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Global Forum on Transparency and Exchange of Information for Tax Purposes Peer Reviews: Slovak 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.
Please cite this publication as: OECD (2012), Global Forum on Transparency and Exchange of Information for Tax Purposes Peer Reviews: Slovak Republic 2012: Phase 1: Legal and Regulatory Framework, OECD Publishing. http://dx.doi.org/10.1787/9789264168954-en
Series: Global Forum on Transparency and Exchange of Information for Tax Purposes Peer Reviews ISSN 2219-4681 (print) ISSN 2219-469X (online)
OECD 2012
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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 Slovak Republic . . . 9 Overview of the Slovak Republic. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Recent developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16 Compliance with the Standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17 A. Availability of information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17 A.1. Ownership and identity information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 A.2. Accounting records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .41 A.3. Banking information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 B. Access to information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 B.1. Competent authoritys ability to obtain and provide information . . . . . . . . 48 B.2. Notification requirements and rights and safeguards. . . . . . . . . . . . . . . . . . 54 C. Exchanging information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C.1. Exchange of information mechanisms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C.2. Exchange of information mechanisms with all relevant partners . . . . . . . . C.3. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C.4. Rights and safeguards of taxpayers and third parties. . . . . . . . . . . . . . . . . . C.5. Timeliness of responses to requests for information . . . . . . . . . . . . . . . . . . 57 58 65 66 68 69
PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK SLOVAK REPUBLIC OECD 2012
4 TABLE OF CONTENTS Summary of Determinations and Factors Underlying Recommendations. . . . 71 Annex 1: Jurisdictions Response to the Review Report . . . . . . . . . . . . . . . . . . 75 Annex 2: List of all Exchange-of-Information Mechanisms in Force. . . . . . . . 76 Annex 3: List of all Laws, Regulations and Other Material Received . . . . . . . 80
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PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK SLOVAK REPUBLIC OECD 2012
EXECUTIVE SUMMARY 7
Executive Summary
1. This report summarises the legal and regulatory framework for transparency and exchange of information in the Slovak Republic. 2. 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 whether that information can be effectively exchanged with its exchange of information (EOI) partners. 3. The Slovak Republic is landlocked country in central Europe with a population of about five million. Bratislava is the Slovak Republics capital and largest city. Slovak is the official language. Formerly part of Czechoslovakia, the Slovak Republic became an independent state on 1 January 1993. 4. The Slovak Republic has a well developed and robust framework for exchange of information for tax purposes. As at 31 December 2011 it has signed 64 DTCs, 62 of which are in force. Most of these DTCs contain exchange of information articles that meet the international standard. 5. Most relevant entities are subject to comprehensive requirements under commercial and accounting laws to maintain and have available relevant ownership and accounting information. The Slovak Republic tax authority also has extensive powers to gather and exchange information for tax purposes. This is complemented by an extensive network of EOI agreements comprising relevant partners. These agreements mostly allow the Slovak Republic to exchange information effectively and to the standard. There is however a set of narrow circumstances where the Slovak Republics power to obtain information for EOI purposes is unclear. 6. The key concerns relating to the availability of information in the Slovak Republic relate to foreign companies and trusts. Ownership information is only available for foreign companies that have to keep documentation of their ownership for transfer pricing purposes, and this does not cover all relevant foreign companies. While Slovak laws do not allow the creation of trusts, foreign trusts are recognised in the Slovak Republic and trustees of
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8 EXECUTIVE SUMMARY
foreign trusts are regulated under AML laws. However, it is not clear whether these trustees are obliged to maintain information on the trusts beneficiaries and settlors. 7. The report also notes that a wide scope of professional privilege is applicable to tax advisors and lawyers. Information subject to this privilege may not be disclosed for EOI purposes and this may limit the effective exchange of information in some instances. 8. Recommendations have been made where elements of the Slovak Republics EOI regime have been found to be in need of improvement. The Slovak Republics progress in these areas, as well as its actual practice in exchange information with its EOI partners, will be considered in its Phase 2 review which is scheduled to commence in the first half of 2013.
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INTRODUCTION 9
Introduction
Information and methodology used for the peer review of the Slovak Republic
9. The assessment of the legal and regulatory framework of the Slovak 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 for Tax Purposes, and was prepared using the Global Forums Methodology for Peer Reviews and Non-Member Reviews. The assessment was based on the laws, regulations, and exchange of information mechanisms in force or effect as at December 2011, other materials supplied by the Slovak Republic, and information supplied by partner jurisdictions. 10. The Terms of Reference breaks down the standards of transparency and exchange of information into 10 essential elements and 31 enumerated aspects under three broad categories: (A) availability of information; (B) access to information; and (C) exchange of information. This review assesses the Slovak Republics legal and regulatory framework against these elements and each of the enumerated aspects. In respect of each essential element a determination is made that either: (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 for improvement where relevant. 11. The assessment was conducted by a team which comprised two expert assessors: Ms. Sylvia Moses, Commissioner of the Inland Revenue Department, Virgin Islands (British): Mr. Salah Gueydi, Senior Tax Advisor, Ministry of Economy and Finance, Qatar; and two representatives of the Global Forum Secretariat, Ms. Francesca Vitale and Mr. Guozhi Foo.
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10 INTRODUCTION
2.
3. 4. 5.
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INTRODUCTION 11
and is in the following sectors: industry; banking and insurance; wholesale and retail trade; production of electricity, gas and water; transport and telecommunications. 15. The main industry sectors are car manufacturing and electrical engineering. From 2004 to 2008, the Slovak Republics exports increased on average by 26% each year, and imports by 25.3%. Both imports and exports were diversified across partners. Overall, the Slovak Republics main trading partners are the European Union, Russia and China. 6 16. The Slovak Republic joined the European Union in 2004 and adopted the Euro as its national currency in 2009. It is also a member of the United Nations, the OECD, NATO, the World Trade Organisation, the Council of Europe and the Intra-European Organisation of Tax Administrations (IOTA).
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12 INTRODUCTION
by the National Council (Art. 86 Constitution). The National Council also supervises on the implementation of these laws. The Government can issue regulations to implement laws, within the limits laid down by the law. Laws come into force on their promulgation. 20. The Slovak Republics lower courts are the courts of 1st instance (Okresn sd) and the courts of 2nd instance (Krajsk sd). Each of these courts has a commercial law section, a criminal law section and an administrative law section. Tax cases are heard by the administrative law section of the local court that is territorially competent. The Supreme Court is the Slovak Republics highest judicial body, having competences either as an appeal court or a court de cassation. The Supreme Courts judges are elected by the National Council, whilst ordinary judges are appointed or transferred by an independent Judiciary Council. The Constitutional Court of Slovakia (stavn sd) rules on constitutional issues. Its 13 members appointed by the President from a slate of candidates nominated by parliament. 21. International treaties are negotiated and ratified by the President of the Slovak Republic (Art. 102(1)a Constitution). The President may delegate the negotiation of an international treaty to the Government or, upon consent of the Government, to its individual members. International treaties that directly confer rights or impose duties on natural persons or legal persons require the approval of the National Council before ratification (Art. 7(2) Constitution). The execution of a treaty approved by the National Council and ratified by the President does not require any special law; such treaties prevail over all domestic laws except the Constitution (Art. 7(5) Constitution). This is the case for both Double Taxation Conventions (DTCs) and Tax Information Exchange Agreements (TIEAs). 22. Under the Income Tax Act (Act No.595/2003), the Slovak government can also conclude agreements regulating to taxation and related legal relations in respect of dependent territories entitled to conclude international relations (Art. 1(2)). Such agreements take precedence over the Income Tax Act itself, but not over the other laws in the Slovak Republic. Currently, only one EOI agreement falls into this category. 23. A complete list of relevant legislation and regulations is set out in Annex 3.
Tax system
24. In the Slovak Republic, income taxes are imposed according to the provisions of the Income Tax Act (ITA). This law contains the rules for corporate income tax as well as for individual income tax. The Slovak tax systems underwent a major tax reform in 2003-4 aimed at simplifying the
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INTRODUCTION 13
calculation of taxes and transfer the tax burden from direct to indirect taxes. As of 31 December 2011, the administrative aspects of taxation are governed by Act No.511/1992, the Tax Administration Act (TAA). As of 1 January 2012, the administrative aspects of taxation will be governed by the new Act No. 563/2009 Coll. on tax administration (Tax Order). 25. Under the Income Tax Act, individuals that are tax resident in the Slovak Republic have unlimited tax liability, i.e. are liable to tax on their worldwide income. Non resident individuals are liable to tax only for income derived from Slovak sources (limited tax liability). The tax year is the calendar year. The rate of personal income tax is 19% of the tax base. Tax allowances can be claimed to reduce active income only, i.e. income from employment, entrepreneurial income and self-employment income. 26. Companies that are tax resident in the Slovak Republic also have unlimited tax liability and are taxed on their worldwide income. A company is treated as a Slovak tax resident if it is incorporated or has its place of effective management in the Slovak Republic. The place of effective management means the location where the managerial and business decisions of the management bodies and supervisory bodies of the company are made, even if this place is not entered into the commercial register (s. 2(1) d(2) ITA). Permanent establishments of foreign companies 7 are generally taxed on Slovak-source income only. The corporate tax year is the companys financial year. The corporate tax rate is 19%. Dividends received by resident and non-resident shareholders from a resident company are not subject to any Slovak tax in the hands of the shareholders if they are paid out of profits derived by the distributing company from 1 January 2004 onwards. Capital gains derived by resident and non-resident individual shareholders from the disposal of shares in resident companies are generally included in their aggregate income, which is subject to the 19% flat rate. Equally, capital gains on the sale of shares in a resident company by resident corporate shareholders are included in ordinary corporate income. 27. General partnerships are not subject to corporate income tax, but their profits are allocated to the partners and included as business income in their individual tax returns. Similar rules apply to the share of profits of a limited partnership allocated to its general partners. The share of profit allocated to limited partners is taxed at the level of the partnership under the rules applicable to companies (s. 14(5), Income Tax Act). 28. Municipalities may introduce local taxes and local fees (such as fees for communal waste). A vehicle tax is levied by the regions. Valueadded tax (VAT) and excise duties are also levied. The Slovak Republics
7. A permanent establishment is a fixed place of business which generally gives rise to income or value-added-tax liability in a particular jurisdiction.
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14 INTRODUCTION
VAT system is fully harmonised with the European VAT legislation. The threshold for obligatory VAT registration for taxable persons with their seat or permanent address, place of business, or permanent establishment in the Slovak Republic, is a turnover of EUR 49 790 for the previous consecutive 12 calendar months. Voluntary registration is also possible. VAT registration is obligatory for foreign persons (taxable persons without seat or VAT establishment in the Slovak Republic) that intend to carry out any activity subject to VAT in the Slovak Republic. 29. The total tax revenues in 2010 amounted to EUR 7.9 billion (73% of Slovak total revenue). Corporate income tax revenue was EUR 1.3 billion (11.5% of total tax revenues). The Slovak Republic is working to increase the efficiency of the revenue collection system by moving to integrated revenue collection under its UNITAS project. 8 This was launched in 2008 and is expected to be fully implemented by 2014. Under this project the existing tax and customs administrations will be merged and a new single system will be created for the management and organisation of the collection of government revenues.
8.
The projects name UNITAS was chosen as unitas means unity in Latin.
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INTRODUCTION 15
Council Regulation (EU) No. 904/2010 of 7 October 2010 on administrative cooperation and combating fraud in the field of value added tax (recast of the Council Regulation (EC) No 1798/2003 of 7 October 2003 on administrative cooperation in the field of value added tax); Council Regulation (EC) No. 2073/2004 of 16 November 2004 on administrative cooperation in the field of excise duties.
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16 INTRODUCTION
standalone company service providers that are not lawyers, auditors, tax advisors or notaries are rare in the Slovak Republic. 36. The Slovak Republics AML/CFT legislation is based on EU Directive 2005/60/EC of 26 October 2005, as transposed in Act No.297/2008 (the AML Act). Under the AML Act, obliged entities are required to undertake customer due diligence and they include banks and other financial and non-financial institutions, as well as auditors, accountants, tax advisers, notaries, lawyers and other professional service providers (Art. 5). The central authority in the Slovak Republic in the area of the prevention and detection of money laundering and terrorist financing is the Financial Intelligence Unit (Spravodajsk Policajnho zboru SJFP). However, SJFP is not the only authority responsible for anti-money laundering matters. The other authorities involved include the General Prosecutors Office of the Slovak Republic, NBS, the Ministry of Justice of the Slovak Republic, the Ministry of Finance.
Recent developments
37. The Slovak tax administration is currently undergoing a major structural reform. With effect from 1 January 2012 the two existing separate authorities the Tax Directorate and the Customs Directorate of the Slovak Republic will merge into one institution (the new Financial Directorate of the Slovak Republic) in order to improve the effectiveness of the tax and custom administration. Accordingly, as of 1 January 2012, the new Act No. 563/2009 Coll. on tax administration (also known as the Tax Order) will replace the Tax Administration Act (TAA) that was in force up to 31 December 2011. The new act will reiterate all the provisions relevant for EOI purposes contained in the preceding TAA, including those relating to the enforcement of tax laws and the tax authorities information access powers. 38. A new Mutual Assistance Directive 2011/16/EU was adopted by the European Council on 15 February 2011 and will come into force on 1 January 2013. The directive ensures that EU standards for transparency and exchange of information on request are aligned to international standards. In particular, it provides that Member States can no longer refuse to supply information solely because this information is held by a bank or other type of financial institution. More information on the directive can be found at http:// ec.europa.eu/taxation_customs/taxation/tax_cooperation/mutual_assistance/ direct_tax_directive/index_en.htm.
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A. Availability of information
Overview
39. 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 information 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 Slovak Republics legal and regulatory framework on availability of information. 40. The Commercial Code and the Commercial Register Act require all Slovak companies, co-operatives and partnerships to file information on the identities of their members, shareholders or partners with the Commercial Register at the point of registration. Subsequent changes in this information must also be filed with the Commercial Register when they occur. Additionally, all Slovak-incorporated companies and co-operatives are required to maintain an up-to-date register of their shareholders/members. The transfer of a registered share is not valid until the change in the list of shareholders is made and any company in breach of this obligation is liable for any damage that might arise to both the transferor and transferee. Foreign companies and partnerships need to register with the Commercial Register in the Slovak Republic
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licensing requirements imposes obligations to ensure that all records pertaining to customers and their accounts as well as related financial and transaction information are available. Banks and financial institutions are expressly prohibited from establishing business relationships with or carrying out transactions for anonymous customers.
46. Business entities are considered incorporated upon entry of their details in the Commercial Register. The Commercial Register (also referred to as the Business or Companies Register) is a public register containing data and deeds prescribed by the law (s. 27). The Commercial Register Act (Act No.530/2003) contains the list of data that need to be submitted to the registrar and the documents that need to be deposited. It also regulates the registration procedure and the inspection of the registered data. The Commercial Register Act is supplemented by secondary legislation, especially the Ordinance of the Ministry of Justice No 25/2004 Coll. which sets out registration forms and list of documents needed for registration in the Commercial Register. 47. Entities subject to registration in the Commercial Register are the following: partnerships, companies, co-operatives, sundry legal entities, the registration of which is required by a special act, legal entities established under the law of the European Communities, enterprises and branches of enterprises of non-residents; branches and other units of enterprises, if prescribed by a special act; and individuals permanently resident in the territory of the Slovak Republic and conducting business under this Act, who are registered in the Companies Register upon their request or if their registration is prescribed by a special act. 48. As from 1 July 2011 the new Commercial Gazette Act introduced the electronic Commercial Gazette as the only official version of the national gazette for the compulsory disclosure of information on certain types of companies pursuant to Article 3(5) of Directive 2009/101/EC.
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debts/obligations of the co-operative (s. 221, CC). The ownership interest of its members is determined by the ratio of the members contribution to the co-operative and the co-operatives registered capital, unless otherwise decided by the members. 50. Under the Slovak Commercial Code, any action at law related to the establishment, incorporation, amendment, winding-up or deletion of a partnership or a company must be executed in writing; the law prescribes the actions at law, which must have form of a notarial deed (s. 63). The actions prescribed under the Slovak Commercial Code are as follows: a company is founded on the basis of a Memorandum of Association executed by each founder, unless other provisions of Commercial Code stipulate differently. The founders signature must be officially authenticated. The official authentication is carried out by notary or by municipal office (s. 57 CC); the authenticity of signatures on the inscription proposal also need to be officially approved; only a Notary can issue a pre-merger certificate (s. 69aa CC, see also Art. 10 of the Directive 2005/56/EC on cross-border mergers); the Memorandum of Association (which shall include a draft Articles of Association) of a joint stock company shall be in a form of a notarial deed (s. 162 in conjunction with s. 172 CC); the report of the constituent General Meeting (which among other things adopts the Articles of Association) of a joint stock company shall be in a form of a notarial deed (s. 171 CC); in case of a joint stock company which is established without a public call to a subscription of shares (founders agree to pay up the entire registered capital), the memorandum of association shall include all decisions which would be otherwise taken by the constituent General Meeting, and it shall be in a form of a notarial deed (s. 172 CC); the major decisions of the General Meeting of a joint stock company are subject to a qualified majority voting and report of such General Meetings shall be in a form of a notarial deed (s. 187 CC); the major decisions mentioned above are: change of articles of association; increase and reduction of share capital; decision on the authorisation of the Board of Directors to decide on an increase of the registered capital up to the determined amount in compliance with the (s. 210 CC); issue of preference bonds and convertible bonds;
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the decisions of a General Meeting of a joint stock company which has a sole shareholder have to be in a form of a notarial deed (s. 190 CC); a cross-border merger contract shall be in a form of a notarial deed (s. 218a CC); the report of a General Meeting approving the cross-border merger shall be in a form of a notarial deed (s. 218c CC); the report of the constituent General Meeting of a cooperative (which among other things adopts the Articles of Association) shall be in a form of a notarial deed (s. 224 CC); and the decision of a General Meeting of a cooperative on its dissolution shall be in a form of a notarial deed (s. 254 CC).
12.
A Registered Office in the context of the Commercial Code refers to the primary place of business of the company.
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53. Companies and co-operatives are also required to submit to the Commercial Register their articles of incorporation, incorporation deed, memorandum of association or notarial record of constituent general meeting (s. 3(1)a Commercial Registration Act). The information to be provided in these documents is outlined below and companies and co-operatives also required to file each change to these documents (s. 3(1)b) and deposit the full text of the documents after each change is made. 54. For private LLCs, the memorandum of association must contain, among other information (s. 110 CC): the business name and registered office of the company; identity of the companys members by specifying the business name and the registered office (if a legal entity), or the name and residence (if an individual); and the amount of each members contribution to the company, the fraction thereof paid upon its establishment, and terms of payment of these contributions and a description of any contribution in kind. 55. For joint-stock companies, the memorandum of association must contain, among other information, the business name, the registered office of the company and its scope of business; the number of shares, their nominal value, and their class; the number of shares subscribed by the individual founding shareholders (s. 163 CC). When a joint-stock company is established through a public call for the subscription of shares, a list of subscribers is prepared that contains each subscribers identity details (business name, registered office and identification number, if any, if the subscriber it is a legal entity, or the name, residence and birth certificate number if he is an individual). Once the required amount of shares has been subscribed, a constituent general meeting of the subscribers is called (s. 169ff. CC). The meetings minutes, together with the attendance list identifying the attending subscribers, are notarised and filed with the Register (s. 3(1)a Commercial Registration Act). 56. For co-operatives, the report from the constituent General Meeting shall be in a form of a notarial deed and must include among other things a list of members and the amounts of the individual contributions pledged. Articles of association must also be attached to this deed, containing among others information on the co-operatives scope of business activities, address of registered office, the terms of joining and withdrawal from the co-operative. 57. Prior to registering a company/co-operative or recording changes in the registered data, the Registration Court (the court that is responsible for the registration of the company) is required to perform certain regularity checks. For joint stock companies, the Registrar is required to check whether the articles of association contain all terms required by the law, refer to at
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Foreign companies
60. A foreign incorporated company may only conduct business in the Slovak Republic through a branch (or an enterprise). 13 Branches must be registered in the Commercial Register and the foreign company must furnish full details as to the nature of business they intend to conduct in the Slovak Republic (s. 21(4) CC). The foreign company need only submit information pursuant to Directive No.89/666/EEC on Disclosure Requirements in Respect of Branches. This includes the address of the branch; the activities of the branch; the companys place of registration and registration number; particulars of the company directors and the companys memorandum of understanding or articles of association, and their respective changes. It does not expressly include the identity of the owners of the foreign incorporated company (see also ss. 2(3), 2(4), 2(5), 2(6) and 3(2)b Commercial Registration Act). 61. For company law purposes, a foreign company incorporated in a foreign register is not treated as a Slovak company, unless it moves it registered office to the Slovak Republic (s. 21). If it has a registered office in the Slovak
13. An enterprise is defined under Section 5 of the Commercial Code as tangible, intangible and personnel assets which are used in business but it is basically covered by the term branch.
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Republic, the company would be considered a resident Slovak company for company law purposes and would be required to comply with Slovak company laws applicable to Slovak-incorporated companies.
15.
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67. Such taxpayers must keep basic transfer pricing documentation. The scope of documentation requirements complies with EU Code of conduct on transfer pricing documentation and inter alia includes: general documentation in relation to the group, including identification and legal form of the individual members of the group, description of the global organisational and ownership structure of the group, including changes in comparison with the preceding tax period; and specific documentation in relation to the taxpayer, including identification and legal form of the taxpayer, description of his organisational and ownership structure, including changes in the preceding tax period. 68. The taxpayer should maintain documentation on controlled transactions, which are significant. The appraisal of controlled transaction significance is up to taxpayer. 69. The second group relates to other taxpayers those who carry out the controlled transactions and do not report their business results in individual financial statements under IAS/IFRS. Such taxpayers maintain only simplified documentation, the purpose of which is to provide documentary evidence of adherence to the arms length principle in the controlled transactions that are carried out. This documentation must be produced only to the extent required by accounting regulations: specifically, as footnotes to the annual accounts. 70. The Slovak Republic has advised that the obligation to document changes in the companys ownership structure necessitates that the company maintain sufficient identity information on its members and shareholders and update this information on a timely basis. Such information is contained in
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Notes to the individual financial statements and must be submitted together with the companys tax return. This obligation will apply to a number of, but not all relevant foreign companies in the Slovak Republic.
16. 17.
Where the shareholder is a foreign individual, the date of birth will suffice in place of the birth certificate number. Where the shareholder is a foreign legal entity, the identification number will only be required to the extent applicable. Section 156 of the Commercial Code. Where the shareholder is a foreign individual, the date of birth will suffice in place of the birth certificate number. Where the shareholder is a foreign legal entity, the identification number will only be required to the extent applicable.
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PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK SLOVAK REPUBLIC OECD 2012
property, opening or management of an account with a bank or a foreign bank branch or of a securities account or establishment, operation or management of a company, an association of natural persons or legal entities, a special-purpose corporation or another legal entity, a property management or a company service provider (see definition below), unless it is already covered under one of the above categories; a legal entity or a natural person authorised to provide the services of organisational and economic advisor, the services of public carriers and messengers or forwarding services; legal entity or a natural person authorised to mediate housing savings; a legal entity or a natural person authorised to operate an auction hall, a legal entity or a natural person authorised to trade in works of art, collectors items, antiques, cultural monuments, items of cultural heritage, precious metals or gemstones, a legal entity or a natural person authorised to place products made of precious metals or gemstones on the market or a legal entity or a natural person authorised to operate a pawnshop; and any other person if so laid down by a special regulation. 79. A service provider of property management or a company service provider is further defined under the AML Act as any business that provides third persons with any of the following services (s. 9c): establishment of companies or other legal entities; acting as a statutory body, a member of a statutory body, a person falling within the managing powers of a statutory body or its member, a person acting per procura, head of an organisational unit of a branch or other organisational unit of an enterprise, a liquidator of a company or acting in a similar position in relation to third persons or arranging such activity by another person; providing a registered office, address of a registered office, correspondence address and other related services for legal entities and special-purpose corporations irrespective of their legal personality which manage and distribute funds; acting as a manager of a corporation (see definition below) or arranging such activity by another person; and acting as an authorised nominee shareholder for a third person other than an issuer of securities admitted to trading on a regulated market which is subject to disclosure requirements under a special regulation or arranging such activity by another person.
PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK SLOVAK REPUBLIC OECD 2012
PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK SLOVAK REPUBLIC OECD 2012
9 and 10 AML Act). Service providers are also required to identify, using an AML-risk based approach, the beneficial owners of their customers. 19 Information on the identity of the customer must be kept for a minimum of five years from the date on which the business relationship ends (s. 19 AML Act). 85. Non-professional nominees are not regulated under Slovak AML laws. The Slovak Republic authorities have advised that such nominees are rare and that they have not been encountered in any instances. The materiality of this issue will be further examined in the course of the Slovak Republics Phase 2 review.
Conclusion
86. Full up-to-date identity information is available for shareholders/ members of all Slovak domestic companies under the commercial laws. This is supplemented by the Slovak AML/CFT laws. Foreign companies with a nexus to the Slovak Republic continue to be regulated by the laws of their jurisdiction of incorporation and are not expressly required to maintain or file identity and ownership information under Slovak laws. Under the tax law, certain companies are subject to an obligation to document changes in their ownership structure for transfer pricing purposes. While a number foreign companies that conduct business in the Slovak Republic will have this obligation, it does not apply to all relevant foreign companies (i.e. those effectively managed in the Slovak Republic).
PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK SLOVAK REPUBLIC OECD 2012
PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK SLOVAK REPUBLIC OECD 2012
PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK SLOVAK REPUBLIC OECD 2012
Conclusion
98. Partnerships (both general and limited) are required to file identity and ownership information with the Commercial Register at the point of their incorporation and to register with the tax authorities (the identity of the partners need not be provided to the tax authority at the point of registration). Any changes in such data must be filed and the corresponding documentation deposited with the Commercial Register. This ensures the availability of identity and ownership information.
20.
www.hcch.net/index_en.php?act=conventions.text&cid=59.
PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK SLOVAK REPUBLIC OECD 2012
100. Under Slovak law, there are no restrictions for a resident of the Slovak Republic to act as trustee, protector or administrator of a trust formed under foreign law. 101. The Slovak Republics legislation does not require registration or disclosure of information regarding settlors, trustees and beneficiaries of trusts to government authorities. Under the tax laws, the income of a foreign trust is not attributable to the trustee and only relevant trust beneficiaries (i.e. those liable to tax in the Slovak Republic) need to file tax returns in respect of their own trust income. 102. However, the Slovak Republics AML legislation, which is a transposition of the 3rd EU Money Laundering Directive, establishes an obligation regarding the identification of customers by obliged entities (see section on service providers above). 103. Although the list of obliged entities does not expressly include trustees, it includes lawyers and notaries providing their customers with legal services related to management or safekeeping of funds, securities or other property as well as other service providers of property management (s. 5(1) j(2) and s. 5(1)k). This would include lawyers and notaries acting as trustees of foreign trusts. The list of obliged entities also covers lawyers and notaries that are managers of corporations (the definition of which would include a foreign trust administered or having a trustee in the Slovak Republic). 21 It is through these provisions that the professional Slovak trustees of foreign trusts are subject to the Slovak AML regulations. 104. The AML Act requires obliged entities to perform customer due diligence measures at the moment of establishing a business relationship with a client. The customer due diligence measures include the identification of a customer and verification of his identification and conducting ongoing monitoring of the business relationship including ensuring that the information held on the customer is kept up-to-date (ss. 7, 9 and 10 AML Act). It is not clear whether customer identification in the context of trusts would always include identifying the trust settlors and beneficiaries. 105. Non-professional trustees of foreign trusts are not regulated under Slovak AML laws. The Slovak Republic authorities have advised that such trustees are rare and they have not been encountered in any instances. The materiality of this issue will be further examined in the course of the Slovak Republics Phase 2 review. 106. Regulated trustees of foreign trusts in the Slovak Republic are covered by the Slovak Republics AML regulations. They are required to maintain identity information regarding their customers but it is not clear whether such
21. See paragraph 80.
PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK SLOVAK REPUBLIC OECD 2012
PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK SLOVAK REPUBLIC OECD 2012
111. Foreign foundations may operate in the Slovak Republic; they are subject to the same obligations that are applicable to Slovak foundations under the Foundations Act (ss. 40 and 41).
PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK SLOVAK REPUBLIC OECD 2012
Tax laws
114. Foundations that derive taxable income must register and file tax returns with the tax authority. Information that needs to be submitted does not include ownership information.
Conclusion
117. In conclusion, the Slovak Republics legal and regulatory framework, in particular the Foundations Act, ensures the availability of information on the founders, the members of the foundations board, the directors and any other beneficiaries.
PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK SLOVAK REPUBLIC OECD 2012
PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK SLOVAK REPUBLIC OECD 2012
Conclusion
121. The Slovak Republics commercial and AML legislation include enforcement provisions that ensure availability of relevant ownership information. The exception to this is with respect to registers of shareholders to be kept by private LLCs, joint stock companies and co-operatives. The effectiveness of the enforcement provisions which are in place in the Slovak Republic is an issue of practice and will be considered as part of its Phase 2 review.
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 Not all companies incorporated outside of the Slovak Republic but having their place of effective management (and therefore resident) therein are subject to clear requirements to maintain identity information concerning their owners. The availability of such information will generally depend on the law of the jurisdiction in which the company is incorporated and so may not be available in all cases. Recommendations Ownership and identity information should be available for all foreign companies having a sufficient nexus with the Slovak Republic.
PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK SLOVAK REPUBLIC OECD 2012
Phase 1 determination The element is in place, but certain aspects of the legal implementation of the element need improvement. Factors underlying recommendations Persons in the Slovak Republic who act as professional trustees for foreign trusts are not obliged to identity the settlors and beneficiaries of such trusts. Recommendations Persons in the Slovak Republic who act as professional trustees for foreign trusts should be required to maintain identity information on the settlors and beneficiaries of the foreign trusts for which they act.
General requirements (ToR A.2.1), Underlying documentation (ToR A.2.2) and 5-year retention standard (ToR A.2.3) Accounting Act
122. The accounting record keeping obligations of accounting entities in the Slovak Republic are primarily governed by Act No.431/2002 Coll. on Accounting (Accounting Act). The definition of accounting entities includes (s. 1): legal persons having their registered offices in the Slovak Republic this comprises all Slovak Republic incorporated companies, including private LLCs, joint stock companies, co-operatives general partnerships, limited partnerships and foundations; and non-resident persons 22 doing business or conducting other activities in the Slovak Republic under separate regulations this comprises foreign incorporated companies that carry on a business in the Slovak Republic through a branch or an enterprise and foundations. 123. All accounting entities must maintain accounting records evidencing (ss. 2 and 7 Accounting Act and s. 34 Foundations Act.): stock of and changes in assets and liabilities; all income and expenses;
22. A non-resident person is defined under the Commercial Code as a legal person that does not have a legal seat (i.e. registered office) in the Slovak Republic.
PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK SLOVAK REPUBLIC OECD 2012
PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK SLOVAK REPUBLIC OECD 2012
and 6(14)). Accounting records and underlying documents (to the same extent as the requirements under the Accounting Act) need to be kept until the right to assess the tax or to proceed to a subsequent tax assessment is time-barred, i.e. for a minimum of five years from the last day of the year, in which the tax return or the tax notice should have been filed (s6(12), Income Tax Act). This is an express requirement under the Income Tax Act. If such persons are not liable to VAT in the Slovak Republic, they may opt for a simplified record keeping regime and maintain under the Income Tax Act only records on their income, inventories and receivables (though they are still subject to the full accounting requirements of the Accounting Act). 130. The tax administration may also issue decisions requiring a certain taxpayer to keep additional records necessary for the correct determination of taxes. The decision, which cannot be appealed by the taxpayer, must specify in detail the data to be recorded, their classification and format (s. 37 TAA). Taxpayers entitled to deduct expenses from their taxable income are specifically required to keep records of their income and records of movable and immovable property (s. 37(4)).
PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK SLOVAK REPUBLIC OECD 2012
Conclusion
133. All relevant entities in the Slovak Republic are subject to legal requirements under the Accounting Act to maintain comprehensive accounting records for a minimum of five years. These records include underlying documents and details of all relevant transactions. The requirements under the Accounting Act are supplemented by obligations imposed by the AML Act and the Income Tax Act. There is however a narrow gap relating to the availability of accounting records that reflect the financial position and assets/liabilities of a foreign trust of which there is a Slovak resident acting as a trustee or administrator.
Determination and factors underlying recommendations
Phase 1 determination The element is in place. Factors underlying recommendations Slovak trustees of foreign trusts are not required to keep accounting records that fully reflect the financial position and assets/liabilities of the foreign trust. Recommendations The Slovak Republic should ensure that such accounting records are maintained for a minimum of five years for any foreign trusts which have Slovak-resident administrators or trustees.
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135. The customer due diligence measures to be undertaken by financial institutions include the identification of a customer and verification of his identification, and ongoing monitoring of the business relationship including ensuring that the information held on the customer is kept up-to-date. In the context of a customer that is a natural person, the financial institution must obtain his name, surname, birth registration number or date of birth, address, nationality, type and number of his identification document. Where the customer is a legal entity, the financial institution must obtain its business name, address of registered office, identification number and the identity of a natural person who is authorised to act on behalf of the legal entity (s. 7 AML Act). Banks are also required to identify, on an AML-risk based approach, the beneficial owners of their customers (s. 10 AML Act). 23 Banks may rely on a third party to conduct the appropriate customer due diligence measures (s. 11). If the third parties do not conduct the appropriate customer due diligence, banks cannot rely on that and must conduct the customer due diligence themselves. Information on the identity of the customer must be kept for a minimum of five years from the date on which the business relationship ends 136. Under the AML Act, banks are required to keep all data and written documents about all their transactions for five years after a transaction takes place (s. 19). Under Act No.483/2001 on Banks, banks are required to keep documents on conducted operations for at least five years after a transaction or contract is conducted (s. 42(1)). These provisions are very broadly drafted and result in banks maintaining full transaction records for all customers. 137. The AML Act imposes penalties on banks that fail to comply with the customer due diligence and record keeping requirements. Banks that fail to conduct appropriate customer due diligence are liable to a fine of up to EUR 165 969, while banks that do not maintain appropriate records of customer identity and transaction information for the stated retention period are liable to a fine of up to EUR 99 581 (s. 33).
Determination and factors underlying recommendations
Phase 1 determination The element is in place.
23.
The term beneficial owner is defined as the natural person the benefit of whom a transaction is being carried out or who has a direct or indirect interest or their total at least 25 % in the equity capital or in voting rights in a customer that is a legal entity (s. 9 AML Act).
PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK SLOVAK REPUBLIC OECD 2012
B. Access to information
Overview
138. A variety of information may be needed in respect of the administration and enforcement of relevant tax laws and jurisdictions should have the authority to access all such information. This includes information held by banks and other financial institutions as well as information concerning the ownership of companies or the identity of interest holders in other persons or entities. This section of the report examines whether the Slovak Republics legal and regulatory framework gives to its competent authority access powers that cover all relevant persons and information, and whether the rights and safeguards that are in place would be compatible with effective exchange of information. 139. The Slovak Republic competent authority is the Tax Directorate within the Ministry of Finance. The competent authority, through the tax administration, has broad powers to obtain relevant information from any person who holds the information. In most cases, this power is exercised by way of on-site and off-site inspections, where non-compliance can be sanctioned with significant penalties. The competent authority has the power to enter premises, inspect relevant documents and take copies thereof. Third parties including government agencies, notaries and financial institutions are under an obligation to submit to the tax authority all data that may be relevant for tax purposes. 140. These powers may be exercised to obtain all information relevant for the administration of taxes, including foreign taxes. However, there may be a very narrow set of circumstances in which the application of these powers for exchange of information purposes is unclear and it is recommended that the Slovak Republic clarify its legislation to put the matter beyond doubt. 141. Taxpayers and third parties need not be notified when an inspection will be carried at their premises.
PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK SLOVAK REPUBLIC OECD 2012
Ownership and identity information (ToR B.1.1) and Accounting records (ToR B.1.2)
143. Under the Tax Administration Act, the Slovak tax administration has broad powers to obtain a wide variety of information for Slovak tax administration purposes. Local tax offices, municipalities and customs offices are all considered part of the tax administration and enjoy the same powers with reference to the taxes and duties that are within their competence (s. 1a(b) TAA). They can collect information from the taxpayer and other persons, 24 collect documents and carry out on-site inspections. 144. In particular, the tax administration can conduct on-site inspection of entities, collect information and tax related documents and make copies thereof (s. 14 TAA). For the purposes of such on-site inspections, tax officials are entitled to unlimited access to any business buildings, premises or places, including means of transportation, accounting documents, records and information stored on data carriers (s. 14(2)). The inspected persons are under an obligation to co-operate with the tax officials throughout the inspection, by giving them all necessary assistance and making available all requested documents and items (s. 14(5) and (6)).
24. Under the TAA, a taxable party means a party, the income, property or business of which are liable to tax (s. 5(2)). The term taxpayer means a party, which transfers to the tax administration any tax collected or withheld from the taxable party, and which is liable for the payment of such a tax (s. 5(3)). In essence, the taxable party is the person ultimately subject to taxation (the tax debtor), whereas the taxpayer is the person who pays a tax, including on behalf of someone else. This means that under Slovak tax law a bank withholding taxes on the incomes earned by its clients is the taxpayer in respect of those incomes, whilst the clients are the taxable parties.
PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK SLOVAK REPUBLIC OECD 2012
145. The tax administration can also obtain information from third parties. Courts, other public authorities, local administration authorities and notaries are under a specific obligation to disclose to the tax authorities all relevant information for the levying and recovery of taxes (s. 32(1) TAA). Public inspection authorities are required to disclose to the tax administration the findings of their inspections, if such findings suggest that there is or there may be a breach of tax liability (s. 31(2)). Persons holding documents or other items, which may be used as evidence at the administration of taxes, are required to surrender or lend such documents or items upon request of the administration (s. 32(4)). Under the Banking Act, banks or branch offices of a foreign bank are obliged to notify in writing to the competent tax office details concerning their clients that are businesses; in particular, they are required to disclose the number of each current or deposit account opened and closed by a business that is or has been its client within 10 days of the end of the calendar month in which the account was opened or closed (s. 90, Banking Act). 146. Finally, the tax administration is entitled to check the completeness of the records and registration data of all taxable parties and retrieve any data concerning their income, financial standing and other factors relevant for the correct levying and recovery of taxes. Data may be retrieved also without direct collaboration of the taxable party (s. 34 TAA). When performing these checks, tax officials enjoy the same powers they are entitled to during an onsite inspection. 147. The International Assistance and Cooperation in Administration of Taxes Act (76/2007) (EOI Act) lays out the conditions according to which the competent authority of the Slovak Republic provides international assistance and co-operation in the administration of taxes, including exchange of information. Under the EOI Act, Slovak authorities can respond to an EOI request after the competent authority of the EOI partner declares in its request that it exhausted all data sources that are available to it without compromising the tax matter on hand (s. 6(1) and 12(1)b). The scope of cooperation is wide and covers all the taxes that may be covered by any particular agreement (s. 3). 148. Under the Banking Act, protected bank information may be disclosed to a tax authority only if such request is made in writing and contains information which enables a bank or branch office of a foreign bank to identify the matter in question, in particular a precise identification of the person on which data is requested, and the extent of requested data (s. 91(5)). The Slovak authorities have indicated that the precise identification requirement provided for the Banking Act is satisfied every time an EOI request contains sufficient elements which allow the identification of the person subject of the request, it not being necessary to include his name and/or address.
PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK SLOVAK REPUBLIC OECD 2012
Use of information gathering measures absent domestic tax interest (ToR B.1.3)
149. 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. 150. Under the EOI Act, the competent authority of the Slovak Republic may provide the competent authority of a treaty counterparty (i.e. DTCs and TIEAs) with information which may be ascertained, collected, used or disclosed pursuant to the Slovak Republics laws (s. 5). 151. Upon the receipt of a request, the competent authority (which is the Tax Directorate) will determine the appropriate government authority (in most cases the tax administration) that should provide the information and contact that authority for the information. The relevant government authority will then obtain and provide the requested information to the extent possible under domestic law. The Slovak tax administration does not distinguish whether a query from the Tax Directorate originates from the Slovak Republic or a foreign jurisdiction. This means that the Slovak Republic does not require a domestic interest before exercising its information gathering powers in response to an EOI request. Relevant information obtained by the tax administration is passed on to the Tax Directorate, which transmits it to the requesting jurisdiction. 152. The interaction between the EOI Act and TAA Act (which provides the tax administration with the power to obtain information) is unclear, however, in relation to a narrow range of cases where a person has no nexus with the Slovak Republic for tax purposes. The information gathering powers vested in the Slovak tax authority are linked to the administration of tax and tax proceedings. Accordingly, if a person is outside the scope of Slovak tax (for example, if he does not derive taxable income), power to obtain information directly from that person is uncertain because there is no clear provision in the law that could compel him to provide the information requested. Nevertheless, this is not a material gap because the Slovak tax system has a wide coverage and cases where a person falls outside its scope are rare. Moreover, the Slovak authorities interpret the law as allowing them to use their powers to obtain information for the purposes of tax proceedings in another country from any person in the Slovak Republic regardless of nexus and note that there has never been any issue in this regard in practice. 153. This is an interpretation, however, and the matter is not expressly dealt with in the legislation. This lack of clarity could create situations where the Slovak tax administrations ability to compel the production of information for EOI purposes might be subject to challenge. It is therefore recommended that the Slovak Republic clarifies its legislation to put beyond any doubt that the tax administrations information gathering powers can be exercised to meet all EOI requests.
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PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK SLOVAK REPUBLIC OECD 2012
Professional privileges
160. Under the TAA, it is mandatory to disclose to the tax administration documents or other items which may be needed for the administration of taxes. Persons holding these documents are required to surrender or lend such documents or items upon request of the administration (s. 32(4)). Pursuant to the EOI Act, however, a request for information can be refused if the supply of information would lead to a violation of the obligation to maintain secrecy pursuant to specific laws (s. 12(1)(c)). 161. Pursuant to the Act on Auditors, an auditor and an audit firm are required to maintain the confidentiality of all information that they have obtained in connection with the execution of an audit (s. 30(1)). Auditors continue to be subject to a confidentiality duty also after having completed an audit or having been deleted from the relevant register. The confidentiality obligation, however, does not apply when disclosure is compulsory under a Slovak law (s. 30(7)). It therefore does not compromise the effective exchange of information. 162. Under the Act on Tax Advisors (78/1992), tax advisors must keep secret all facts with which became acquainted in relation with the provision of tax consultancy. The obligation to maintain secrecy is lifted only in
PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK SLOVAK REPUBLIC OECD 2012
instances where disclosure is necessary to foil and notify commitment of a crime, and does not include disclosure for tax or EOI purposes (s. 18). 163. The confidentiality of information shared by a client with his lawyer is protected under Act No.586/2003 (Act on Attorneys). Under the Act on Attorneys, lawyers (both legal counsellors and attorneys) are obliged not to reveal any information learnt in connection with the practice of law 25 (Art. 23(1)). The privilege is not limited to giving legal advice or representation in legal matters. This is a broad scope of information that can go beyond the international standard. The Act on Attorneys provides some exemptions to legal professional privilege; these include disclosure of information in accordance with the AML Law and the Act on the protection of the classified (restricted) information (Act No. 241/2001, as amended). The duty of confidentiality is also lifted where lawful disclosure would prevent a crime (Art. 23(9)). There are no exceptions to the broad legal professional privilege pertaining to disclosure for tax purposes. Thus, if a lawyer acts as a nominee shareholder, trustee, tax advisor or under a power of attorney to represent a company in its business affairs, the lawyer is protected by professional secrecy and can decline to provide information to the tax administration.
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 The power of the Slovak authorities to obtain information for EOI purposes is unclear in a narrow range of cases where a person has no nexus with the Slovak Republic for tax purposes, as the interaction between the EOI Act and TAA Act is unclear. Recommendations It is recommended that the Slovak Republic clarifies its legislation to put beyond doubt that the tax administrations information gathering powers can be exercised to meet all EOI requests.
25.
Practice of law is defined as representation of clients before courts of law, governmental authorities and other entities, acting for and defending individuals in criminal proceedings, legal consultancy, writing instruments about legal acts, making legal analyses, administration of clients property and other forms of legal advice, assistance and legal services, if provided continuously and in return for a fee. (s. 1(2), Act on Attorneys).
PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK SLOVAK REPUBLIC OECD 2012
PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK SLOVAK REPUBLIC OECD 2012
to which appeals are to be made is as follows: local tax administration, central tax administration, Ministry of Finance, Minister of Finance. A decision made by the Minister of Finance is final and may not be reviewed. (ss 6, 46, 47, 48, 51 and 52, TAA). During the appeal process, the tax proceeding is deferred (s. 46(9)).The TAA does not prescribe any timeline for the resolution of appeals. The impact in practice of these appeal rights on international exchange of information in tax matters will be examined in the Phase 2 review of the Slovak Republic.
Determination and factors underlying recommendations
Phase 1 determination The element is in place.
PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK SLOVAK REPUBLIC OECD 2012
C. Exchanging information
Overview
168. Jurisdictions generally cannot exchange information for tax purposes unless they have a legal basis or mechanism for doing so. In the Slovak Republic, the legal authority to exchange information is derived from its EOI agreements as well as from domestic law. This section examines whether the Slovak Republic has a network of information exchange that would allow it to achieve effective EOI in practice. 169. Pursuant to Act 76/2007 on International Assistance and Cooperation in Administration of Taxes (EOI Act), the Ministry of Finance is the Slovak Republics competent authority for international exchange of information in tax matters. The Ministry may designate the tax or customs authorities to be competent authorities. The Slovak Republic also shares information with other jurisdictions pursuant to the EU Mutual Assistance Directive 77/799/ EC, the EU Savings Directive, Council Regulation No. 904/2010 on administrative cooperation and combating fraud in the field of value added tax and Council Regulation (EC) No. 2073/2004 on administrative cooperation in the field of excise duties. 170. The Slovak Republic has signed 64 DTCs, 62 of which are in force as of 31 December 2011 (see Annex 2). 27 While the Slovak Republic has to date not signed any TIEAs, there are no legal restrictions to the Slovak Republic doing so. Indeed, the Slovak Republic authorities have advised that it is in the process of negotiating TIEAs with about 20 jurisdictions. 171. The Slovak Republics network of EOI agreements covers most of its major trading partners and other major OECD/G20 jurisdictions. 172. Out of the 64 signed DTCs, two DTC (with Vietnam and Georgia) contains the full text of Article 26, expressly obliging the Slovak Republic
27. There is also a Protocol to the Switzerland-Slovak Republic DTC which is not yet in force.
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176. The EOI agreements signed by the Slovak Republic are regulated by the Constitution of the Slovak Republic. Under the Constitution, the execution of international agreements that directly establish rights or obligations of natural
28. 29. 30. Exchange of information to the standard is however possible with Austria, Germany and the Netherlands under the EU Mutual Assistance Directive 77/799/ EC. Act on Personal Data Protection, or Act on Banks, etc. The exception is the DTC with Sri Lanka.
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or legal persons does not require any special law, and the provisions of these international agreements override the domestic laws of the Slovak Republic (Art.7(4)). Each EOI agreement that is signed is ratified according to the following steps: approval by national Parliament; ratification by President of the Slovak Republic; and exchange of notes on ratification or exchange of notes on completion of domestic approval with the relevant EOI partner. 177. It is also possible for the Slovak Republic to sign DTCs that are not regulated under the Constitution. Under the Income Tax Act, the Slovak government can conclude agreements regulating taxation and related legal relations in respect of dependent territories entitled to conclude international relations (Art. 1(2)). Such agreements are not ratified by the national Parliament or the President, but rather, are simply given effect through the Income Tax Act. They take precedence over the Income Tax Act itself, but not over the other laws in the Slovak Republic, including those governing confidentiality of information 31. Hence, the exchange of information under such treaties is limited to non-taxpayer specific information. So far, only one agreement 32 has been concluded under Article 1(2) of the ITA. 178. The Slovak Republic has signed 64 Double Tax Conventions (DTCs), 62 of which are in force. Whilst the Slovak Republic has not signed any TIEAs yet, there are no legal restrictions on it doing so and the authorities reported that negotiations to conclude TIEAs are currently ongoing with around 20 jurisdictions.
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PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK SLOVAK REPUBLIC OECD 2012
185. All of the Slovak Republics DTCs provide for EOI in respect of all persons.
Exchange of information held by financial institutions, nominees, agents and ownership and identity information (ToR C.1.3)
186. 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. The international standard stipulates 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. This is spelt out in Article 26(5) of the OECD Model Tax Convention. 187. Out of the Slovak Republics 64 DTCs: the DTC with the Netherlands contains a protocol specifically prohibiting the exchange of bank information and information on insurance companies. 33 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 allows for exchange of all types of information in the absence of domestic law impediments. As both the Netherlands and the Slovak Republic do not have domestic law impediments to effective EOI, the wording in the DTC is not a concern in practice; the DTCs with Georgia, Vietnam and Switzerland (including the 2010 Protocol) 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 Slovak Republics other 60 DTCs do not contain Article 26(5) of the OECD Model Tax Convention. 188. For the 60 DTCs that do not contain Article 26(5) of the OECD Model Tax Convention, the absence of this paragraph does not automatically 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 Slovak Republic is able to obtain and exchange information
33. Paragraph 4 of the 1974 protocol.
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35. 36.
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the Council Directive 77/799/EEC, which allows for exchange of information in the absence of domestic tax interest. As both the Netherlands and Slovak Republic do not require a domestic interest for obtaining and exchanging information, the wording in the DTC is not a concern in practice; and the remaining 55 DTCs do not contain explicit provisions obliging the contracting parties to use information-gathering measures to obtain and exchange requested information without regard to a domestic tax interest. 192. There are no domestic tax interest restrictions on the Slovak Republics powers to access information in EOI cases (see Section B above). As such, the exchange of information in the absence of domestic interest in respect of the remaining 55 DTCs will be subject to reciprocity and will depend on the domestic limitations (if any) in the laws of some of these partners. 37 Where such restrictions exist, it is recommended that the Slovak Republic work with the relevant DTC partners to remove these restrictions.
Exchange of information in both civil and criminal tax matters (ToR C.1.6)
195. 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 information requested for tax administration purposes (also referred to as civil tax matters).
37. 19 of the remaining 55 jurisdictions with DTCs that do not include Article 26(4) have already been reviewed by the Global Forum (Australia, Austria, Belgium, Denmark, Estonia, France, the Former Yugoslav Republic of Macedonia, Germany, Hungary, India, Indonesia, Ireland, Italy. Japan, Luxembourg, Norway, Singapore, Spain and the UK). Limitations have been identified within the legislation of Singapore.
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any of the Slovak Republics domestic laws other than the Income Tax Act. As a result, the EOI provisions of such DTCs (currently only the DTC with Chinese Taipei) cannot be given full effect. 202. As noted in Part B of this report, the power of the Slovak authorities to obtain information for EOI purposes is unclear in a narrow range of cases. The legislation should be clarified to ensure that the Slovak Republics EOI agreements are effective in all cases. This practical impact of this issue will be examined in detail during the Slovak Republics Phase 2 review.
Determination and factors underlying recommendations
Phase 1 determination The element is in place.
203. Ultimately, the international standard requires that jurisdictions exchange information with all relevant partners, meaning those who are interested 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 Slovak Republic has an extensive EOI network comprising 64 signed DTCs, of which 62 have already been brought into force. Out of these 64 DTCs: 43 are with Global Forum member jurisdictions; 31 are with OECD countries; 17 are with G20 countries; and 22 are with EU members. 205. The Slovak Republics current EOI network covers all of its biggest trading partners, including Russia, China, France, the Czech Republic, Austria and Germany. The EOI agreements with two of its biggest trading partners Austria and Germany are not to the standard. However, as mentioned
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C.3. Confidentiality
The jurisdictions mechanisms for exchange of information should have adequate provisions to ensure the confidentiality of information received.
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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. 209. Under the TAA, any information obtained within the framework of a tax proceeding must be kept confidential. However, the TAA permits the disclosure of such information to certain parties, including those not involved in or having overview of the enforcement of the Slovak Republics tax laws, such as the Social Insurance Agency and Central Office of Labour, Social Issues and Family, for the discharge of their functions. This is not in line with the international standard. 210. As noted above, however, the provisions of the Slovak Republics DTCs ratified under the Constitution override domestic laws, meaning that the confidentiality provisions present therein have full legal effect in the Slovak Republic. All the Slovak 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 might vary slightly in wording, these provisions contain all of the essential aspects of Article 26(2) of the OECD Model Tax Convention. 211. The agreement with Chinese Taipei has been enacted under the ITA and not under the Constitution. As a consequence, its provisions do not prevail on the confidentiality provisions contained in other laws, in particular the TAA. As a result, the Slovak Republic is unable to provide taxpayer specific information to Chinese Taipei under and will not request taxpayer specific information from Chinese Taipei. The Slovak Republic should ensure that all the confidentiality provisions of all its EOI agreements are given effect through its domestic laws.
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Determination
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 in place, but certain aspects of the legal implementation of the element need improvement. Not all companies incorporated outside of the Slovak Republic but having their place of effective management (and therefore resident) therein are subject to clear requirements to maintain identity information concerning their owners. The availability of such information will generally depend on the law of the jurisdiction in which the company is incorporated and so may not be available in all cases. Persons in the Slovak Republic who act as professional trustees for foreign trusts are not obliged to identity the settlors and beneficiaries of such trusts. Ownership and identity information should be available for all foreign companies having a sufficient nexus with the Slovak Republic.
Persons in the Slovak Republic who act as professional trustees for foreign trusts should be required to maintain identity information on the settlors and beneficiaries of the foreign trusts for which they act.
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Determination
Recommendations
Jurisdictions should ensure that reliable accounting records are kept for all relevant entities and arrangements. (ToR A.2) The element is in place. Slovak trustees of foreign trusts are not required to keep accounting records that fully reflect the financial position and assets/liabilities of the foreign trust\. The Slovak Republic should ensure that such accounting records are maintained for a minimum of five years for any foreign trusts which have Slovak-resident administrators or trustees.
Banking information should be available for all account-holders. (ToR A.3) The element is in place. 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 power of the Slovak authorities to obtain information for EOI purposes is unclear in a narrow range of cases where a person has no nexus with the Slovak Republic for tax purposes, as the interaction between the EOI Act and TAA Act is unclear. Professional privilege is broadly defined under Slovak domestic laws and there are no express exceptions in the case of requests made under an EOI agreement. It is recommended that the Slovak Republic clarifies its legislation to put beyond doubt that the tax administrations information gathering powers can be exercised to meet all EOI requests.
The Slovak 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.
PEER REVIEW REPORT PHASE 1: LEGAL AND REGULATORY FRAMEWORK SLOVAK REPUBLIC OECD 2012
Determination
Recommendations
The jurisdictions network of information exchange mechanisms should cover all relevant partners. (ToR C.2) The element is in place. The Slovak Republic should continue to develop its EOI network to the standard with all relevant partners.
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 Slovak 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 may go beyond the international standard. It is recommended that the Slovak 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.
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ANNEXES 75
The Slovak Republic highly appreciates the tremendous work performed by the members of the Assessment Team during the evaluation of legal and regulatory framework of the Slovak Republic, and welcomes the Phase 1 Peer Review Report as approved by the Peer Review Group. The Slovak Republic has taken note of the positive findings of the Report and continues to develop its exchange of information network to the standard with all relevant partners. With regard to Joint Council of Europe/OECD Convention on Mutual Administrative Assistance in Tax Matters, the Slovak Republic is committed to sign this important instrument for effective exchange of tax information, as soon as substantial transformation of tax administration system in the Slovak Republic (carried out from 2012 to 2013) is completed, and all possible technical difficulties are resolved.
* This Annex presents the Jurisdictions response to the review report and shall not be deemed to represent the Global Forums views.
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76 ANNEXES
Multilateral agreements
The Slovak 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 comes into force on 1 January 2013. 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 39, the Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Poland, Portugal, Romania, the Slovak Republic, Slovenia, Spain, Sweden and the 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
39. 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 representing 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.
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ANNEXES 77
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. Council Regulation (EU) No. 904/2010 of 7 October 2010 on administrative cooperation and combating fraud in the field of value added tax (recast of the Council Regulation (EC) No 1798/2003 of 7 October 2003 on administrative cooperation in the field of value added tax); Council Regulation (EC) No. 2073/2004 of 16 November 2004 on administrative cooperation in the field of excise duties.
Bilateral agreements
Jurisdiction 1 Australia Type of EOI arrangement Double Taxation Convention (DTC) DTC DTC DTC DTC DTC DTC DTC DTC DTC
40
2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17
Austria Belarus Belgium Bosnia Brazil Bulgaria Canada China Croatia Cyprus Czech Republic Denmark Egypt Estonia Finland France
7-Mar-78 12-Jan-99 15-Jan-97 2-Nov-08 26-Aug-86 12-Nov-99 22-May-01 11-Jun-87 12-Feb-96 15-Apr-80 26-Mar-02 5-May-82 20-Jan-04 21-Oct-03 15-Feb-99 1-Jun-73
12-Feb-79 5-Jul-00 13-Jun-00 17-Apr-83 14-Nov-90 2-May-01 18-Dec-01 23-Dec-87 14-Nov-96 30-Dec-80 14-Jul-03 27-Dec-82 ---29-Mar-06 6-May-00 25-Jan-75
40.
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78 ANNEXES
Type of EOI arrangement DTC
19 21
DTC DTC DTC DTC DTC DTC DTC DTC DTC DTC DTC DTC DTC DTC DTC DTC DTC DTC DTC DTC DTC DTC DTC DTC DTC DTC DTC DTC DTC DTC
27-Oct-11 19-Dec-80 23-Oct-86 5-Jan-94 15-Apr-02 27-Jan-86 12-Oct-00 8-Jun-99 8-Sep-99 05-May-81 11-Oct-77 21-Mar-07 27-Aug-01 11-Mar-99 20-Feb-09 15-Mar-01 18-Mar-91 07-Sep-99 13-May-06 25-Nov-03 26-Feb-01 04-Mar-74 31-Aug-89 27-Jun-79 18-Aug-94 06-Jun-01 03-Mar-94 24-Jun-94 26-Feb-01 09-May-05
---17-Nov-83 23-May-89 21-Dec-95 19-Jun-03 13-Mar-87 30-Jan-01 30-Dec-99 23-May-00 26-Jun-84 25-Nov-78 28-Jul-08 08-Jul-03 12-Jun-00 21-Jun-10 16-Dec-02 30-Dec-92 20-Aug-00 28-Sep-07 17-Sep-06 15-Oct-01 05-Nov-74 02-Dec-90 28-Dec-79 21-Dec-95 02-Nov-04 29-Dec-95 01-May-97 15-Oct-01 12-Jun-06
20 Germany 22 Hungary 23 Iceland 24 India 25 Indonesia 26 Ireland 27 Israel 28 Italy 29 Japan 30 Kazakhstan 31 Korea 32 Latvia 33 Libya 34 Lithuania 35 Luxembourg 36 Malta 37 Mexico 38 Moldova 39 Montenegro 40 Netherlands 41 42 Nigeria Norway
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Type of EOI arrangement DTC DTC DTC DTC DTC DTC Protocol DTC DTC DTC DTC DTC DTC DTC DTC DTC DTC
Date signed 14-May-03 28-May-98 08-May-80 26-Jul-78 16-Feb-79 14-Feb-97 07-Feb-11 18-Feb-09 10-Aug-11 14-Mar-90 02-Apr-97 08-Aug-96 05-Nov-90 23-Jan-96 08-Oct-93 06-Mar-03 27-Oct-08
Date in force 11-Jul-04 30-Jun-99 05-Jun-81 19-Jun-79 08-Oct-80 23-Dec-97 ---27-Feb-10 24-Sep-11 25-Oct-91 02-Dec-99 26-Jun-98 20-Dec-91 22-Nov-96 30-Dec-93 17-Oct-03 29-Jul-09
53 Sweden 54 Switzerland 55 Syria 56 Chinese Taipei 57 Tunisia 58 Turkey 59 Turkmenistan 60 UK 61 Ukraine 62 USA 63 Uzbekistan 64 Vietnam
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80 ANNEXES
Commercial Laws
Act 513/1991 Commercial Code Act 431/2002 on Accounting Act 566/2001 on Securities and Investment Services Act 586/2003 on the Legal Profession and on Amending Act No. 455/1991 on the Business and Self-Employment Services (Business Licensing Act) Act 34/2002 on Foundations Act 530/2003 on Business Registers
Taxation Laws
Act 595/2003 Coll. on Income Tax Act 76/2007 on International assistance and cooperation in administration of taxes Act 511/1992 Administration of Taxes and Fees and Changes to the System of Local Financial Authorities Act
Banking Laws
Act 483/2001 Coll. on banks and on changes and amendments to certain other laws
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Others
Constitution of the Slovak Republic
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OECD PUBLISHING, 2, rue Andr-Pascal, 75775 PARIS CEDEX 16 (23 2012 11 1 P) ISBN 978-92-64-16894-7 No. 59913 2012
Please cite this publication as: OECD (2012), Global Forum on Transparency and Exchange of Information for Tax Purposes Peer Reviews: Slovak Republic 2012: Phase 1: Legal and Regulatory Framework, OECD Publishing. http://dx.doi.org/10.1787/9789264168954-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.
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