Better tax administration, less human rights protection?
25 September, 2014
Better tax administration, less human rights protection?
The bill on Georgian tax code gives the taxation administrators easier access to the bank’s confidential information. According to the change, the Georgian taxation body should be mandated to require disclosure of confidential banking information from banks directly if this is demanded within the framework of international agreements or if any competent body of any foreign state requires this action. The order must be executed only after court approval while the court should draw out its decision within 5 days.

The Ministry of Finance of Georgia, the author of the intended changes, claims that this is an international obligation and in line with international practice. Sector pundits agree that Georgia must adopt these measures of the developed world to make tax administration in off-shore zones more transparent. However, they indicate the risk that the draft bill may undermine the investors’ trust in Georgia and violate human rights.
The problem lies in the projected information requiring mechanism. It suggests two ways: the first one makes the owner of the bank account a part of the court procedure and is harmless. The second way suggests leaving the taxpayer/the owner of the account unaware of the possible information disclosure and it raises many questions. It excludes account owners from the court procedures and deprives them of the right to appeal against the court decision. This, according to human rights watchdogs, violates the Georgian constitution as well as internationally recognized democratic values and the rules protecting basic human rights, which grant any person the right to a fair trial.
“The draft of the change stipulates that the court discusses the reference of the tax body without informing the owner of the account. That means that this person cannot participate in the court and present arguments and evidence against the tax body in that court,” Levan Alapishvili, an independent legal expert, explains his concerns. “This ignores fundamental human rights acknowledged by the Universal Declaration of Human Rights, European Convention and Georgian constitution. The European Convention and its protocols define a fair court as the ability of a person to appeal at least two court rulings. Yet this draft bill forbids the owner of the account to appeal against the court decision.”
Sector pundits also question the 5-day period within which the court should make its decision. They think this is too short a period for the court to carry out due diligence and check whether or not the request of Georgian tax body on disclosure of banking secrecy is authentic and comes from foreign state bodies on reasonable grounds. On the other hand, the projected change does not define the supervisory period over the requested bank account thus enabling the state to have unlimited control.
Ditrikh Muller, a co-founder and legal specialist at Georgina Investment Group +, is normally against disclosure of confidential information, which clients keep at banks. Although this time he approves the government’s initiative to pursue the international practice and create direct access for the tax administration to information at banks. By the current law, tax body may get court consent only after the case is raised at Prosecutors’ Office, which complicates the procedure.
“This is a necessity today and the entire developed world makes banks more open even in Switzerland. It is a part of an anti-terrorist campaign and Georgia has an obligation to take into account the interests of its strategic partners, the EU and the USA,” Muller elaborates. “However, if this kind of openness is not regulated properly it implies risks that the information can be misused by high-ranking tax officers who are involved in the process.”
The five-day period given to the court for drawing out its decision as well as an unclear definition when that the tax body is authorized to ask for information disclosure makes Muller doubtful that this is a covert attempt of some Georgian officials to misuse the change.
“The five-day period should be much longer for it is an absolutely unrealistic period for proper research that should lead to fair court decision. On the other hand, the definition of when the tax body can ask for confidential bank information is ambiguous. It stipulates that the tax body can ask for confidential information for the purpose of “better tax administration or to meet international agreements… This ‘or’ must be removed and there should be a very clear definition that only for the purpose of international agreements and obligations can the Georgian tax body require tax payers’ confidential banking information. Otherwise, some officials will be tempted to misuse the mandate as a means of political revenge for example,” Muller elaborated.
Muller fears that if the code leaves room for interpretation, those who are in government may seek information on ex-government members and their political rivals, which may undermine the trust of investors in Georgia and attract only investors who will be affiliated with incumbent governments. “Such government-connected investors can bring no good to the country,” he concluded.

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