This content is from: Local Insights

Slovak Republic: Bank secrecy – still alive?

Daniel FutejCyril Hric
The Slovak banking sector has faced new challenges in recent months resulting from international and European measures against tax fraud and tax evasion. As complexity increases, the need for more intensive cooperation in tax matters among jurisdictions becomes necessary. Slovak tax authorities need to have control over the proper fulfilment of tax obligations, with effective exchange of information on a European and international level. This topic has been discussed extensively over the past years on an EU and OECD (Organisation for Economic Co-operation and Development) level. The reason for such discussions is mainly down to increasing: (i) mobility of taxpayers; (ii) cross-border transactions; and of (iii) internationalisation of financial instruments. Such development requires effective measures beyond the powers of control at a national level, as respective states cannot manage their internal taxation systems (especially for direct taxation) without receiving information from other states.

The efforts of recent months has resulted in the adoption of: (i) the Multilateral Competent Authority Agreement on the implementation of the global standard for the automatic exchange of financial account information at the OECD's Global Forum on Transparency and Exchange of Information for Tax Purposes (MCA Agreement); and (ii) a political agreement on a revised version Directive 2011/16/EU on administrative cooperation in the field of taxation (DAC).

On October 29 2014, the OECD announced that 98 countries were committed to the automatic exchange of information under the OECD's common reporting standard (CRS) model. In addition, 51 countries have signed a Multilateral Competent Authority Agreement under which Slovakia, as well as majority of other participating jurisdictions, committed to commencing such automatic exchange in 2017 (for taxable periods as of January 1 2016).

A milestone in the automatic exchange of information at the EU level was the adoption of Directive 2011/16/EU on administrative cooperation in the field of taxation. The directive was transposed in the Slovak Republic by the adoption of Law 442/2012 Coll on International Assistance and Cooperation in Tax Administration. The Law requires a mandatory automatic exchange of information on respective categories of income – income from employment, directors' fees, life insurance products, pensions, and ownership of and income from immovable property.

On October 16 2014, the European Union Economic and Financial Affairs Council (Ecofin) announced a revised wording of the Directive on Administrative Cooperation in the field of taxation between EU member states. The revised DAC essentially extends the scope of information to be automatically exchanged between member state tax administrations. Now the subject of automatic exchange of information will also consist of interest, dividends and other income, as well as account balances and sales proceeds from financial assets. The Directive will ensure a common approach by all member states for effective implementation of the global standard for automatic information exchange issued by the OECD.

Under the revised DAC, Slovakia will be engaged to adopt respective laws and regulations to comply with the new wording of the DAC. The point directly affecting bank secrecy is that under respective laws implementing the revised DAC and CRS, Slovakia (and other participating states) will need to require the collection of a wider range of information from financial institutions. Subsequently, Slovak banks and other financial institutions should take steps to understand the key obligations resulting from the DAC and CRS as well as implement reporting and due diligence rules for financial account information.

Where at the EU level, the revised DAC may have an impact on the future of the EU Savings Directive, in the Slovak Republic there is another issue pending: the announcement of and disclosure of the ultimate beneficial owners of companies (not only for tax purposes). The government has declared its aim that offshore companies whose owner is unclear may not participate in public tenders. In this respect, the law amending the Public Procurement Act was adopted, which prohibits the participation in public procurement to companies: (i) which have a registered seat in the state, the laws of which do not allow to evidence which individuals held at least 10% direct or indirect share in such company (qualified share); (ii) in which the individuals having qualified shares have residence in a state, under the laws of which the evidence on such a qualified share is not possible; (iii) in which the qualified share is held by public officials.

Before amending the Public Procurement Act, there were also efforts to require the disclosure of beneficial owners of health insurance companies. However, at this stage there is no further development on this issue.

Daniel Futej and Cyril Hric

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