New code strips police of power to examine individuals’ tax returns

12-10-2010

One of the tools available to police investigating economic crimes is the authorisation to look into personal tax data. However, that will no longer be the case once a new tax code takes effect on January 1, and makes it impossible for anyone other than the state prosecutor to inspect such information. The situation has pitted the Interior Ministry, which wants a last minute change to the approved legislation, against the Ministry of Finance, which is standing firm on keeping the new tax code.

Special divisions of the Czech police are currently able to inspect tax records, namely annual tax returns, in the course of investigating economic crimes like tax evasion or money laundering or even as a prelude to such investigations. The new version of the tax code, passed in late 2008, not only does away with those powers but puts them solely in the hands of the state prosecutor, who moreover can only access such records during the course of an officially launched investigation. It is a powerful tool for investigators and the Interior Ministry is therefore pushing to have the tax code amended as quickly as possible to maintain it.

Karel Šimek of the Finance Ministry is one of the authors of the tax code. He explains that both the current tax code and the one replacing it in 2011 contain a list of crimes for which tax confidentiality does not hold, and says the new version removes special authorisation that had historically never been there in the first place and was added as anti-terrorism measures.

“The current law was passed in 2004, so it is not something that we have had for years, it has only been around for about six years, and in addition to the list of crimes it also gave special police divisions the power to request special information from the tax administration that went beyond the scope of those crimes. This is the only change that has been made, because it was too great a breach into the idea of confidentiality and in effect only decreases the motivation of taxpayers to file their taxes.”

Another point that Mr Šimek raises is that of legal protection against self-incrimination, whereby a person can incriminate himself, though in a roundabout way, by filing taxes, because the police are able to use the information against them. If the state expects people to fulfil their tax duties voluntarily, it must also provide them confidentiality for their sensitive information.

However the Ministry of the Interior and the police are sticking to their guns, contending that being able to inspect tax information before an investigation is key to being able to open one. The police presidium says that the loss of the power will be a major complication for their economic investigations. Between the Ministries there is little room for compromise.

The Finance Ministry, photo: www.ct24.czThe Finance Ministry, photo: www.ct24.cz “There is no in-between option. Either the politicians decide that what was approved in 2008 no longer applies and confidentiality will be impeded more and more, that’s a legitimate possibility. It’s for the government to decide whether the priority is tax collection and budget responsibility or to put more tools in the hands of the police. I agree that it is very effective in investigations, there is no dispute about that, but it’s something for something.”

Whether the politicians decide the greater public good is tax confidentiality or economic crime detection will be a question for the next meeting of the coalition leaders, where the Ministry of the Interior says the issue will be on the agenda.

12-10-2010