for tax purposes, to keep ownership records as may be needed to deliver a complete and correct tax return (s. 72 TPC) and may be required to produce these records during an audit (s. 86(3)): Czech tax law allows taxpayers who run a business to carry forward all losses as long as there has not been a substantial change of owner- ship of the taxpayer. Substantial change of ownership is defined as a change of more than 25% of the ownership. Though, carry forward will be allowed even under these circumstances if the entity can prove that at least 80% of its ordinary income has been generated by the same type of activities as those that incurred the losses. A sub- stantial change of ownership or change of control is assumed to have taken place in a company with bearer shares unless the company passes this 80% test (s. 38na ITA). Under certain circumstances, the Czech tax administration can adjust the tax base of a taxpayer with respect to business transactions between the taxpayer and a related person. The definition of related person includes persons who directly or indirectly own at least 25% of the taxpayer (s. 23(7) ITA). PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK CZECH REPUBLIC OECD 2012 COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION 25 62. There are no statutory provisions with regard to maintenance of doc- umentation in order to meet the above tests. However, with regards to transfer pricing test, the Czech Republic has adopted the EU Code of Conduct on Transfer Pricing Documentation as guidelines which suggests that taxpayers document legal and operating structures, including a list of group mem- bers and the shareholding percentages (Decree D-334 on Transfer Pricing Documentation of Pricing Methods between Related Parties in Accordance with the Code of Conduct on Transfer Pricing Documentation for Associated Enterprises in the European Union). 63. Thus, it is conceivable that many, but not all, foreign companies with a permanent establishment or place of effective management in the Czech Republic will have to keep track of their owners for Czech tax purposes. Tax returns for branches of foreign entities and Czech entities may be taken up by the Czech tax administration for enquiry on a risk-assessment basis. However the nature of the documentation to be maintained for this purpose is unclear. Information held by service providers 64. The Czech AML Act is a transposition of the 3rd EU Money Laundering Directive and requires obliged entities to perform CDD. The obliged entities under this act are entities within the financial sector and per- sons or professions such as (s. 2(1)): tax advisors and chartered accountants; lawyers and notaries 23 when they offer the service of safekeeping money, securities or other valuables, or when required by customers to represent them or to act on their behalf in the following situations: buying or selling real estate or a business entity or part thereof; 23. CDD requirements do not apply to lawyers should the information pertaining to the customer be obtained from the customer or in any other way during or in connection with: (a) providing legal advice or the later determination of the cus- tomers legal standing; (b) defending the customer in criminal law proceedings; (c) representing the customer in court proceedings; or (d) providing any legal advice concerning the proceedings referred to in letter (b) and (c), regardless of whether the proceedings commenced or not, or were concluded or not (s. 27(1)). Similarly, notaries are not obliged to do CDD should the information be obtained from the customer or in any other way during or in connection with: (a) provid- ing legal advice or the later determination of the customers legal standing; (b) representing the customer in court proceedings subject to the mandate conferred on the public notary by law or any other legal statute; or (c) providing any legal advice relating to the proceedings referred to in (b), regardless of whether the proceedings commenced or not, or were concluded or not (s. 27(1)). PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK CZECH REPUBLIC OECD 2012 26 COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION managing customers assets, such as money, securities, business shares, or any other assets, including representing customers or acting on their behalf in relation to opening accounts in banks or other financial institutions or establishing and managing securities accounts; or estab- lishing, managing, or controlling a company, business group, or similar entrepreneurial entity regardless of its status as a natural/legal person, as well as receiving money or other valuables for the purpose of estab- lishing, managing, or controlling such entity; or providing services of encashment, payments, transfers, deposits, or withdrawals in wire or cash transactions, or any other conduct aimed at or directly triggering movement of money; any person, providing among others the following professional ser- vices to another person: - establishing legal persons; - acting as a statutory body or its member, or acting in the name of or on behalf of a legal person, or another person in a similar position, should such service be only temporary and should it be related to establishing and administration of a legal person; - providing a registered office, business address, and possibly other related services to another legal person; or - acting in other persons name or on their behalf in specified finan- cial and company activities; or any person providing services in a framework of a trust or any other similar contractual relationship under a foreign law. 65. The AML Act requires identification of customers when entering into a business relationship 24 (s. 7(2)(b)) and when carrying out a transaction 25 exceeding EUR 1 000 (s. 7(1)). 26 Should the obliged entity suspect that a cus- tomer is not acting on its own behalf or is attempting to conceal their acting for a third party, then the obliged entity has to require the customer to submit a power of attorney (s. 8(7)). Identification of the customer involves obtaining: 24. A business relationship is defined as a relationship to handle assets of clients or to provide repetitive transactions or service (s. 4(2) AML Act) 25. A transaction is defined as an interaction that leads to the handling of property or the provision of services (s. 4(1) AML Act). 26. Certain exemptions apply with regards to the identification requirement based on the frequency, individual and accumulated amounts for an obliged entities non-core business activities (s. 34 AML Act). In the case of life insurances iden- tification is required at the latest on the day of the payment (s. 7(3)). PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK CZECH REPUBLIC OECD 2012 COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION 27 for a natural person: all names and surnames, a birth identification number or date of birth, a place of birth, residence and citizenship; for a natural person who is a sole proprietor: the business name or any other identification features, place of business and business iden- tification number; and for a legal person: the entitys name, or other identification features, official address, business identification number or a business identi- fication number given under foreign law. 66. The obliged entity must perform customer due diligence (CDD) to the extent necessary to determine the potential risk depending on the type of customer, business relationship, product, or transaction, when entering into a business relationship or being involved in a transaction amounting to EUR 15 000 or more. 67. Performing CDD includes, using an AML-risk based approach, iden- tification of the beneficial owner should the customer be a legal person (s. 9(2) (b)`and (3)). In case of a commercial entity, the beneficial owner is defined as a natural person, having real or legal direct or indirect control over the management or operations; or holding in person or in contract with a business partner more than 25% of the voting rights; or acting in concert and holding more than 25% of the voting rights; or a natural person, who for other reasons is the real recipient of the revenue of such an entity (s. 4(4)(a)). 68. Obliged entities are required to check the validity and completeness of the customers identification data and information gathered (s. 8(6)). Data and written documents obtained during CDD need to be kept for ten years following the termination of the business relationship with the customer (s. 16). 69. The Czech FIU has overall responsibility to ensure that all obliged financial and non-financial institutions comply with the obligations contained in the AML legislation. In addition, various authorities and self regulating organisations (SRO) have supervisory responsibilities in their specific indus- tries. The Czech National Bank (CNB) is responsible for general supervision of the entire financial market in the Czech Republic. The CNB supervision includes on-site general inspections and AML compliance checks. The CNB does not have power to sanction for infringements of the AML/CFT law. This lies exclusively with the FIU. The Czech authorities stated that information held by entities due to AML requirements can easily be retrieved by the com- petent authority for EOI purposes. PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK CZECH REPUBLIC OECD 2012 28 COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION Nominees 70. The business of providing nominee shareholding is regulated under the AML Act (s. 2(1)(h)(4)) 27 as well as the Capital Market Undertakings Act (ss. 4 and 4a). As obliged persons they are required to identify their custom- ers, i.e. the person on whose behalf they hold these shares, and perform CDD at the moment of establishing the business relationship (s. 9(1)). This includes, using an AML-risk based approach, identifying the beneficial owner where the customer is a legal entity (s. 9(2)(b) and 3). The beneficial owner is in gen- eral defined as a natural person having real or legal direct or indirect control of an entity or holding, alone or together with other persons, voting rights or financial interest in that legal person of more than 25% (s. 4(4)). The nominee is further required to conduct ongoing monitoring, to ensure that the informa- tion held on the customer is up-to-date and to keep information for ten years following the termination of the business relationship. 71. If a person holds shares on behalf of another person as a nominee or under a (disclosed or undisclosed) mandate, the nominee would be subject to tax obligation unless they provide proof through written agreements or otherwise that they are not the beneficial owner of the assets. The Czech authorities advise that the tax authorities have the power to require any type of nominee or mandatary to provide information for purposes of the exchange of information. Any person acting as nominee would have to disclose the identity of the person for whose account the shares are held. Conclusion 72. Full up-to-date identity information is required to be available for shareholders and members of Czech domestic companies and cooperatives under the registration obligations of commercial laws and the obligations on entities to maintain registers of shareholders/members. However, there is an exception with regards to holders of bearer shares that can be issued by public limited liability companies (see further below). 73. Foreign companies considered resident within the Czech Republic are required to include in their annual financial statement details on owners who hold at least 20% of voting rights or 40% of the shares, alone or in concert with others. In addition, Czech tax law results in many foreign companies with a Czech residence or branch to maintain information on their owners for the purpose of carrying forward of losses as well as transfer pricing. 27. An exception applies if the nominee acts for a company with securities accepted for trading at a regulated market and which is subject to information disclosure requirements equivalent to those laid down by the European Communities law (s. 2(1)(h)(4) AML Act). PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK CZECH REPUBLIC OECD 2012 COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION 29 However, these requirements do not ensure that ownership information on all foreign companies with sufficient nexus to the Czech Republic is available in all cases. 74. Where a legal owner acts, in a professional capacity 28 , on behalf of any other person in an ownership chain, e.g. as a nominee, the AML Act requires the nominee to identify his/her customer. Bearer shares (ToR A.1.2) 75. Czech public limited liability companies, but not private limited lia- bility companies, can issue shares in registered or bearer form. Bearer shares are freely transferable and transferability is unrestricted unless the statutes of the respective entity provided otherwise (s. 156 CoC et seq.). 76. Czech authorities have not established statistics regarding the number of companies with bearer shares. However, they provided the assessment team with a public 29 estimate from a private sector provider of economic information 30 that shows the number of public LLCs that have issued either only bearer shares, only nominal shares or both and how many of those were certificated or book-entry shares. This estimate shows that as at December 2010 there were registered 23 970 public limited companies of which at least 31 12 499 or more than 50% had issued certificated 32 bearer shares. Certificated shares may be listed on the stock market (s. 65 Capital Market Undertakings Act). 77. Certain legal and practical mechanisms in the securities and company laws require certain holders of bearer shares to be identified or limit the issu- ance of such shares: certain types of entities are prohibited to issue bearer shares: Banks (s. 20(1) Banking Act, No.21/1992), insurance companies (s. 6 Insurance Act, No.277/2009), management companies (s. 60(1) Act No.189/2004) and railways (s. 5 Czech Railways Act, No.77/2002); 28. Professional capacity as defined as continuous activities independently con- ducted by an entrepreneur in his/her own name and on his/her own account for the purpose of making a profit (s. 2(1) CoC). 29. See article in www.ceskapozice.cz/ of 16 November 2011. 30. Czech Capital InIormation Agency (CEKIA). 31. According to the statistics, 1 211 companies could not be allocated to the various groups. 32. In the case of certificated shares, ownership in a company is represented by a physical share certificate and not a book-entry where shares are owned, recorded and transferred electronically without issuing a physical certificate. PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK CZECH REPUBLIC OECD 2012 30 COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION investment firms can issue bearer shares only as book-entry shares (s. 6 Capital Undertakings Act), see next bullet point; book-entry securities (including bearers shares) issued in the Czech Republic are to be registered in the Central Security Depository 33 (s. 92 Capital Market Undertakings Act) or in the Separate Register for Investment Instruments (s. 93). The depository maintains a regis- ter with details of the owner of the account (s. 111); a person whose voting rights in a company listed on the stock market reaches or exceeds 3%, 5%, 10%, 15%, 20%, 25%, 30%, 40%, 50% or 75%, or who reduces his share in all the voting rights below such limits, must notify the issuer and the Czech National Bank. (s. 122 Capital Market Undertakings Act); annual financial statements of commercial entities have to identify owners who have more than 20% voting rights or alone or in concert with others own more than 40% of the entities equity. This require- ment also applies to owners who hold bearer shares; and holders of bearer shares in paper form may not participate at an annual shareholder meeting unless they disclose their identities (s. 156(7) CoC). 78. Owners with more than a 25% interest in the company will have to be identified by obliged entities under the Czech AML legislation when the company enters into a business relationship with a financial institution or other obliged entity (see description of the Czech AML legislation above). Conclusion 79. The above mechanisms only cover a small fraction of entities that potentially can issue bearer shares and do therefore not ensure that informa- tion is available on all holders of bearer shares. Notably, information may not be available for persons who own 25% or less of the bearer shares of Czech public LLCs which are not listed on the stock market. Further, the Czech authorities advice that bearer shares of only two companies are cur- rently traded on the Czech stock market and thus registered with the Central Security Depository. It is therefore not ensured that ownership and identity information of owners of public LLCs are available in all cases. Indications are that around 50% of the Czech public LLCs have issued bearer shares. 33. See footnote 22. PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK CZECH REPUBLIC OECD 2012 COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION 31 Partnerships (ToR A.1.3) 80. Czech law recognises three types of partnerships, which have legal personality: general partnerships (veefna obchoani spolecnos VOS) 34 : A general partnership has two or more partners undertaking business activities under a common business name. All partners are entitled to act on behalf of the partnership and are jointly and severally liable for the debts/obligations of the partnership not only during the exist- ence of the partnership but also after its dissolution. All partners are entitled to act on behalf of the partnership. There were 7 297 VOSs in the Czech Republic as at November 2011; limited partnerships (komanaitni spolecnost KS) 35 : A limited partnership has one or more partners with limited liability for the obligations of the company up to the amount of the unpaid parts of their contributions (limited partners komanditista) and one or more partners with full liability for the obligations of the partnership (gen- eral partners komplementa). Only general partners are permitted to actively manage the partnership. There were 744 KSs in the Czech Republic as at November 2011; and European Economic Interest Groupings (EEIGs): The EEIG is a European form of partnership in which companies or partnerships from different European countries (the partners in the EEIG) can cooperate. It must be registered in the EU State in which it has its offi- cial address. The Act No.360/2004 implemented Council Regulation (EEC) No.2137/85 of 25 July 1985 on the European Economic Interest Grouping). There were 4 EEIGs in the Czech Republic as at November 2011. 81. Czech legislation also recognises silent partnerships (tiche spolecenstvi). A silent partnership is a contractual relationship between two parties by which the silent partners makes an equity contribution into another persons business. The existence of the partnership is typically not disclosed to the public. The contract has to be in writing (s. 673(2) CoC). Silent partnerships do not have legal personality and cannot hold real estate or own assets. They have no income or credits for tax purposes, do not carry on business and cannot be compared to a limited partnership. Therefore, these arrangements are not within the scope of the Terms of Reference. 82. Czech law further recognises civil partnerships (saru:eni) which are a contractual association between at least two persons uniting their efforts or 34. General partnerships are regulated in Articles 76 to 92e CoC. 35. Limited partnerships are regulated in Articles 93 to 104e CoC. PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK CZECH REPUBLIC OECD 2012 32 COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION resources for a common purpose. It is not a separate legal entity (s. 829 Civil Code CC, Act No.40/1964) and is not required to register in the Commercial Registry. A CP is often used for activities of a short duration or for specific projects only. This type of partnership does not carry on business; it cannot have any income, credits or deductions for tax purposes and is not a limited partnership. Therefore it does not fall within the entities relevant to the Terms of Reference. Information provided to government authorities Commercial register 83. Partnerships are incorporated once registered in the CR. When registering, the same information as described for companies has to be pro- vided. The agreement of association of a general or limited partnership has to include the business name and subject of the partnership as well as the names of all the members. For limited partnerships this document also has to identify general and limited partners and include the amount of each limited partners investment contribution (Arts. 78 and 94 CoC). This information is registered in the register (ss. 35 and 36(1)(a) and (b)). EEIGs are subject to the same requirements as general partnerships (Council Regulation (EEC) No.2137/85 of 25 July 1985 on the European Economic Interest Grouping and Czech Implementation Act No.360/2004). 84. The agreement of association has to be amended when a change of ownership occurs in a partnership (ss. 83 and 93(4) CoC). If an agreement of association of a partnerships is amended, it has to be filed to the CR (s. 38i(1)(a) in fine). Further, the registrar can open ex officio proceedings to ensure that registered information corresponds with the facts (s. 200b Civil Procedure Code) and would be able to take action and update the registration if it became aware of an unreported change in ownership. Tax authorities 85. A general partnership is treated as a transparent entity for tax pur- poses; its income, which is calculated according to the rules for companies, is taxed in the hands of its partners. A limited partnership is transparent in respect of its general partners and a separate taxable person (as a company) in respect of its limited partners. EEIGs are taxed like a general partnership (s. 37a). 86. Like companies, general and limited partnerships as well as EEIGs have to register with the tax administration and as part of registration must provide the office address, location of business activity, or the delivery PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK CZECH REPUBLIC OECD 2012 COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION 33 address (s. 127(1) TPC). Further, the partnership has to provide information about the individuals authorised to act on behalf of the entity (s. 127(2)). Changes to the aforementioned information have to be notified to the tax administration (s. 128(1)). 87. Czech and foreign partners in a general partnership and general part- ners in a limited partnership have to register for tax purposes (s. 125(1) TPC), provided that they are resident for tax purposes or the partnership income is considered to have its source in the Czech Republic. Their share of the part- nerships profits and losses is included in their individual tax returns (s. 18(11 and 12) ITA). The share of profit allocated to limited partners is taxed at the level of the partnership under the rules applicable to companies and limited partners need not submit individual returns in respect of such income. There are no requirements for partnerships or partners to provide information on the partners or the partnership respectively when registering with the tax administration. However, the financial statement of a partnership is a manda- tory annex to the tax return and will have to include information on owners who hold voting rights of at least 20% or ownership of at least 40% of the shares. Information held by partnerships 88. The registration application of a general or a limited partnership must be signed by all partners (ss. 78(2) and 96 CoC) and be accompanied by a partnership deed (agreement of association) which has to include all the names of the partners (see paragraph 83 above). The agreement of association has to be amended when a change of ownership occurs (ss. 83 and 93(4) CoC) and submitted to the CR, see above. Information held by service providers 89. The obligations to perform CDD described above in the section concerning companies also apply to partnerships. Thus, obliged entities (all financial institutions and a number of classes of professionals) providing ser- vices to a partnership have to identify their customer, verify the customers identity and identification of its beneficial owners. They have to establish the partnerships name, or other identification features, official address, business identification number or a business identification number given under foreign law. The further have to identify the beneficial owner, i.e. all natural persons who have real or legal direct or indirect control over the management or opera- tions of the partnership; or hold in person or in contract with a business partner more than 25% of the voting rights; or are acting in concert and holding more than 25% of the voting rights; or a natural person, who for other reasons, is the real recipient of the revenue of the partnership (s. 4(4)(a) AML Act). PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK CZECH REPUBLIC OECD 2012 34 COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION 90. Obliged entities are required to check the validity and complete- ness of the customers identification data and information gathered (s. 8(6)). Further, the obliged entity has to conduct ongoing monitoring of the business relationship including ensuring that the information held on the customer is kept up-to-date. Data and written documents obtained during CDD need to be kept for ten years following the termination of the business relationship with the customer (s. 16). Foreign partnerships 91. Foreign partnerships doing business in the Czech Republic are subject to the same registration requirements in commercial law, as foreign companies. They have to register with the CR (s. 34(1)(b) CoC) and are sub- ject Czech accounting law (s. 1(2)(b) Accounting Act). When registering with the CR, they have to provide the name and address of the branch, the name of the foreign partnership, its foreign identification number and the partner- ship agreement as well as amendments thereof (s. 21(4), 38h and 38j). The names of the partners will therefore be submitted to the CR to the extent the jurisdiction of incorporation requires such information to be included in the partnership agreement. 92. As an accounting entity foreign partnerships with business activity in the Czech Republic further have to submit their annual financial state- ments (including a proposal for profit distribution, s. 38i(1)(c)) to the CR and therein include the identity of partners who, alone or in concert with others, hold at least 40% of the shares or 20% of the voting rights of the partnership. Further, the contribution of assets from and distribution of profit to general or limited partners is a transaction that needs to be accounted for and the par- ties of this transaction have to be identified in the underlying documentation (s. 11(1) Accounting Act). 93. Foreign partnerships have to register with the tax administration (s. 127(1) TPC). Like Czech partnerships, they are transparent for tax pur- poses with regards to Czech and foreign general partners all of whom have to file a Czech tax return. The tax return has to include the partnerships financial statement including the identity of partners who reach the above mentioned thresholds for shareholding or voting rights. Czech and foreign limited partners are taxed in the same way as shareholders of a company. Their share of the profit is subject to a withholding tax (s. 36(2)(b) ITA). A limited partnership is required to submit a tax return. Although, the partners do not have to be identified on the return, identity information is available in the underlying documentation which the limited partnership must keep under the Accounting Act. PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK CZECH REPUBLIC OECD 2012 COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION 35 Conclusion 94. Czech commercial, tax, accounting and AML legislation ensure that up-to-date ownership information is available for all relevant types of Czech partnerships. This legislation further ensures that ownership information is available on all general partners of foreign partnerships carrying on business in the Czech Republic as well as any limited partners who make contributions or receive profits from the partnership. Trusts (ToR A.1.4) 95. The concept of a trust does not exist under Czech legislation and the Czech Republic is not a party to the Hague Convention on the Law Applicable to Trusts and on their Recognition. 36 However, there are no restrictions for a resident of the Czech Republic to act as trustee, protector or administrator of a trust formed under foreign law 37 . There is no specific legislation requiring such trustees to maintain identity information or to register or provide infor- mation to government authorities regarding settlors, trustees and beneficiaries of such a foreign trust. Tax legislation 96. Czech tax obligations require all residents (individuals and legal entities) to pay income tax on all their income, regardless of the location of the source of wealth of such income provided they are the beneficial owners of such assets and income (ss. 2(2) and 17(3) ITA). Thus, Czech professional or non-professional trustees who are the legal but not beneficial owners of trust assets have to be able to prove that they are not the beneficial owners to prevent being taxed on income of the trust (s. 92 TPC). 97. The Czech authorities advise that in order to prove that income is received on behalf of a trust, the trustee would have to be able to provide the trust deed as well as other relevant information such as bank accounts, accounting records and underlying documentation. Thus, the identity of the settlor and the beneficiary would have to be provided as the aforementioned documents would include this information. 36. www.hcch.net/index_en.php?act=conventions.text&cid=59. 37. Though, the number is likely low. As assets transferred to a trust may be consid- ered to be owned by the trustee, and therefore part of his/her assets, for example in case of death or with regards to potential actions of creditor, creating a legal risk for the persons involved. PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK CZECH REPUBLIC OECD 2012 36 COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION Accounting legislation 98. The Czech authorities advise that if a trustee acts in a professional capacity, trust assets have to be recorded either in the ordinary accounting of that trustee or in off-balance sheet accounts for assets accepted into cus- tody (s. 2.3 Czech Accounting Standard No. 1 in relation with ss. 4(8) and 7(5) Accounting Act). These accounting operations have to be supported by underlying documentation in accordance with Czech accounting law and include identification of the persons involved in the trusts transactions, see section A.2 of this report. AML legislation 99. AML legislation has a broad application and includes Czech trustees of foreign trusts who act in a professional capacity. Such persons are subject to AML requirements if, in a professional capacity and in a framework of a trust or any other similar contractual relationship under a foreign law, they provide services such as acting in the name of or on behalf of another person in: buying or selling real estate, business entity, or its part; managing of customer assets, such as money, securities, business shares, or any other assets, including representation of the customer or acting on their account in relation to opening bank accounts in banks or foreign financial institutions or establishing and managing securities accounts; or establishing, managing or operating a company, business group, or any other similar entrepreneurial entity regardless of its status as well as raising and gathering money or other valuables for the purpose of establishing or managing (s. 2(1)). 100. In these circumstances the professional has to identify their custom- ers and, using an AML-risk based approach, the beneficial owners (s. 9(2) (b) and 3). In the case of a trusteeship or any other similar legal arrangement under a foreign law, the beneficial owner is defined as a natural person who holds more than 25% of its voting rights or assets; is a recipient of at least 25% of the distributed assets; or in whose interest they have been established or whose interests they promote, should it yet to be determined who is their future beneficiary (s. 4(4)(c)). PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK CZECH REPUBLIC OECD 2012 COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION 37 Conclusion 101. Czech tax, accounting and AML legislation ensures that information is available regarding settlor and beneficiaries of a foreign trust with a Czech trustee. Czech tax law requires all Czech trustees of foreign trusts to keep information identifying settlor and beneficiaries of the trust in order to avoid being subject to tax with regards to the trusts asset and income attached to it. In addition, Czech accounting law requires a Czech trustee of a foreign trust who acts in a business capacity to keep accounting records identifying settlor and beneficiaries. Such trustees are further subject to Czech AML legisla- tion which ensures that a professional acting as a trustee or administrator of a foreign trust obtains information identifying the settlor of the foreign trust. It also ensures identification of those beneficiaries who have at least a 25% interest in the trust\. Foundations (ToR A.1.5) 102. The Foundation Act (No.227/1997) regulates foundations and endow- ment funds. 38 They can be established by legal or natural person, inter vivos or mortis causa, allocating assets in accordance with the Foundation Act for the achievement of publicly beneficial goals (s. 1(1)). 39 They have legal per- sonality (s. 1(2)). A foundation is prohibited from running a business for profit (s. 23(1)) and certain restrictions apply with respect to investment of assets that comprise the registered endowment. As at November 2011 there were 1 834 foundations in the Czech Republic. 103. Foundations can be established by written agreement, by a found- ing charter or by a will. The founders signatures in an agreement has to be officially verified and the charter or will has to be in the form of a notarised deed (s. 3). A charter has to include name and address of the entity; identify the founder(s) and members of the foundations statutory bodies (s. 5(3)); purpose of the entity; and the amount or value of assets allocated by each founder (s. 3(2)). If the foundation is established mortis causa, the will has to include the name of the entity to be founded as well as the purpose and 38. The main difference between a foundation and an endowment fund is that the total value of the foundation equity may not be less than or decrease below CZK 500 000 (EUR 20 000) during its existence (s. 3(4) Foundation Act). Unless otherwise stated or evident from the context, reference to foundations refers to both foundations and endowment funds. 39. The Foundation Act states that publicly beneficial goals include in particular development of spiritual values; protection of human rights or other humanitar- ian values; protection of the environment, cultural monuments and traditions; developments in science, education, physical education and sports (s. 1(1)). PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK CZECH REPUBLIC OECD 2012 38 COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION the endowment amount allocated. Further, the person who names the first members of the statutory bodies, if they are not identified in the will, has to be specified. 104. Within 30 days after establishing a foundation, its statutes have to be issued (s. 4(2)). They have to include housekeeping rules and describe who is eligible to receive distributions from the entity and how these distributions are to be made. The statutes have to be submitted to the Foundation Register (s. 5(1)). Members of the bodies of the foundation or the comptroller, are ineli- gible for foundation disbursements (s. 21(5). 105. Non-profit entities, including foundations, are subject to tax for their income from advertisements and leasing out of property (s. 18(3) ITA). Therefore, foundations with such income are required to register for tax purposes (s. 125 TPC) and provide information regarding the name and seat of the entity and the name of the persons authorised to represent the entity (s. 127 TPC). 106. A foundation is considered established on the date of its entry in the Foundation Register which is maintained by the Commercial Register. When registering, the founders or executer of the will must submit the foundation charter or will as well as its statutes (s. 5(1) and (3)). Information identifying the foundation; the founder(s) and the members of the foundations statutory bodies are registered (s. 5(3)). 107. Each foundation has to produce annual reports which are public (s. 26) and have to be submitted to the Foundation Register (s. 5(1)). The annual report has to include an overview of the foundations activities and provide information on donors and beneficiaries who donated or received assets valued more than CZK 10 000 (EUR 400) (s. 25(2)(d)). Such donors or beneficiaries have to be identified in the report unless a donor or a ben- eficiary who is a natural person and who received benefits for health or humanitarian purposes, ask to remain anonymous. The annual report further includes the annual financial statements and audit report (s. 25(2)(d)). Notes of the annual financial statement have to contain information about the found- ers, promoters, deposits into equity, the nature and amount of these deposits. (ss. 30 and 2(1)(g) Decree implementing certain provisions of the Accounting Act for accounting entities whose main activity is not business Decree No.504/2002). 108. Members of a foundations statutory body who act in a professional capacity are subject to Czech AML legislation (s. 2(1)(h) AML Act). As such be required to perform CDD and identify the founder(s) and beneficial PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK CZECH REPUBLIC OECD 2012 COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION 39 owners 40 of the foundation (s. 9(1) and 9(2)(b)). When a foundation or fund has financial activity involving an obliged entity (financial institution or one of the designated categories of professionals) the obliged entity will also conduct such CDD and identify the founders plus beneficial owners of the foundation or fund. Conclusion 109. The Czech Republics legal and regulatory framework, in particular the Foundations Act, ensures the availability of information on the founda- tions founders, members of the board of directors, the supervisory board and the comptroller and beneficiaries. Other entities or arrangements Civil associations 110. Civil associations are membership organisations established to pursue common interests. Within broad parameters, associations are permitted to engage in both mutual benefit and public benefit activities and are typically used for sporting clubs, etc. Civil associations are generally regulated by the Citizens Associations Act (Act No.83/1990). The association and persons authorised to act on its behalf have to be registered with the Ministry of Interior (ss. 2 and 6). Beneficiary association 111. Beneficial associations (BAs) are governed under the Beneficiary Associations Act (No.248/1995). They are non-profit entities which have no members and are established to provide beneficial services to the general public and to all clients under identical terms and conditions (s. 2(b)). This entity is often used in order to provide community services such as hospitals, homes for the elderly, drug rehabilitation clinics, community centres, and entities providing social, educational, and cultural services. As at November 2011 there were 2 186 beneficiary associations. BAs as well as the settlor(s), directors and members of its statutory bodies have to be registered with the regional registration courts (ss. 4(2) and 5). 40. In the case of a foundation, the beneficial owner is defined under the AML Law as: (i) a natural person, who is to receive at least 25% of the distributed funds; or (ii) a natural person or a group of persons in whose interest a foundation has been established or whose interests they promote in case the beneficiary of such foundation has not yet been determined (s. 4(4)(b)). PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK CZECH REPUBLIC OECD 2012 40 COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION AML requirements 112. Czech AML legislation requires financial institutions and service providers to perform CDD when involved with an association including identification of the entity and its beneficial owners. In case of an association or any other similar legal person the beneficial owner is defined as a natural person who holds more than 25% of its voting rights or assets; is a recipient of at least 25% of the distributed assets; or in whose interest they have been established or whose interests they promote, should it yet to be determined who is their future beneficiary (s. 4(4)(c)). It is very likely that a Czech asso- ciation will be in contact with an AML obliged entity in the Czech Republic and thus subject to the above CDD requirements. Enforcement provisions to ensure availability of information (ToR A.1.6) 113. The existence of appropriate penalties for non-compliance with key obligations is an important tool for jurisdictions to effectively enforce the obli- gations to retain identity and ownership information. Non-compliance affects whether the information is available in the jurisdiction to respond to a request for information by its EOI partners in accordance with the international standard. 114. In the Czech Republic, most obligations to retain relevant information are supported by enforcement provisions to address the risk of non-compli- ance. The relevant enforcement provisions and mechanisms are set out below: if the content of an entry in the Commercial Register is contrary to a mandatory provision of the law and remedy cannot be achieved oth- erwise, the CR will ask the commercial enterprise to ensure remedy. If this entity does not ensure remedy within the stipulated time period, the registration court may, if this procedure is in the interests of protecting third parties, ex officio decide to close it by putting it into liquidation (s. 29(6) CoC); the Registrar may impose a procedural fine on a commercial entity which does not responded to a call of the registrar to notify it of a fact or submit documents the register required or if the Czech or foreign entity does not submit documents to the register as prescribed by relevant regulations. The fine can be up to CZK 20 000 (EUR 800) (s. 200de Civil Procedure Code, CPC, Act No.99/1963); a person can be sanctioned with two years of imprisonment for pre- senting false or grossly distorted information to a public register; or concealing important facts in documents submitted to such registers; or endangering or limiting another persons rights by not submitting required information without undue delay (s. 254 Criminal Code); PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK CZECH REPUBLIC OECD 2012 COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION 41 the transfer of a registered share becomes effective toward the company only after the change of entry in the list of shareholders (s. 156(3) CoC). The company is required to register a change in the list of shareholders without delay as soon as the change in the share- holders person is proven (s. 156(6)) and it is liable for damage caused by non-compliance with this requirement. non-compliance with tax obligations can be sanctioned with an administrative penalty of up to CZK 50 000 (EUR 2 000) (s. 247(2) TPC). The penalty can be imposed repeatedly if the unlawful condi- tion persists (s. 248(2)); if taxes get reassessed due to breach of e.g. rules regarding carrying forward of losses or transfer pricing, a penalty of up to 20% of an additionally assessed tax can be imposed (s. 251 TPC); a foundation can be forcibly liquidated if it in its activities gravely or repeatedly violates the rules of the Foundation Act (s. 7(5)(a) of the act); a beneficiary association can be forcibly liquidated if it violates the rules of the Beneficiary Associations Act (s. 8(4)(f) of the act); non-compliance with accounting Decrees No.500/2002 and No. 504/ 2002 with regards to providing information on significant/controlling owners of an accounting entity and founders of a foundation can be sanctioned with up to 6% of the entitys total assets (s. 37(2) and 37a(2)) and criminal charges can apply; the Central Depository is liable for damage caused by errors in securi- ties accounts it holds according to s. 111 Capital Market Undertakings Act (s. 100(4)); a person not reporting voting rights thresholds according to s. 122 Capital Market Undertakings Act commits an offense that can be fined with up to CZK 10 million (EUR 400 000) (ss. 164 and 166); and investment firms issuing bearer shares in breach of the Capital Undertakings Act will lose authorisation to act on capital market (s. 6 and s. 136 Capital Undertakings Act). 115. A regulated entity that does not comply with requirements within the AML Act to perform CDD can be sanctioned with an administrative fine of up to CZK 1 000 000 (EUR 40 000) (s. 44(2)). Where non-compliance prevents or makes it more difficult to freeze or seize proceeds of crime, or makes the financing of terrorism possible, a fine up of to CZK 50 000 000 (EUR 2 000 000) can be imposed (s. 44(4)). PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK CZECH REPUBLIC OECD 2012 42 COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION Conclusion 116. The Czech Republics commercial, tax, accounting and AML leg- islation include enforcement provisions which are applicable in case of non-compliance with provisions that ensure availability of relevant ownership information. Though, whereas sanctions apply to private LLCs that do not submit updated ownership to the Commercial Register, no sanctions apply to public LLCs and cooperatives that fail to maintain a register of their share- holders/members. Nevertheless, sanctions apply to these two types of entities if they do not include information on owners who do exercise significant or controlling influence over the entity. The effectiveness of these enforcement provisions which are in place in the Czech Republic will be considered as part of its Phase 2 Peer Review. Determination and factors underlying recommendations Phase 1 determination The element is not in place. Factors underlying recommendations Recommendations Public limited liability companies are allowed to issue bearer shares and there are insufficient mechanisms in place that ensure the availability of information allowing for identification of their owners. The Czech Republic should take necessary measures to ensure that appropriate mechanisms are in place to identify the owners of bearer shares in all instances. Not all companies incorporated outside of the Czech Republic but having their place of effective management (and thus tax residency) therein are subject to clear requirements to maintain identity information concerning their owners. The Czech Republic should ensure that ownership and identity information are available for all foreign companies having a sufficient nexus with the Czech Republic. Czech legislation does not provide for sanctions in all cases for public limited liability companies and cooperatives that fail to maintain ownership information. The Czech Republic should introduce appropriate enforcement measures to address the risk of public limited liability companies and cooperatives not complying with the requirement to maintain a register of their shareholders and members. PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK CZECH REPUBLIC OECD 2012 COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION 43 A.2. Accounting records Jurisdictions should ensure that reliable accounting records are kept for all relevant entities and arrangements. 117. A condition for exchange of information for tax purposes to be effec- tive, is that reliable information, foreseeably relevant to the tax requirements of a requesting jurisdiction is available, or can be made available, in a timely manner. This requires clear rules regarding the maintenance of accounting records. The obligations to maintain reliable accounting records are found in the laws govern- ing the various types of entities covered by this report, and in the Accounting Act. General requirements (ToR A.2.1) 118. All legal entities, including all companies, partnerships, foundations 41 and beneficiary societies 42 which have their seat, i.e. registered office, in the Czech Republic as well as all foreign companies or partnerships which carry out business or other regulated activities within the Czech Republic (herein- after accounting entities) and trustees acting in a professional capacity, are subject to the Czech Accounting Act (s. 1(2)). Czech accounting law applies to all foreign partnerships with branches in the Czech Republic and foreign companies which are resident for tax purposes based on place of effective management due to the requirement within Czech tax law to provide finan- cial statements in accordance with Czech accounting standards. 119. Accounting entities have to keep accounting records that show the position of, and movements in, their assets, liabilities, equity, as well as costs (expenditures) and revenues, and their profits and losses (trading result) (s. 2 Accounting Act). Further, they have to keep their accounting records in a manner which will enable them to draw up financial statements giving a true and fair view of their financial position (s. 7). Accounting records have to be complete, i.e. record all relevant transactions (s. 8(3)) and properly documented (s. 8(4)). 120. Accounting systems have to allow preparation of financial statements which include, as a minimum, a balance sheet, profit and loss account as well as notes explaining and supplementing the information contained in the financial the aforementioned statements (s. 18). 121. All accounting entities have to produce an annual report which shall provide an overall, well-balanced and comprehensive information on their performance, activities and current economic position (s. 21(1)). All entities that are required to register with the CR have to submit the annual report to the register (s. 38i(c) CoC). 41. See Article 24(1) Foundation Act. 42. See Article 19(4) of the Beneficial Associations Act (No.248/1995). PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK CZECH REPUBLIC OECD 2012 44 COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION 122. The Accounting Act and related decrees are applicable to both legal persons which have their seat, i.e. its registered office in the Czech Republic and foreign persons which carry out business in the Czech Republic (s. 1(2) (b) Accounting Act). 123. No specific accounting rules exist for foreign trusts administered by Czech trustees. However, the accounting obligations previously described, require trustees who act in a business capacity to keep full accounting records and underlying documents for all operations of the trust (not simply for their own income derived from the trust). They are further subject to the below AML accounting requirements. Both professional and non-professional trus- tees who are not the beneficial owners of the trust asset have to keep necessary records in order to disprove Czech tax liability for income from that asset. Though, this may not require the trustees to keep accounting records that fully reflect the financial position and assets/liabilities of the foreign trust. Nevertheless, transactions of a trust with a non-business trustee can be subject to Czech AML requirements if the trustee e.g. (i) opens an account or estab- lishes a relationship related to the trust with a Czech bank or other fiduciaries subject to AML legislation; or (ii) purchases or sells any real property for the trust via a lawyer or other professional who would also be subject to the AML/ CFT framework. A potential narrow gap remains of those trusts which have a non-professional trustee and none of the aforementioned activities in the Czech Republic. The Czech Republic should monitor this gap to ensure it does not in any way hamper the effective exchange of information in tax matters. This will be considered further in the Phase 2 review of the Czech Republic. 124. Failing to keep accounting information as provided for by the Accounting Act can be administratively sanctioned with up to 6% of the entitys total assets (s. 37(2) and 37a(2)). Further, the following can be sentenced with imprisonment of up to two years or prohibition of business activity: Not keeping legally required accounting documentation; entering into such accounting docu- mentation false or grossly distorted data; altering, destroying, damaging, making useless or concealing such documents, and thus endanger proprietary rights of another or imperil proper and timely imposition of tax (s. 254 Criminal Code). 125. An obliged entity subject to Czech AML legislation (including a person acting, in a business capacity, as trustee of a foreign trust) is obliged to keep records of all data and documents on all transactions within a business relationship (including transactions between a trustee and a settlor or benefi- ciary) for at least 10 years. The same obligation applies in case of occasional transactions exceeding EUR 1 000 (ss. 16 and 7(1)). The scope of records to be kept is very broad and comprises all data and written documents about the transactions. This includes underlying documents as well. Failing to comply with these requirements can be sanctioned with a fine of up to CZK 10 000 000 (EUR 400 000) (s. 44(3 and 4)). PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK CZECH REPUBLIC OECD 2012 COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION 45 126. Czech tax legislation requires relevant entities (including foreign companies which have a branch or are considered resident for tax purposes) to keep records evidencing income and expenses as well as assets and liabilities (s. 23(2) ITA. Such records include records and documents required by accounting law. Further, business entities and other entities which are involved in gainful activities are required to keep specific records of cash payments they make unless such payments are already recorded as part of an accounting system (s. 97 TPC). Also, all relevant entities annual financial statements and their annexes are an integral part of the Czech tax return (Instructions for completing corporate income tax returns). Non-compliance with procedural tax obligations can be sanctioned with an administrative penalty of up to CZK 50 000 (EUR 2 000) (s. 247(2) TPC). The penalty can be imposed repeatedly if the unlawful condition persists (s. 248(2)). Further, sanctions apply where taxpayers are not able to provide sufficient evidence for facts relevant to their tax positions. Conclusion 127. All relevant Czech entities as well as foreign entities involved in business activities in the Czech Republic are required under Accounting Act to keep accounting records that correctly explain the entitys transactions, enable it to determine the entitys financial position with reasonable accuracy at any time and allow financial statements to be prepared. The requirements under the Accounting Act are supplemented by obligations imposed by the AML Act and the Income Tax Act. Underlying documentation (ToR A.2.2) 128. Czech accounting law explicitly requires all accounting entities to base their accounting records on underlying accounting vouchers (s. 6(1) Accounting Act). These vouchers are documents that have to be dated and include information on the content of the underlying transaction, the par- ties involved, the amount of the transaction and date issued (s. 11(1)). The Accounting Act states that in addition to accounting vouchers the accounting entity has to keep depreciation plans, inventory lists , etc. (s. 31(2)(b)). There is no explicit requirement within Czech accounting law to keep copies of original invoices, contracts , etc. However, Czech accounting law states that an accounting entity must be able to prove each event or transaction for which there has to be an accounting record (s. 33a(1)). The Czech authorities advise that this requires keeping originals of documents underlying the transaction or event such as invoices and contracts. 43 Furthermore, the Act states that an 43. Though the original documents can subsequently be transformed into other formats as long as this transformation is traceable (s. 33(3) Accounting Act. PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK CZECH REPUBLIC OECD 2012 46 COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION accounting entity can use payroll lists (wage sheets), documents used for tax purposes (such as invoices) and other documents pursuant to other statutory provisions as its accounting records (Article 32(2)); in which case these docu- ments have to be kept for a minimum of 5 years. 129. Czech tax law requires that relevant entities keep evidence providing information regarding income and expenses as well as assets and liabilities. The Czech authorities advise that this would normally require such entities to keep underlying copies of original documents, including invoices and contracts. Further, as mentioned above, Czech AML legislation requires regulated entities to keep underlying documentation for transactions that exceed EUR 1 000. The 5-year retention standard (ToR A.2.3) 130. Czech accounting law requires all accounting entities to keep their annual financial statements as well as annual reports for a period of ten years. Other accounting records including vouchers and other underlying documen- tation have to be kept for a period of five years (s. 31 Accounting Act). 131. Due the statute of limitation in Czech tax law, accounting informa- tion relevant for tax purposes has to be kept for a minimum of three years and three months after the end of the tax period (ss. 148(1) and 136(1) TPC) unless the tax for the year in question is subject to tax proceedings (s. 14(2) et seq.). To the extent this information is also required to be kept in accordance with provisions of the Accounting Act, it will be maintained for at least five years. 132. Where Czech AML legislation requires obliged entities to keep records and documents of transactions, these have to be kept for ten years (s. 16(2)). Determination and factors underlying recommendations Phase 1 determination The element is in place. A.3. Banking information Banking information should be available for all account-holders. Record-keeping requirements (ToR A.3.1) 133. Czech law prohibits anonymous accounts (s. 709 CoC) and anonymous passbooks (ss. 782, 786, 787 Civil Code). Further, an agreement to establish an account, an agreement to make a deposit into a deposit passbook or a deposit PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK CZECH REPUBLIC OECD 2012 COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION 47 certificate; or an agreement to make any other type of deposit are subject to identification according to specific AML provisions (s. 7(2)(c) AML Act). 134. The Czech Republic allowed bearer passbooks until they were abol- ished in December 2002 by way of amendment of the Act on Banks 44 . This amendment established that only withdrawals, but no deposits, can be made with these passbooks unless they are re-issued as bank books in nominative form. Further, when a withdrawal is made, the banks are required to identify the customer (s. 7(2)(g) of the AML Act). Also, after 2012, the banks will no longer be obliged to honour the passbooks. However, Czech authorities advise that banks are not prohibited to do so and that banks have indicated that they would continue to honour withdrawal requests after 2012. The Czech authori- ties advised that approximately EUR 80 million, distributed over 2.5 million passbooks, were still outstanding as at the end of 2009. The Czech Republic should strengthen the measures already put in place so that information on the owners of these passbooks is available and effective exchange of informa- tion enabled should a need arise. 135. All credit and financial institutions, including investment compa- nies and investment funds in the Czech Republic are subject to the Czech AML Act (s. 2(1)(a) and (b)). They have to identify their customers prior to establishing business relationships with or carrying out transactions for the customers (ss. 8 and 9), unless the customer itself is an AML-regulated entity with AML obligations equivalent to those imposed by the European Community legislation 45 and supervised to that respect (s. 13(1)(b)). 136. The CDD measures to be undertaken include the identification of the customer and verification of his identification as well as ongoing monitoring of the business relationship including ensuring that the information held on the customer is kept up-to-date (s. 8(6)). Banks are also required to identify the beneficial owners of their customers (s. 9(2)(b)) 46 . All data and documents gathered when identifying customers and performing CDD have to be kept for a minimum of ten years (s. 16). 137. The AML Act imposes penalties on banks that fail to comply with their CDD and record keeping requirements. Banks that fail to conduct appropriate CDD are liable to a fine of up to CZK 1 000 000 (EUR 40 000). Where non-compliance prevents or makes it more difficult to freeze or seize 44. In case of bearer passbooks there is no account holder but a savings passbook owner. 45. See footnote 13. 46. The definition of beneficial owner depends on the type of entity and are described under the various sections in part A.1 of this report. It generally requires direct or indirect control of a natural person of at least 25% of an entity or its revenue ore assets (s. 4(4) AML Act). PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK CZECH REPUBLIC OECD 2012 48 COMPLIANCE WITH THE STANDARDS: AVAILABILITY OF INFORMATION proceeds of crime, or makes the financing of terrorism possible, a fine of up to CZK 50 million (EUR 2 million) can be imposed (s. 44). 138. Czech banks and Czech branches of foreign banks are subject to the Accounting Act (s. 21(1) Banking Act). Banks must therefore keep accounting information as described in section A.2 of this report. Further, this legisla- tion requires banks to keep separate records in their accounts of transactions made for a clients account and keep these records for a period of ten years (s. 21(2) Banking Act). Non-compliance can be sanctioned with fines of up to CZK 50 000 000 (EUR 2 000 000) (s. 26(1)). Finally, payment system institu- tions 47 and investment firms are required to maintain documents and records pertaining to transactions and services rendered to customer for a minimum of five years (s. 28(1) Payment Systems Act No.284/2009 and s. 17 Capital Market Undertakings Act No.256/2004). Non-compliance can be sanctioned with CZK 10 000 000 (EUR 400 000) and CZK 20 000 000 (EUR 800 000) respec- tively (s. 125 Payment System Act and s. 157 Capital Markets Undertakings Act). Determination and factors underlying recommendations Phase 1 determination The element is in place. Factors underlying recommendations Recommendations Although opening of bearer passbooks was prohibited in 2002, some pre-existing passbooks are still in existence and identity information on their holders will not be available unless a withdrawal takes place. The Czech Republic should strengthen measures so that information on the holders of bearer passbooks is available to its competent authority. 47. According to the Act on Payment Systems, No. 284/2009, the payment system institutions are legal entities authorized by the Czech National Bank to provide (i) payment services listed in the authorisation or activities linked to payment services including granting of loans. PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK CZECH REPUBLIC OECD 2012 COMPLIANCE WITH THE STANDARDS: ACCESS TO INFORMATION 49 B. Access to information Overview 139. A variety of information may be needed in a tax inquiry and jurisdic- tions should have the authority to obtain all such information. This includes information held by banks and other financial institutions as well as infor- mation concerning the ownership of companies or the identity of interest holders in other persons or entities, such as partnerships and trusts, as well as accounting information in respect of all such entities. This section of the report examines whether the Czech Republics legal and regulatory frame- work gives to the authorities access powers that cover relevant persons and information, and whether the rights and safeguards that are in place would be compatible with effective exchange of information. 140. The Czech tax administration has broad powers to access informa- tion relevant for the tasks of the tax administration from any person and from public authorities. These powers can be exercised through on-site and off-site inspections. Non-compliance can be sanctioned with penalties. The tax administration has the power to enter premises, inspect relevant docu- ments and take copies thereof as well as seize items that may serve as proof. Further, the tax administration can take witness statements. In this latter case, the taxpayer has to be notified unless there is a danger of delay. 141. The confidentiality of bank information is protected by law but this is lifted when banks are requested in writing by the Czech tax administration to provide information regarding accounts and transactions. 142. The Czech tax administration can apply their domestic powers, including sanctions, for the purpose of answering international requests for information, including in cases where it does not have an interest in the infor- mation for Czech tax purposes. 143. The scope of the professional privilege for lawyers and tax advisors is very broad and goes beyond the international standard. PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK CZECH REPUBLIC OECD 2012 50 COMPLIANCE WITH THE STANDARDS: ACCESS TO INFORMATION B.1. Competent Authoritys ability to obtain and provide information Competent authorities should have the power to obtain and provide information that is the subject of a request under an exchange of information arrangement from any person within their territorial jurisdiction who is in possession or control of such information (irrespective of any legal obligation on such person to maintain the secrecy of the information). Bank, ownership and identity information (ToR B.1.1) / Accounting records (ToR B.1.2) 144. The tax administration is under a general duty to systematically ensure taxpayers and third parties compliance with obligations under the TPC and for that purpose to keep necessary registers and records regard- ing the taxpayers (s. 9 and 11). The administration is required and entitled, prior to the commencement of tax proceedings, to check the completeness of the records and registration data of the taxable parties and retrieve any data concerning their income, financial standing and other factors relevant for the correct levying and recovery of taxes (s. 78). 145. The Tax Procedure Code (TPC) provides broad powers to the tax administration to obtain a wide variety of information for domestic tax purposes. They can generally perform investigations and call upon persons participating in the tax procedure to fulfil their obligations (s. 11). Persons participating in the tax procedure are defined as taxpayers and third persons (s. 6(5) TPC). 146. All public authorities (including the Financial Intelligence Unit) and persons who keep records of persons or things or keep other information relevant for the administration of taxes are under an obligation to provide information to the tax administration if requested to do so (s. 57(1)). These authorities and persons are required to provide any kind of information they are in possession of irrespective of the reason why they are in possession of this information. Public inspection authorities (e.g. the Auditor General, national and local governmental auditors, and regulatory authorities) are also required to automatically disclose to the tax administration the findings of their inspections, if such findings are relevant to the administration of taxes (s. 59(1) TPC). 147. The Czech tax administrations have the power to perform inves- tigations. Any person is required to give an explanation to a tax official if required to do so (s. 79(2) TCP). The tax administration can also perform on- site investigations in order to search for evidence concerning taxpayers and third parties (s. 80 et seq.). In the course of such investigations, the tax official has the right to access business premises, including the home of a taxpayer if it is used for business activities. The tax official can access accounting PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK CZECH REPUBLIC OECD 2012 COMPLIANCE WITH THE STANDARDS: ACCESS TO INFORMATION 51 documents and other information to the extent this is necessary for the con- duct of the tax administrations tasks (s. 81). The taxpayer and other persons present during the on-site visit are required to provide assistance to the tax official (s. 82(1)). 148. Persons holding any kind of documents or other items are required to surrender or hand over such documents or items to the tax official upon request of the tax administration and allow the official to temporarily remove such items from the premise (s. 82(2)). Documents and other items that may serve as evidence may be seized by the tax official where there are concerns that there would be great difficulty obtaining such items by other means (s. 83(1)). 149. Any person is obliged to testify as a witness on important cir- cumstances that are known to that person. The witness statement must be truthful, without concealing anything. A person can refuse to testify if this could lead to criminal prosecution against that person or a close person 48 ; or to the extent such testimony would violate a statutory confidentiality obli- gation unless released from this confidentiality obligation by a competent authority or the person whose interests are protected by that obligation. The taxpayer subject to the investigation has the right to attend the witness testi- mony and ask questions. The tax administration has to notify the taxpayer of the testimony unless there is danger of delay. The notification has to include the tax matter and the name of the witness unless there is danger of delay (s. 96 TPC). This notification requirement is further dealt with in section B.2 of this report. 150. The TPC states that banks, branches of foreign banks, credit unions and payment institutions are required, on request, to provide the tax admin- istration with information regarding accounts, account holders, balances and transactions regarding such accounts as well as credits and deposits (s. 57(3)). As a matter of administrative process, for the identification of a client its full name and identiIication number (ICO) or date oI birth are commonly used as unique identifiers. The Czech authorities advise that this information is not absolutely required as long as there is enough information available to suf- ficiently identify the person in question, e.g. an account number. 151. The International Assistance in Administration of Taxes Act (No.253/2000 EOI Act) lays down the procedure and conditions under which the competent authority of the Czech Republic can access and exchange information with another jurisdiction for tax purposes. The EOI Act does not 48. A close person is defined according to Civil Code s. 116: A close person shall be defined as a relative in direct line, brother or sister and the spouse; other persons in a family or other relation shall be considered close to each other if a detriment suffered by one of them is reasonably felt as own by the other. PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK CZECH REPUBLIC OECD 2012 52 COMPLIANCE WITH THE STANDARDS: ACCESS TO INFORMATION include any specific requirements regarding the information that has to be included in requests received or sent. It applies to EOI based on international agreements and EU legislation (s. 1) and covers direct taxes such as income and property tax. The Czech Ministry of Finance and the tax administration designated by the Ministry are the Czech competent authority for EOI pur- poses (s. 3(1)). When information is requested under an EOI agreement, the Czech competent authority can cooperate with the foreign authority and apply all the access powers provided for in the TPC (s. 3(3) EOI Act)). Use of information gathering measures absent domestic tax interest (ToR B.1.3) 152. The concept of domestic tax interest describes a situation where a contracting party can only provide information to another contracting party if it has an interest in the requested information for its own tax purposes. 153. Under the EOI Act, the competent authority can access and submit information to the competent authority of the requesting jurisdiction to the extent this is permitted by the legal regulations of the Czech Republic for gathering and processing such requirements for the purpose of tax adminis- tration (s. 10(1) EOI Act). The EOI Act further provides that, when requested for information under an EOI agreement, the Czech competent authority can provide assistance, applying procedures under the TPC as if it were the co- operation among the authorities of the Czech Republic (s. 3(3) EOI Act)). The Czech authorities advise that based on these provisions, a request made under an EOI agreement pertaining to a foreign tax matter is thus treated as a Czech tax matter and is fulfilled using all the domestic tax information gathering powers available in the Czech Republic. Compulsory powers (ToR B.1.4) 154. Jurisdictions should have in place effective enforcement provisions to compel the production of information. 155. A taxpayer or third party can be summoned where that persons personal attendance is necessary (s. 100(1) TPC). Where a summoned person fails to appear without a good reason, a ruling can be issued for the Police to bring that person before the tax administration (s. 100(2)). 156. The Czech tax administration can impose a fine on a person who without proper reason seriously obstructs or frustrates the tax administration by not complying in time with a procedural obligation (such as provision of information or allowing access to premises) that has been imposed on him by law or by a tax official (s. 247 TPC). The fine can be up to CZK 50 000 (EUR 2 000). This fine can be imposed repeatedly until the failure is PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK CZECH REPUBLIC OECD 2012 COMPLIANCE WITH THE STANDARDS: ACCESS TO INFORMATION 53 rectified (s. 248(2)). Further, the tax administration can make a discretion- ary tax assessment and impose a fine based on the additional assessment if a taxpayer does not provide requested information (ss. 250 and 251). 157. Criminal tax offences are investigated and prosecuted by the crimi- nal authorities. The Czech tax authorities are generally obliged to report suspected criminal tax offences to these authorities and provide information and proofs gained during the course of their own inspections. They do not themselves have power to search any premises. Secrecy provisions (ToR B.1.5) Financial institutions 158. The Czech Republic has statutory bank secrecy. All bank transactions and financial services of banks, including account balances and deposits, are subject to banking secrecy (s. 38(1) Banking Act). However, information regarding customers and their transactions may be submitted to the tax admin- istration by a bank without the clients consent upon the written request of the tax administration under the conditions laid down by the TPC (s. 38(3)(c)). 159. As mentioned above, the TPC states that banks, branches of foreign banks, credit unions and payment institutions are required, on request, to provide the tax administration with information regarding accounts, account holders, balances and transactions regarding such accounts as well as credits and deposits (s. 57(3)). 160. Banks are also required to automatically provide the tax adminis- tration with information on interest payments to natural persons from EU member States based on s. 38af Income Tax Act which implements the EU Savings Directive. Professional privileges 161. Members of the Czech Bar Association are required not to divulge any information obtained in the course of providing legal services unless the privilege is waived by the client (s. 21(1) Legal Professions Act (Act No.85/1996)). The term legal services is defined as representation in courts, legal counselling, and legal drafting. This privilege applies to employees of the lawyer or the law firm as well as to other persons who are involved, along with the lawyer or the law firm, in the provision of legal services (s. 21(9)). Legal privilege does not apply if a lawyer/employee/involved person acts as a nominee shareholder, trustee, settlor, company director or under a power of attorney to represent a company in its business affairs. PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK CZECH REPUBLIC OECD 2012 54 COMPLIANCE WITH THE STANDARDS: ACCESS TO INFORMATION 162. Members of the Czech Chamber of Tax Advisors, their staff members or representatives are obliged to maintain confidentiality on all the facts of which they have learnt in connection with provision of tax advisory services. They can only be released from this obligation, also for the purpose of crimi- nal proceedings, by the clients through their declaration, but even in this case the Tax Advisers or their representatives are obliged to maintain confidenti- ality, if it is in the clients interest. The obligation of confidentiality shall not apply to the cases where the law regulations impose an obligation to frustrate and report commitment of a criminal offence. No breach of the obligation of confidentiality is committed if the matter concerns fulfilment of obliga- tions towards appropriate authorities according to the AML Act. (s. 6(9) Tax Consultancy Act Act No.523/1992). 163. The Czech authorities advise that the above privileges for lawyers and tax advisors apply vis--vis the tax administration and that they also cover working papers or documents executed in the course of a transaction or the evidence of the fact of a transaction (including contracts, deeds or other instruments). However, the Czech tax administration has the powers to require such information from the client or other persons, not covered by a professional privilege, who hold such information to the extent such informa- tion holders are subject to the above described access powers of the Czech tax administration. 164. The AML Act specifically exempts lawyers and public notaries from keeping or providing information that they obtained while providing legal advice or representing the customer in court proceedings regardless of whether proceedings commenced or not, or were concluded or not (s. 27). Conclusion 165. The Czech professional privilege covers not only lawyers but also tax advisors. In both cases it includes communication produced for purposes other than that of seeking or providing legal advice or use in existing or con- templated legal proceedings. Both privileges further cover working papers or documents executed in the course of a transaction or the evidence of the fact of a transaction (including contracts, deeds or other instruments). Further, the legal privilege covers not simply information enclosed within a commu- nication between a professional and a client but also within a communication between a client and another person who is not a professional. This provides a professional privilege that is considerably broader than the exemption for legal professional privilege under the international standard. PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK CZECH REPUBLIC OECD 2012 COMPLIANCE WITH THE STANDARDS: ACCESS TO INFORMATION 55 Determination and factors underlying recommendations Phase 1 determination The element is in place but certain aspects of the legal implementation of the element need improvement. Factors underlying recommendations Recommendations The privileges attaching to certain information held by legal advisers and tax advisers are more extensive than prescribed by the standard, and could impede effective exchange of information in a given case. The Czech Republic should ensure that domestic provisions on professional privileges allow exchange of information in line with the standard. B.2. Notification requirements and rights and safeguards The rights and safeguards (e.g. notification, appeal rights) that apply to persons in the requested jurisdiction should be compatible with effective exchange of information. Not unduly prevent or delay exchange of information (ToR B.2.1) 166. The Terms of Reference provides that rights and safeguards should not unduly prevent or delay effective exchange of information. For instance, notification rules should permit exceptions from prior notification (e.g. in cases in which the information request is of a very urgent nature or the notification is likely to undermine the chance of success of the investigation conducted by the requesting jurisdiction). 167. Under Czech domestic law there is no obligation for the Czech authorities to give notice to the person who is the object of a request for information made by another jurisdictions competent authority and the tax administrations decision to exercise their access powers are as such not appealable (s. 109(2) TPC). As a consequence, the domestic law of the Czech Republic does not contain a disposition that allows the person who is the object of a request for information to oppose and challenge such request and exchange. However, there is a notification procedure with respect to witness statements (TPC s. 96). As mentioned under part B.1 in this report, when the tax administration asks a third party to provide a witness statement, the con- cerned taxpayer must be notified unless there is danger of delay (s. 96 TCP). The notification has to include the reference number of the tax case and the name of the witness unless there is a danger that this latter information could frustrate the purpose of the statement in which case the name of the witness PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK CZECH REPUBLIC OECD 2012 56 COMPLIANCE WITH THE STANDARDS: ACCESS TO INFORMATION will not be included. The taxpayer subject to the investigation has the right to attend when the tax administration is taking witness statement and may ask questions. Conclusion 168. With the minor exception of prior notification in cases of a third party witness statement, there seem to be no rules on rights and safeguards which could unduly prevent or delay effective exchange of information. It is recommended that the exception from prior notification of a witness state- ment be specifically permitted where the notification is likely to unduly prevent effective exchange of information. Determination and factors underlying recommendations Phase 1 determination The element is in place. PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK CZECH REPUBLIC OECD 2012 COMPLIANCE WITH THE STANDARDS: EXCHANGING INFORMATION 57 C. Exchanging information Overview 169. Jurisdictions generally cannot exchange information for tax purposes unless they have a legal basis or mechanisms for doing so. A jurisdictions practical capacity to effectively exchange information relies both on having adequate mechanisms in place as well as an adequate institutional frame- work. This section of the report assesses the Czech Republics network of EOI agreements against the standards and the adequacy of its institutional framework to achieve effective exchange of information in practice. 170. In the Czech Republic, the legal authority to exchange information is derived from double tax conventions and tax information exchange agreements after the same are approved by parliament and then ratified by the president. These agreements prevail when in conflict with domestic legislation. 171. The Czech Republic has a considerable network of bilateral agree- ments that provide for exchange of information in tax matters. This network currently covers 87 jurisdictions through 81 double tax conventions (DTCs) as well as 6 tax information exchange agreements (TIEAs). All agreements are in force with the exception of two DTCs, Protocols to two DTCs and all the TIEAs. All but one of the agreements not in force were signed in 2011. 172. In addition, the Czech Republic is able to exchange information in tax matters with other European Union (EU) Member States 49 under the EU 49. The EU Member States covered by this Council Directive are: Austria, Belgium, Bulgaria, Cyprus*, the Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden and the United Kingdom. *1. Footnote by Turkey: The information in this document with reference to Cyprus relates to the southern part of the Island. There is no single author- ity representing both Turkish and Greek Cypriot people on the Island. Turkey PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK CZECH REPUBLIC OECD 2012 58 COMPLIANCE WITH THE STANDARDS: EXCHANGING INFORMATION Council Directive 77/99/EEC of 19 December 1977 (Mutual assistance in Tax Matters) concerning mutual assistance by the competent authorities of the Member States in the field of direct taxation and taxation of insurance premiums. 173. The large majority of the Czech Republics agreements meet the international standard. Nevertheless, the Czech Republic should update the small number of agreements which were found not to be fully in line with the standard 50 . Further, the Czech Republic should continue its program of updating its older agreements and entering into new agreements with relevant jurisdictions. 174. The Czech Republics EOI agreements cover its 10 major trading partners and more than half of the Global Forum members as well as all EU member states and all but one of the OECD members. The Czech Republic has not refused to enter into an exchange of information agreement with any Global Forum member seeking to do so. The Czech Republic has a full ongoing negotiation program. In addition, The Czech Republic is currently updating its older agreements by establishing Protocols to bring the exchange of information articles to the international standard. 175. All of the Czech Republics EOI agreements contain confidentiality provisions to ensure that the information exchanged will be disclosed only to authorised persons. Most 51 of the Czech Republics EOI agreements ensure that the contracting parties are not obliged to provide information which would disclose trade, business, industrial, commercial or professional secrets or information which is the subject of legal professional privilege or to make disclosures which would be contrary to public policy. As noted in Part B of this report, the scope of information subject to legal professional privilege in the Czech Republic is wide and beyond the international standard. recognizes the Turkish Republic of Northern Cyprus (TRNC). Until a lasting and equitable solution is found within the context of the United Nations, Turkey shall preserve its position concerning the Cyprus issue. *2. Footnote by all the European Union Member States of the OECD and the European Commission: The Republic of Cyprus is recognized by all members of the United Nations with the exception of Turkey. The information in this document relates to the area under the effective control of the Government of the Republic of Cyprus. 50. The agreements with Brazil, San Marino, Sri Lanka and Switzerland. Further Austria and Luxemburg due to domestic limitations in these two jurisdictions with regards to EOI of bank information. 51. The exception is the DTC with Sri Lanka. PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK CZECH REPUBLIC OECD 2012 COMPLIANCE WITH THE STANDARDS: EXCHANGING INFORMATION 59 176. The Czech Ministry of Finance and the tax administration designated by the Ministry are the Czech competent authority for EOI purposes (s. 3(1)). There are no legal restrictions on the ability of the competent authority to respond to requests within 90 days of receipt by providing the information requested or by providing an update on the status of the request. C.1. Exchange-of-information mechanisms Exchange of information mechanisms should allow for effective exchange of information. 177. The Czech Republic currently has 81 signed Double Tax Conventions (DTCs), only two of which are not in force (with Bahrain and Barbados). The Czech Republic has signed six TIEAs, all in 2011, which are not yet in force (with Bermuda, British Virgin Islands, Guernsey, Isle of Man, Jersey and San Marino). Further, two Protocols signed with Belgium and Croatia in 2011 are not yet in force. The Czech Republic authorities have an ongoing programme of establishing agreements and revising agreements where necessary in order to bring them to standard. 178. The EOI agreements (both DTCs and TIEAs) signed by the Czech Republic are subject to Article 10 of the Czech Constitution. Under the Constitution, international treaties override any contradictory domestic laws (Art. 10). Foreseeably relevant standard (ToR C.1.1) 179. The international standard for exchange of information envisages information exchange on request to the widest possible extent. Nevertheless it does not allow fishing expeditions, i.e. speculative requests for information that have no apparent nexus to an open inquiry or investigation. The balance between these two competing considerations is captured in the standard of foreseeable relevance which is included in Article 26(1) of the OECD Model Tax Convention: The competent authorities of the Contracting States shall exchange such information as is foreseeably relevant for carry- ing out the provisions of this Convention or to the administration or enforcement of the domestic laws concerning taxes of every kind and description imposed on behalf of the Contracting States, or of their political subdivisions or local authorities, inso- far as the taxation thereunder is not contrary to the Convention. The exchange of information is not restricted by Articles 1 and 2. 180. Most of the Czech Republics DTCs provide for the exchange of information that is foreseeably relevant, necessary or relevant to the PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK CZECH REPUBLIC OECD 2012 60 COMPLIANCE WITH THE STANDARDS: EXCHANGING INFORMATION administration and enforcement of the domestic laws of the contracting parties concerning taxes covered in the DTCs. This scope is set out in EOI Article in the relevant DTCs and is consistent with the international standard. 52 However, the DTCs with Brazil, Germany and Switzerland do not meet the foreseeably relevant standard as they only permit EOI for the purposes of enforcing the provisions of the DTC. Further, the protocol in the DTC with the Netherlands specifically states that the obligation to exchange information does not include information obtained from banks or from institutions assimilated thereto, inter alia insurance companies (s. IV of the Protocol). However, as Germany and the Netherlands are EU members subject to the Council Directive 77/799/EEC, which, in case of EOI with these two jurisdictions, also allows for exchange of foreseeably relevant information in line with the standard, the limited wording in these two DTCs is not a concern in practice. 181. Under the TIEA with Guernsey, the requested party is under no obligation to provide information which is neither held by the authorities nor in the possession of nor obtainable by persons who are within its ter- ritorial jurisdiction (emphasis added). Thus, it uses the words obtainable by instead of the expression in control of used in Article 2 of the OECD Model TIEA. This deviation, found in most of the TIEAs with Guernsey, is considered to be consistent with the standard. In respect of all persons (ToR C.1.2) 182. For exchange of information to be effective it is necessary that the obligation to provide information is not restricted by the residence or nationality of the person to whom the information relates or by the resi- dence or nationality of the person in possession or control of the information requested. For this reason the international standard for exchange of informa- tion envisages that EOI mechanisms will provide for exchange of information in respect of all persons. 183. All of the Czech Republics DTCs and TIEAs provide for EOI in respect of all persons. Obligation to exchange all types of information (ToR C.1.3) 184. Jurisdictions cannot engage in effective exchange of information if they cannot exchange information held by financial institutions, nominees or persons acting in an agency or a fiduciary capacity, as well as ownership information. 52. The OECD Model Tax Convention on Income and on Capital recognises in its commentary to Article 26 (Exchange of Information) that the terms necessary and relevant allow the same scope of exchange of information as does the term foreseeably relevant. PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK CZECH REPUBLIC OECD 2012 COMPLIANCE WITH THE STANDARDS: EXCHANGING INFORMATION 61 Both the OECD Model Convention (Article 26(5)) and the OECD Model TIEA (Article 5(4)), which are primary authoritative sources of the standards, stipu- late that bank secrecy cannot form the basis for declining a request to provide information and that a request for information cannot be declined solely because the information is held by nominees or persons acting in an agency or fiduciary capacity or because the information relates to an ownership interest. 185. Out of the Czech Republics 81 DTCs: the DTC with the Netherlands contains a protocol specifically prohib- iting the exchange of bank information and information on insurance companies. 53 As such, this DTC is not to the international standard. However, as noted above, the Netherlands is subject to the Council Directive 77/799/EEC, which, in the case of EOI with the Netherlands, also allows for exchange of bank information in line with the stand- ard, thus the wording in the DTCs is not a concern in practice; fifteen DTCs 54 contain Article 26(5) of the OECD Model Tax Convention spelling out the obligations of the contracting parties to exchange information held by financial institutions, nominees, agents and ownership and identity information; and the Czech Republics other 65 DTCs do not contain Article 26(5) of the OECD Model Tax Convention. 186. For the 65 DTCs that do not contain Article 26(5) of the OECD Model Tax Convention, the absence of this paragraph does not automati- cally create restrictions on exchange of bank information. The commentary to Article 26(5) indicates that while paragraph 5, added to the Model Tax Convention in 2005, represents a change in the structure of the Article, it should not be interpreted as suggesting that the previous version of the Article did not authorise the exchange of such information. As described in Part B of this report, the domestic laws of the Czech Republic do not limit access to bank information for the purposes of international exchange of information The Czech authorities confirm that they can exchange banking information in the absence of Article 26(5). However, exchange of such infor- mation will be subject to reciprocity 55 and there may be domestic limitations 53. Paragraph 4 of the 1974 protocol. 54. Armenia; Bahrain; Barbados (not yet in force); Belarus; Belgium (in protocol not yet in force); China; Croatia (protocol not yet in force); Denmark; Hong Kong, China; New Zealand; Norway; Poland (not yet in force); Russia; Serbia and Uzbekistan (in protocol not yet in force). 55. The reciprocity principle is codified in the Czech legislation (s. 10(5) EOI Act). PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK CZECH REPUBLIC OECD 2012 62 COMPLIANCE WITH THE STANDARDS: EXCHANGING INFORMATION in the laws of some of these partners. 56 Such limitations have been found in the Peer Reviews of Austria and Luxembourg. 57 The Czech Republic should renegotiate DTCs with those partners that currently have restrictions under their domestic laws on access to bank information to include a provision similar to Article 26(5) of the OECD Model Taxation Convention. 187. All TIEAs concluded by the Czech Republic contain a provision simi- lar to Article 5(4) of the OECD Model TIEA, which ensures that the requested jurisdiction shall not decline to supply the information requested solely because it is held by a financial institution, nominee or person acting in an agency or a fiduciary capacity, or because it relates to ownership interests in a person. Absence of domestic tax interest (ToR C.1.4) 188. The concept of domestic tax interest describes a situation where a contracting party can only provide information to another contracting party if it has an interest in the requested information for its own tax purposes. A refusal to provide information based on a domestic tax interest requirement is not consistent with the international standard. Jurisdictions must be able to use their information gathering measures even though invoked solely to obtain and provide information to the requesting jurisdiction. This is spe- cifically stated in both the OECD Model Convention (Article 26(4)) and the OECD Model TIEA (Article 5(2)), which are primary authoritative sources of the Global standard for EOI. 189. Out of the Czech Republics 81 DTCs: fifteen DTCs 58 contain provisions similar to Article 26(4) of the OECD Model Tax Convention, which oblige the contracting parties to use their information gathering measures to obtain and provide information to 56. Out of these 65 jurisdictions, only 22 have so far been reviewed: Australia, Austria, Canada, Estonia, France, FYROM, Germany, Hungary, India, Indonesia, Ireland, Italy, Japan, Luxembourg, Malaysia, Philippines, Singapore, Spain, Switzerland, United Kingdom and the United States. And 25 of the 65 jurisdictions are not Global Forum members: Albania, Azerbaijan, Bosnia Herzegovina, Bulgaria, Egypt, Ethiopia, Jordan, Kazakhstan, Korea (Dem. Peoples Rep.), Kuwait, Latvia, Lebanon, Lithuania, Moldova, Mongolia, Montenegro, Romania, Sri Lanka, Syria, Tajikistan, Thailand, Tunisia, Ukraine, United States, Venezuela and Vietnam. 57. Austria is a major trading partner. However, the Czech Republic and Austria have already negotiated but not yet signed a protocol which will bring the DTC to standard. Further, as of 2013, the deficiency identified in the current DTC will be remedied by Directive 2011/16/EU. 58. Armenia; Bahrain; Barbados (not yet in force); Belarus; Belgium (in protocol not yet in force); China; Croatia (protocol not yet in force); Denmark; Hong Kong, PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK CZECH REPUBLIC OECD 2012 COMPLIANCE WITH THE STANDARDS: EXCHANGING INFORMATION 63 the requesting jurisdiction even in cases where the requested party does not have a domestic interest in the requested information; the DTC with Sri Lanka only allows the exchange of information which is at [a partys ] disposal under their respective taxation laws in the normal course of administration. Agreements with this restric- tive language may not allow the competent authorities to use their access powers to obtain any kind of information for EOI purposes. Thus, the Czech Republic does not have agreements in place to the standard with this jurisdictions. The same limitation can be found in the DTC with the Netherlands. However, as both the Netherlands and the Czech Republic are subject to the Council Directive 77/799/ EEC, which in the case of EOI with the Netherlands, also allows for exchange of information in the absence of a domestic tax interest, in line with the standard, this limitation is not a concern in practice; and the remaining 64 DTCs do not contain explicit provisions oblig- ing the contracting parties to use information-gathering measures to obtain and exchange requested information without regard to a domestic tax interest. 190. There are no domestic tax interest restrictions on the Czech Republics powers to access information in EOI cases (see Part B of this report). As such, the exchange of information in the absence of domestic interest in respect of the remaining 64 DTCs will be subject to reciprocity and will depend on the domestic limitations (if any) in the laws of some of these partners 59 . The Czech Republic should renegotiate DTCs with those partners that currently have domestic tax interest restrictions under their domestic laws to include a provision similar to Article 26(4) of the OECD Model Taxation Convention. 191. All TIEAs concluded by the Czech Republic contain a provision similar to Article 5(2) of the OECD Model TIEA, which allows information to be obtained and exchanged notwithstanding it is not required for a Czech Republic domestic tax purpose. Absence of dual criminality principles (ToR C.1.5) 192. The principle of dual criminality provides that assistance can only be provided if the conduct being investigated (and giving rise to an information request) would constitute a crime under the laws of the requested country if it had China; New Zealand; Norway; Poland (not yet in force); Russia; Serbia and Uzbekistan (in protocol not yet in force). 59. Out of the 64 jurisdictions, only 21 have already been reviewed, 24 are not mem- bers of the Global Forum, see lists in footnote 56). PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK CZECH REPUBLIC OECD 2012 64 COMPLIANCE WITH THE STANDARDS: EXCHANGING INFORMATION occurred in the requested country. In order to be effective, exchange of informa- tion should not be constrained by the application of the dual criminality principle. 193. There are no dual criminality provisions in any of the Czech Republics DTCs or TIEAs. Though, the confidentiality provision in the DTC with the Netherlands does not expressly provide for disclosure of received information to authorities that are involved with the prosecution of tax matters. However, as the Netherlands are EU members subject to the Council Directive 77/799/EEC, which, in the case of EOI with the Netherlands, also allows for exchange of information in the absence of dual criminality in line with the standard, omission is not a concern in practice. Exchange of information in both civil and criminal tax matters (ToR C.1.6) 194. Information exchange may be requested both for tax administration purposes and for tax prosecution purposes. The international standard is not limited to information exchange in criminal tax matters but extends to infor- mation requested for tax administration purposes (also referred to as civil tax matters). The Czech Republic provides assistance at the administrative level when the requested information relates to a criminal tax matter in the requesting jurisdiction. The Czech Republic will, on request, give as much priority to such cases as possible. 195. All of the Czech Republics DTCs and TIEAs provide for exchange of information in both civil and criminal tax matters. The TIEA with San Marino includes Article 8 of the Model TIEA. However, Article 1(2) states that information received by the requesting Party under this Agreement may be used in the requesting Party as evidence in criminal proceedings only if fuaicial or other competent authorities of the requestea Party give consent to it in accordance with the laws of the requested Party if such consent is, under these laws, necessary (Art. 1(2)). The Czech authorities advise that this requirement applies to criminal proceedings in tax cases in general and would also apply to information initially exchanged for administrative tax proceedings. This requirement may prevent effective exchange of information or the use thereof and is therefore not to standard. Provide information in specific form requested (ToR C.1.7) 196. In some cases, a Contracting State may need to receive information in a particular form to satisfy its evidentiary or other legal requirements. Such forms may include depositions of witnesses and authenticated copies of original records. Contracting States should endeavour as far as possible to accommodate such requests. The requested State may decline to provide the information in the specific form requested if, for instance, the requested form PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK CZECH REPUBLIC OECD 2012 COMPLIANCE WITH THE STANDARDS: EXCHANGING INFORMATION 65 is not known or permitted under its law or administrative practice. A refusal to provide the information in the form requested does not affect the obligation to provide the information. 197. There are no restrictions in the Czech Republics domestic laws that would prevent it from providing information in a specific form, so long as this is consistent with its own administrative practices. This is reinforced in the Czech Republics DTC with the United States, which contains express provisions (under Article 27(3)) that strengthen the need to provide informa- tion in the form requested. Further, all of the TIEAs signed by the Czech Republic include a provision akin to Article 5(3) of Model TIEA. In force (ToR C.1.8) 198. Exchange of information cannot take place unless a jurisdiction has exchange of information arrangements in force. Where such arrangements have been signed, the international standard requires that jurisdictions must take all steps necessary to bring them into force expeditiously. 199. The Czech Republic has brought all its EOI agreements into force expeditiously. All agreements are in force with the exception of three DTCs, two Protocols to DTCs and all the TIEAs. All but one of the agreements not in force were signed in 2011. The Czech Republic has completed all steps which are necessary on its part to bring the Protocol with Belgium into force. The average time between signature and entry into force for its post-2000 agreements is under 15 months. Be given effect through domestic law (ToR C.1.9) 200. For information exchange to be effective, the parties to an EOI arrangement need to enact any legislation necessary to comply with the terms of the arrangement. 201. The Czech Republics EOI agreements are given the force of law once they are approved by national Parliament, ratified by the President of the Czech Republic and there is an exchange of notes on ratification or exchange of notes on completion of domestic approval with the relevant EOI partner. The Czech Constitution provides that the provisions of its EOI agreements override older and newer domestic laws (Art. 10). EOI provisions of an international agree- ment are in addition incorporated through the Czech EOI Act which states that the rules of this act regulate the procedures and conditions under which the Czech authorities provide information based on an international treaty. 202. While there are some concerns with respect to availability of infor- mation, as discussed in Part B.1 of this report, there are no limitations, save for a concern with respect to the scope of professional privileges, in domestic PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK CZECH REPUBLIC OECD 2012 66 COMPLIANCE WITH THE STANDARDS: EXCHANGING INFORMATION legislation providing for access to information by the authorities. Thus, the Czech Republic can be considered to have given full effect to these arrange- ments through domestic law. Determination and factors underlying recommendations Phase 1 determination The element is in place. C.2. Exchange-of-information mechanisms with all relevant partners The jurisdictions network of information exchange mechanisms should cover all relevant partners. 203. Ultimately, the international standard requires that jurisdictions exchange information with all relevant partners, meaning those partners who are inter- ested in entering into an information exchange arrangement. Agreements cannot be concluded only with counterparties without economic significance. If it appears that a jurisdiction is refusing to enter into agreements or negotiations with partners, in particular ones that have a reasonable expectation of requiring information from that jurisdiction in order to properly administer and enforce its tax laws it may indicate a lack of commitment to implement the standards. 204. The Czech Republics network of bilateral agreements (DTCs and TIEAs) encompasses a wide range of counterparties, including all of the 26 other EU jurisdictions; all but one of the other 33 OECD member countries; 60 all of its 10 primary trading partners; 61 17 of the G20 jurisdictions; 62 57 of the Global Forum member jurisdictions; and 6 African, 26 Asian, 3 Caribbean, 1 Central American, 45 European, 2 North American, 2 Oceanic and 2 South American jurisdictions. 205. The Czech Republic has agreements with all of its main trading partners: Germany, the Slovak Republic, Poland, France, Austria, Italy, the Netherlands, 60. The Czech Republic does not have an agreement with Chile. 61. Germany, the Slovak Republic, Poland, France, Austria, Italy, the Netherlands, Russian Federation, United Kingdom, China and the United States. 62. The Czech Republic does not have an agreement with Argentina and Saudi Arabia. PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK CZECH REPUBLIC OECD 2012 COMPLIANCE WITH THE STANDARDS: EXCHANGING INFORMATION 67 the Russian Federation, the United Kingdom, the Peoples Republic of China and the United States. While the EOI agreements with two of its biggest trad- ing partners, Austria and Germany, are not fully to the international standard, as mentioned above, both are EU members subject to the Council Directive 77/799/EEC which allows for exchange of information in line with the standard. Though, there is an exception with regards to exchange of bank information with Austria. Nevertheless, the Czech Republic has already renegotiated but not yet signed a protocol to bring the EOI article in its DTC with Austria in line with the standard. Further, the two jurisdictions will be able to engage in effective EOI with each other once Directive 2011/16/EU (which replaces 77/799/EEC with effect from 1 January 2013) comes into force as this Directive provides for EOI fully in line with the standard. 206. The Czech Republic has a considerable network of agreements allow- ing for exchange of information for tax purposes. In addition, the Czech Republic authorities have an ongoing programme of establishing agreements and revising agreements where necessary in order to bring them to stand- ard. 63 No peers have reported that the Czech Republic declined to establish an EOI agreement with a jurisdiction seeking the same. Determination and factors underlying recommendations Phase 1 determination The element is in place. Factors underlying recommendations Recommendations The Czech Republic should continue to develop its EOI network with all relevant partners. 63. The Czech Republic is currently negotiating TIEAs with the Cayman Islands, Costa Rica and Macao. It has negotiated but not yet signed new DTCs with Kyrgyzstan, Turkmenistan, Columbia, SAE, Kosovo, Panama, Ghana and proto- cols which are not signed yet with the Netherlands, Austria, Kazakhstan, Croatia. DTCs are currently negotiated with Pakistan and Iraq and protocols with Ukraine and Switzerland. PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK CZECH REPUBLIC OECD 2012 68 COMPLIANCE WITH THE STANDARDS: EXCHANGING INFORMATION C.3. Confidentiality The jurisdictions mechanisms for exchange of information should have adequate provisions to ensure the confidentiality of information received. Information received: disclosure, use, and safeguards (ToR C.3.1) 207. Governments would not engage in information exchange without the assurance that the information provided would only be used for the purposes permitted under the exchange mechanism and that its confidentiality would be preserved. Information exchange instruments must therefore contain confidentiality provisions that spell out specifically to whom the information can be disclosed and the purposes for which the information can be used. In addition to the protections afforded by the confidentiality provisions of information exchange instruments, jurisdictions with tax systems generally impose strict confidentiality requirements on information collected for tax purposes. 208. All the Czech Republics EOI agreements have confidentiality provisions to ensure that the information exchanged will be disclosed only to persons authorised by the agreements. While each of the articles in the Czech DTCs might vary slightly in wording, these provisions contain all of the essential aspects of Article 26(2) of the OECD Model Tax Convention. The Czech Republics TIEAs have confidentiality provisions modelled on Article 8 of the OECD Model TIEA. As the provisions in the Czech Republics EOI agreements would override any contradicting domestic leg- islation, Czech authorities are required to keep confidential all information received as part of a request or as part of a response to a request regardless of any provisions in other laws. 209. Czech tax law requires officials, taxpayers and third parties to keep confidential all information concerning other persons which they learned in the course of the tax procedure (s. 52(1) TPC). This confidentiality obligation covers all types of information obtained in connection with tax administration, including information obtained in the course of international cooperation. The latter is specifically stated in the EOI Act (s. 8(1)). With regards to information received from other jurisdictions under a legal instru- ment, confidentiality provisions of these instruments prevail over the Czech Tax Procedure Code. Penalties for breaches of confidentiality are stipulated in the Tax Procedure Code, Article 246. A person who breaches confidential- ity is subject to a fine of up to CZK 500 000 (EUR 20 000). PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK CZECH REPUBLIC OECD 2012 COMPLIANCE WITH THE STANDARDS: EXCHANGING INFORMATION 69 All other information exchanged (ToR C.3.2) 210. Confidentiality rules should apply to all types of information exchanged, including information provided in a request, background documents to such requests, and any other documents or communications reflecting such information. 211. The confidentiality provisions in The Czech Republics agree- ments use the standard language of Article 8 of the OECD Model TIEA and Article 26(2) in the Model DTC or language comparable to these arti- cles. Thus, they do not draw a distinction between information received in response to requests and information forming part of the requests themselves. As such, these provisions apply equally to all requests for information, background documents to such requests, and any other document reflecting such information, including communications between the requesting and requested jurisdictions and communications within the tax administration of either jurisdiction. Further, the EOI Act specifically states that the relevant confidentiality provisions in the Czech Republics domestic law apply to information received in response to requests or information forming part of the requests themselves (s. 8(1)). Determination and factors underlying recommendations Phase 1 determination The element is in place. C.4. Rights and safeguards of taxpayers and third parties The exchange of information mechanisms should respect the rights and safeguards of taxpayers and third parties. Exceptions to requirement to provide information (ToR C.4.1) 212. The international standard allows requested parties not to supply information in response to a request in certain identified situations. 213. In line with the standard, the Czech Republics DTCs and TIEAs, the contracting parties are not obliged to provide information which would disclose any trade, business, industrial, commercial or professional secret or trade process, or information the disclosure of which would be contrary to public policy. 64 64. Though Ordre public is not specifically mentioned in the DTC with Sri Lanka. See further below. PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK CZECH REPUBLIC OECD 2012 70 COMPLIANCE WITH THE STANDARDS: EXCHANGING INFORMATION 214. Communications between a client and an attorney or other admitted legal representative are only privileged to the extent that the attorney or other legal representative acts in his or her capacity as an attorney or other legal representative. Where legal professional privilege is more broadly defined it does not provide valid grounds on which to decline a request for EOI. To the extent, therefore, that an attorney acts as a nominee shareholder, a trustee, a settlor, a company director or under a power of attorney to represent a company in its business affairs, EOI resulting from and relating to any such activity cannot be declined because of legal professional privilege. 215. All of the Czech Republics DTCs ensure that the contracting parties are not obliged to provide information which would disclose any trade, busi- ness, industrial, commercial or professional secret or information which is subject to legal professional privilege. However, the term professional secret is not defined in the DTCs and therefore, considering the definition provisions of the DTCs (see Article 3(2) of the Model DTCs), this term would derive its meaning from the Czech Republics domestic laws. As noted in Part B of this report, the scope of information subject to professional privilege in the Czech Republic is wide and goes beyond the international standard. 216. The Czech Republics DTC with Sri Lanka is the only DTC which does not contain express safeguards that allow the contracting parties to decline to supply information when doing so is contrary to public policy. This is not consistent with the international standard and it is recommended that the Czech Republic renegotiate the DTC to bring it up to the standard. 217. According to the Czech EOI Act, the competent authority is entitled to decline to provide information if the tax confidentiality rules in the rel- evant Czech legislation are stricter than those of the requesting jurisdictions and that jurisdiction fails to observe such stricter conditions (s. 10(2)). The Act further states that providing information can be declined if would give rise to a disclosure of a business secret, violation of secrecy imposed by the special legal act (including attorney-client privilege) or in case of informa- tion whose disclosure would contradict the interest of the Czech Republic and public order. To the extent these conditions go beyond the ones contained in the EOI instrument, the latter provisions would prevail (Art. 10 Constitution). PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK CZECH REPUBLIC OECD 2012 COMPLIANCE WITH THE STANDARDS: EXCHANGING INFORMATION 71 Determination and factors underlying recommendations Phase 1 determination The element is in place but certain aspects of the legal implementation of the element need improvement. Factors underlying recommendations Recommendations The Czech Republics tax treaties do not define the term professional secret and the scope of the term professional secret under its domestic laws is wide and goes beyond the international standard. It is recommended that the Czech Republic restricts the scope of the protection under the term professional secret in its domestic laws so as to be in line with the standard for the purpose of agreements for exchange of information. C.5. Timeliness of responses to requests for information The jurisdiction should provide information under its network of agreements in a timely manner. Responses within 90 days (ToR C.5.1) 218. In order for EOI to be effective, it needs to be provided in a timeframe which allows the tax administration to apply the information to the relevant cases. If a response is provided but only after a significant lapse of time the information may no longer be of use to the requesting authorities. This is par- ticularly important in the context of international cooperation as cases in this area must be of sufficient importance to warrant making a request. 219. None of the Czech Republics DTCs require the provision of request confirmations, status updates or the provision of the requested information, within the timeframes foreshadowed in Article 5(6) of the OECDModel TIEA. Four out of the six TIEAs signed by the Czech Republic so far, do so: the TIEAs with Bermuda, the Virgin Islands (British), the Isle of Man and San Marino require that the competent authority of the requested jurisdiction confirms receipt of a request; notifies any deficiencies in the request within 60 days; and, if unable to obtain and provide the requested information within 90 days, inform the requesting jurisdiction and explain the reason for its inability, the nature of the obstacles or the reasons for refusing to provide information (art 5(7)). 220. There appear to be no legal restrictions on the Czech Republic tax administrations ability to respond to EOI requests within 90 days of receipt. PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK CZECH REPUBLIC OECD 2012 72 COMPLIANCE WITH THE STANDARDS: EXCHANGING INFORMATION The Czech EOI Act states that the competent authority shall provide the requested information without undue delay. If obstacles occur in obtaining the requested information hindering the providing of such information, the competent authority shall without any delay inform the requesting competent authority of such a situation, including an indication of the causes of the obstacles or grounds for the declination (s. 9). 221. A review of the Czech Republics ability to respond to requests in a timely manner will be conducted in the course of its Phase 2 review. Organisational process and resources (ToR C.5.2) 222. DTCs and TIEAs are negotiated and signed by the Ministry of Finance. The Ministry or the entity within the tax administration designated by the Ministry are the competent authority (s. 3(1) EOI Act). The competent authority for exchange of information designated by the Ministry is located within the General Financial Directorate. The Directorate is the highest of the three levels of the tax administration: General Financial Directorate, Regional Financial Directorates and local Tax Offices 65 . 223. A review of the Czech Republics organisational process and resources will be conducted in the context of Czech Republics Phase 2 review. Absence of restrictive conditions on exchange of information (ToR C.5.3) 224. Exchange of information assistance should not be subject to unrea- sonable, disproportionate, or unduly restrictive conditions. 225. There are no aspects of the Czech Republics domestic laws that appear to impose additional restrictive conditions on exchange of information. Determination and factors underlying recommendations Phase 1 determination The assessment team is not in a position to evaluate whether this element is in place, as it involves issues of practice that are dealt with in the Phase 2 review. 65. The Czech authorities advise that this institutional structure of the tax adminis- tration will change as of 1 Jan 2013. The structure will be reduced to basically two levels. Further changes will concern competencies of tax and customs administration and social security administration . PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK CZECH REPUBLIC OECD 2012 SUMMARY OF DETERMINATIONS AND FACTORS UNDERLYING RECOMMENDATIONS 73 Summary of Determinations and Factors Underlying Recommendations Determination Factors underlying recommendations Recommendations Jurisdictions should ensure that ownership and identity information for all relevant entities and arrangements is available to their competent authorities. (ToR A.1) The element is not in place. Public limited liability companies are allowed to issue bearer shares and there are insufficient mechanisms in place that ensure the availability of information allowing for identification of their owners. The Czech Republic should take necessary measures to ensure that appropriate mechanisms are in place to identify the owners of bearer shares in all instances. Not all companies incorporated outside of the Czech Republic but having their place of effective management (and thus tax residency) therein are subject to clear requirements to maintain identity information concerning their owners. The Czech Republic should ensure that ownership and identity information are available for all foreign companies having a sufficient nexus with the Czech Republic. Czech legislation does not provide for sanctions in all cases for public limited liability companies and cooperatives that fail to maintain ownership information. The Czech Republic should introduce appropriate enforcement measures to address the risk of public limited liability companies and cooperatives not complying with the requirement to maintain a register of their shareholders and members. PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK CZECH REPUBLIC OECD 2012 74 SUMMARY OF DETERMINATIONS AND FACTORS UNDERLYING RECOMMENDATIONS Determination Factors underlying recommendations Recommendations Jurisdictions should ensure that reliable accounting records are kept for all relevant entities and arrangements. (ToR A.2) The element is in place. Banking information should be available for all account-holders. (ToR A.3) The element is in place. Although opening of bearer passbooks was prohibited in 2002, some pre-existing passbooks are still in existence and identity information on their holders will not be available unless a withdrawal takes place. The Czech Republic should strengthen measures so that information on the holders of bearer passbooks is available to its competent authority. Competent authorities should have the power to obtain and provide information that is the subject of a request under an exchange of information arrangement from any person within their territorial jurisdiction who is in possession or control of such information (irrespective of any legal obligation on such person to maintain the secrecy of the information). (ToR B.1) The element is in place but certain aspects of the legal implementation of the element need improvement. The privileges attaching to certain information held by legal advisors and tax advisors are more extensive than prescribed by the standard, and could impede effective exchange of information in a given case. The Czech Republic should ensure that domestic provisions on professional privileges allow exchange of information in line with the standard. The rights and safeguards (e.g. notification, appeal rights) that apply to persons in the requested jurisdiction should be compatible with effective exchange of information. (ToR B.2) The element is in place. Exchange of information mechanisms should allow for effective exchange of information. (ToR C.1) The element is in place. The jurisdictions network of information exchange mechanisms should cover all relevant partners. (ToR C.2) The element is in place. The Czech Republic should continue to develop its EOI network with all relevant partners. PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK CZECH REPUBLIC OECD 2012 SUMMARY OF DETERMINATIONS AND FACTORS UNDERLYING RECOMMENDATIONS 75 Determination Factors underlying recommendations Recommendations The jurisdictions mechanisms for exchange of information should have adequate provisions to ensure the confidentiality of information received. (ToR C.3) The element is in place. The exchange of information mechanisms should respect the rights and safeguards of taxpayers and third parties. (ToR C.4) The element is in place but certain aspects of the legal implementation of the element need improvement. The Czech Republics tax treaties do not define the term professional secret and the scope of the term professional secret under its domestic laws is wide and goes beyond the international standard. It is recommended that the Czech Republic restricts the scope of the protection under the term professional secret in its domestic laws so as to be in line with the standard for the purpose of agreements for exchange of information. The jurisdiction should provide information under its network of agreements in a timely manner. (ToR C.5) The assessment team is not in a position to evaluate whether this element is in place, as it involves issues of practice that are dealt with in the Phase 2 review. PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK CZECH REPUBLIC OECD 2012 ANNEXES 77 Annex 1: Jurisdictions Response to the Review Report* The Czech Republic would like to thank to the assessment team for its hard work. Our cooperation was held in collaborative manner with an open attitude on both sides. As a result the whole review process proceeded smoothly and without unnecessary work pressure or delays. The Czech Republic agrees with the report and considers it an adequate description of the Czech legal framework in the area under review. With regards to the assessment itself the Czech Republic agrees with the identified gaps and inconsistencies and welcomes the resulting recommendations as a valuable tool for progress in the area of transparency and exchange of tax relevant information. The Czech Republic is looking forward to continuing its cooperation with the Global Forum when addressing the identified gaps (ToR A.1, ToR A.3, ToR B.1, ToR C.4), reflecting specific features of the Czech legal framework as well as international standards we agreed upon with our international partners. The Czech Republic as a member of the EU and the OECD considers the administrative cooperation in the tax area a crucial project, in particular in times of a globalized economy and need for fiscal consolidation. The Czech Republic fully participates in this effort and takes part in the work of the relevant bodies within the EU and within the OECD. The Czech Republic welcomes and duly implements agreed standards and recommended practices in the area concerned. Since the reference date of the report the following relevant developments have taken place: Proposal for the Act on raising transparency of legal persons and on amendments of other laws was submitted to the review procedure. According to the proposal all bearer shares shall be either book-entry shares or immobilized no later than 1 January 2014. * This Annex presents the Jurisdictions response to the review report and shall not be deemed to represent the Global Forums views. PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK CZECH REPUBLIC OECD 2012 78 ANNEXES The draft act transposing Council Directive No. 2011/16/EU on administrative cooperation in the field of taxation has been sent to the review procedure. The new act shall become effective on 1 January 2013 and will replace Act No. 253/2000 Coll. (EOI Act). The new act is designed to apply also to EOI based on international agreements. The Czech Republic undertakes last steps in the domestic approval pro- cedure to sign the Multilateral Convention on Mutual Administrative Assistance in Tax Matters. The Czech Republics signature is antici- pated in March or April 2012. The adopted new Civil Code shall become effective on 1 January 2014. The Act will form the basis of civil and commercial law. The Commercial Code will be repealed, partly being incorporated into the new Civil Code and partly becoming a separate new Act on busi- ness corporations (with the effectiveness from 1 January 2014). In the area of international agreements, the new DTC with China including the standard EOI article became effective on 1 January 2012. Protocols to DTCs with Switzerland and Ukraine have been agreed on the expert level and include, among others, amendment to the EOI article aligning it with the standard. TIEA with Cayman Islands and Bahamas have been agreed on the expert level. PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK CZECH REPUBLIC OECD 2012 ANNEXES 79 Annex 2: List of All Exchange-of-Information Mechanisms in Force Multilateral agreements The Czech Republic exchanges information under: the new EU Council Directive 2011/16/EU of 15 February 2011 on administrative co operation in the field of taxation. This Directive is in force since 11 March 2011. It repeals Council Directive 77/799/EEC of 19 December 1977 and provides inter alia for exchange of banking information on request for taxable periods after 31 December 2010 (Article 18). All EU members are required to transpose it into national legislation by 1 January 2013. The current EU members, covered by this Council Directive, are: Austria, Belgium, Bulgaria, Cyprus, 66 Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovak Republic, Slovenia, Spain, Sweden, United Kingdom; EU Council Directive 2003/48/EC of 3 June 2003 on taxation of savings income in the form of interest payments. This Directive aims to ensure that savings income in the form of interest payments generated in an EU member state in favour of individuals or residual 66. Note by Turkey: The information in this document with reference to Cyprus relates to the southern part of the Island. There is no single authority represent- ing both Turkish and Greek Cypriot people on the Island. Turkey recognises the Turkish Republic of Northern Cyprus (TRNC). Until a lasting and equitable solution is found within the context of the United Nations, Turkey shall preserve its position concerning the Cyprus issue. Note by all the European Union Member States of the OECD and the European Commission: The Republic of Cyprus is recognised by all members of the United Nations with the exception of Turkey. The information in this document relates to the area under the effective control of the Government of the Republic of Cyprus. PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK CZECH REPUBLIC OECD 2012 80 ANNEXES entities being resident of another EU member state are effectively taxed in accordance with the fiscal laws of their state of residence. It also aims to ensure exchange of information between member states. Bilateral agreements 67 Jurisdiction Type of EOI arrangement Date signed Date in force 1 Albania DTC (double taxation convention) 22-06-1995 10-09-1996 2 Armenia DTC 06-07-2008 15-07-2009 3 Australia DTC 28-03-1995 27-11-1995 4 Austria DTC 08-06-2006 22-03-2007 5 Azerbaijan DTC 24-11-2005 16-06-2006 6 Bahrain DTC 24-05-2011 7 Barbados DTC 26-10-2011 8 Belarus DTC 14-10-1996 15-01-1998 Protocol 18-08-2010 31-05-2011 9 Belgium DTC 16-12-1996 24-07-2000 Protocol 15-03-2010 10 Bermuda TIEA (taxation information exchange agreement) 28-07-2011 11 Bosnia and Herzegovina DTC 20-11-2007 12-05-2010 12 Brazil DTC 26-08-1986 14-11-1990 13 British Virgin Islands TIEA 13-06-2011 14 Bulgaria DTC 09-04-1998 02-07-1999 15 Canada DTC 25-05-2001 28-05-2002 16 China DTC 28-08-2009 04-05-2011 17 Croatia DTC 22-01-1999 28-12-1999 Protocol 04-10-2011 18 Cyprus[NOTE] 1 DTC 28-04-2009 26-11-2009 67. See previous footnote. PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK CZECH REPUBLIC OECD 2012 ANNEXES 81 Jurisdiction Type of EOI arrangement Date signed Date in force 19 Denmark DTC 05-05-1982 27-12-1982 Protocol 11-09-1992 18-12-1992 DTC 25-08-2011 20 Egypt DTC 19-01-1995 04-10-1995 21 Estonia DTC 24-10-1994 26-05-1995 22 Ethiopia DTC 25-07-2007 30-05-2008 23 Finland DTC 02-12-1994 12-12-1995 24 France DTC 28-04-2003 01-07-2005 25 FYROM DTC 21-06-2001 17-06-2002 26 Georgia DTC 23-05-2006 04-05-2007 27 Germany DTC 19-12-1980 17-11-1983 28 Greece DTC 23-10-1986 23-05-1989 29 Guernsey TIEA 15-09-2011 30 Hong Kong, China DTC 06-06-2011 01-01-2012 31 Hungary DTC 14-01-1993 27-12-1994 32 Iceland DTC 18-01-2000 28-12-2000 33 India DTC 01-10-1998 27-09-1999 34 Indonesia DTC 04-10-1994 26-01-1996 35 Ireland DTC 14-11-1995 21-04-1996 36 Isle of Man TIEA 18-07-2011 37 Israel DTC 06-12-1993 23-12-1994 38 Italy DTC 05-05-1981 26-06-1984 39 Japan DTC 11-10-1977 25-11-1978 40 Jersey TIEA 12-07-2011 41 Jordan DTC 10-04-2006 07-11-2007 42 Kazakhstan DTC 09-04-1998 29-10-1999 43 Korea, Democratic Peoples Republic of DTC 02-03-2005 07-12-2005 44 Korea, Republic of DTC 27-04-1992 03-03-1995 45 Kuwait DTC 05-06-2001 03-03-2004 PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK CZECH REPUBLIC OECD 2012 82 ANNEXES Jurisdiction Type of EOI arrangement Date signed Date in force 46 Latvia DTC 25-10-1994 22-05-1995 47 Lebanon DTC 28-08-1997 24-01-2000 48 Lithuania DTC 27-10-1994 08-08-1995 49 Luxembourg DTC 18-03-1991 30-12-1992 50 Malaysia DTC 08-03-1996 09-03-1998 51 Malta DTC 21-06-1996 06-06-1997 52 Mexico DTC 04-04-2002 27-12-2002 53 Moldova DTC 12-05-1999 26-04-2000 Protocol 14-10-2004 13-07-2005 54 Mongolia DTC 27-02-1997 22-06-1998 55 Montenegro DTC 11-11-2004 27-06-2005 56 Morocco DTC 11-06-2001 27-12-2002 57 Netherlands DTC 04-03-1974 05-11-1974 Protocol 26-06-1996 11-04-1997 58 New Zealand DTC 26-10-2007 29-08-2008 59 Nigeria DTC 31-08-1989 02-12-1990 60 Norway DTC 19-10-2004 09-09-2005 61 Philippines DTC 13-11-2000 23-09-2003 62 Poland DTC 24-06-1993 20-12-1993 DTC 13-09-2011 63 Portugal DTC 24-05-1994 01-10-1997 64 Romania DTC 08-11-1993 11-08-1994 65 Russian Federation DTC 17-11-1995 18-07-1997 Protocol 27-04-2007 17-04-2009 66 San Marino TIEA 25-11-2011 67 Serbia DTC 11-11-2004 27-06-2005 Protocol 08-09-2009 28-02-2011 68 Singapore DTC 21-11-1997 21-08-1998 69 Slovak Republic DTC 23-03-2002 14-07-2003 70 Slovenia DTC 13-06-1997 28-04-1998 71 South Africa DTC 11-11-1996 03-12-1997 PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK CZECH REPUBLIC OECD 2012 ANNEXES 83 Jurisdiction Type of EOI arrangement Date signed Date in force 72 Spain DTC 08-05-1980 05-06-1981 73 Sri Lanka DTC 26-06-1978 19-06-1979 74 Sweden DTC 16-02-1979 08-10-1980 75 Switzerland DTC 04-12-1995 23-10-1996 76 Syria DTC 18-05-2008 12-11-2009 77 Tajikistan DTC 07-11-2006 19-10-2007 78 Thailand DTC 12-02-1994 14-08-1995 79 Tunisia DTC 14-03-1990 25-10-1991 80 Turkey DTC 12-11-1999 16-12-2003 81 Ukraine DTC 30-06-1997 20-04-1999 82 United Arab Emirates DTC 30-09-1996 09-08-1997 83 United Kingdom DTC 05-11-1990 20-12-1991 84 USA DTC 16-09-1993 23-12-1993 85 Uzbekistan DTC 02-03-2000 15-01-2001 Protocol 08-12-2011 86 Venezuela DTC 26-04-1996 12-11-1997 87 Vietnam DTC 23-05-1997 03-02-1998 PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK CZECH REPUBLIC OECD 2012 84 ANNEXES Annex 3: List of Laws, Regulations and Other Relevant Material Commercial law Civil Procedure Code (CPC, Act No.99/1963) Civil Code (CC, Act No.40/1964) Act implementing Council Regulation (EEC) No.2157/2001 on Statute for a European Company, Act No.627/2004 Act implementing Council Regulation (EEC) No.2137/85 of 25 July 1985 on the European Economic Interest Grouping, Act No.360/2004 Commercial Code (CoC, Act No.513/1991 Acts on other relevant entities Citizens Associations Act (Act No.83/1990 Beneficiary Associations Act (No.248/1995) Taxation law Income Tax Act (ITA, Act No.586/1992) Tax Procedure Code (Tax Code, Act No.280/2009) Accounting law Accounting Act (Act No.563/1991) Decree on Double-entry Accounting for Commercial Entities (Decree No.500/2002) PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK CZECH REPUBLIC OECD 2012 ANNEXES 85 Decree implementing certain provisions of the Accounting act for accounting entities whose main activity is not business, if they keep double entry accounting. (Decree No.504/2002) Foundation law Foundation Act (Act No.227/1997) AML and financial regulation law Banking Act (Act No.21/1992) National Bank Act (Act No.6/1993) Capital Market Undertakings Act (Act No.256/2004) Act on Selected Measures against Legitimisation of Proceeds of Crime and Financing of Terrorism (the AML Act, Act No.253/2008) Insurance Act (Act No.277/2009) Payment Systems Act (Act No.284/2009) Information Exchange for Tax Purposes law International Assistance in Administration of Taxes Act (EOI Act, Act No.253/2000) Other legislation Advocacy Act (Act No.85/1996) Archives and Records Management Act (Act No.499/2004) Czech Railways Act (Act No.77/2002) Czech legislation is available at: http://portal.gov.cz/wps/portal/_s. 155/699/ place ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT The OECD is a unique forum where governments work together to address the economic, social and environmental challenges of globalisation. The OECD is also at the forefront of efforts to understand and to help governments respond to new developments and concerns, such as corporate governance, the information economy and the challenges of an ageing population. The Organisation provides a setting where governments can compare policy experiences, seek answers to common problems, identify good practice and work to co-ordinate domestic and international policies. The OECD member countries are: Australia, Austria, Belgium, Canada, Chile, the Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Israel, Italy, Japan, Korea, Luxembourg, Mexico, the Netherlands, New Zealand, Norway, Poland, Portugal, the Slovak Republic, Slovenia, Spain, Sweden, Switzerland, Turkey, the United Kingdom and the United States. The European Union takes part in the work of the OECD. OECD Publishing disseminates widely the results of the Organisations statistics gathering and research on economic, social and environmental issues, as well as the conventions, guidelines and standards agreed by its members. OECD PUBLISHING, 2, rue Andr-Pascal, 75775 PARIS CEDEX 16 (23 2012 05 1 P) ISBN 978-92-64-16879-4 No. 59901 2012 GLOBAL FORUM ON TRANSPARENCY AND EXCHANGE OF INFORMATION FOR TAX PURPOSES Peer Review Report Phase 1 Legal and Regulatory Framework -:HSTCQE=V[]\^Y: ISBN 978-92-64-16879-4 23 2012 05 1 P Global Forum on Transparency and Exchange of Information for Tax Purposes PEER REVIEWS, PHASE 1: CZECH REPUBLIC The Global Forum on Transparency and Exchange of Information for Tax Purposes is the multilateral framework within which work in the area of tax transparency and exchange of information is carried out by over 100 jurisdictions which participate in the work of the Global Forum on an equal footing. The Global Forum is charged with in-depth monitoring and peer review of the implementation of the standards of transparency and exchange of information for tax purposes. These standards are primarily reected in the 2002 OECD Model Agreement on Exchange of Information on Tax Matters and its commentary, and in Article 26 of the OECD Model Tax Convention on Income and on Capital and its commentary as updated in 2004, which has been incorporated in the UN Model Tax Convention. The standards provide for international exchange on request of foreseeably relevant information for the administration or enforcement of the domestic tax laws of a requesting party. Fishing expeditions are not authorised, but all foreseeably relevant information must be provided, including bank information and information held by duciaries, regardless of the existence of a domestic tax interest or the application of a dual criminality standard. All members of the Global Forum, as well as jurisdictions identied by the Global Forum as relevant to its work, are being reviewed. This process is undertaken in two phases. Phase 1 reviews assess the quality of a jurisdictions legal and regulatory framework for the exchange of information, while Phase 2 reviews look at the practical implementation of that framework. Some Global Forum members are undergoing combined Phase 1 plus Phase 2 reviews. The ultimate goal is to help jurisdictions to effectively implement the international standards of transparency and exchange of information for tax purposes. All review reports are published once approved by the Global Forum and they thus represent agreed Global Forum reports. For more information on the work of the Global Forum on Transparency and Exchange of Information for Tax Purposes, and for copies of the published review reports, please visit www.oecd.org/tax/transparency and www.eoi-tax.org. Please cite this publication as: OECD (2012), Global Forum on Transparency and Exchange of Information for Tax Purposes Peer Reviews: Czech Republic 2012: Phase 1: Legal and Regulatory Framework, OECD Publishing. http://dx.doi.org/10.1787/9789264168800-en This work is published on the OECD iLibrary, which gathers all OECD books, periodicals and statistical databases. Visit www.oecd-ilibrary.org, and do not hesitate to contact us for more information. CZECH REPUBLIC P e e r
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