Czech Republic

This report analyses the implementation of the AEOI Standard in the Czech Republic with respect to the requirements of the AEOI Terms of Reference. It assesses both the legal frameworks put in place to implement the AEOI Standard and the effectiveness of the implementation of the AEOI Standard in practice.

The methodology used for the peer reviews and that therefore underpins this report is outlined in Chapter 2.

Overall findings

AEOI legal framework

The Czech Republic’s legal framework implementing the AEOI Standard is in place and is consistent with the requirements of the AEOI Terms of Reference. This includes the Czech Republic’s domestic legislative framework requiring Reporting Financial Institutions to conduct the due diligence and reporting procedures (CR1) and its international legal framework to exchange the information with all of the Czech Republic’s Interested Appropriate Partners (CR2).

Overall determination on the legal framework: In Place

Effectiveness of AEOI in practice

The Czech Republic’s implementation of the AEOI Standard is on track with respect the requirements of the AEOI Terms of Reference to ensure the effectiveness of the AEOI Standard in practice. This includes ensuring Reporting Financial Institutions correctly conduct the due diligence and reporting procedures (CR1) and exchanging the information in an effective and timely manner (CR2). The Czech Republic is encouraged to continue its implementation process accordingly, to ensure its ongoing effectiveness.

Overall rating in relation to the effectiveness in practice: On Track

General context

The Czech Republic commenced exchanges under the AEOI Standard in 2017.

In order to provide for Reporting Financial Institutions to collect and report the information to be exchanged, the Czech Republic:

• enacted Act No. 164/2013 Coll. as amended by Act No. 105/2016 and Act No. 80/2019;

• introduced Decree No. 108/2016 Coll. repealed and replaced by Decree No. 26/2019 Coll.;

• issued further guidance, which is not legally binding; and

• made reference to Act No 253/2008 Coll. (as amended) and Act No 37/2021 Coll. implementing the FATF Recommendations for the purposes of the identification of Controlling Persons under the AEOI Standard.

Under this framework Reporting Financial Institutions were required to commence the due diligence procedures in relation to New Accounts from 1 January 2016. With respect to Preexisting Accounts, Reporting Financial Institutions were required to complete the due diligence procedures on High Value Individual Accounts by 31 December 2016 and on Lower Value Individual Accounts and Entity Accounts by 31 December 2017.

Following the initial Global Forum peer review, the Czech Republic made various amendments to its legislative framework to address issues identified, the last of which was effective from 1 June 2021.

With respect to the exchange of information under the AEOI Standard, the Czech Republic:

• is a Party to the Convention on Mutual Administrative Assistance in Tax Matters and activated the associated CRS Multilateral Competent Authority Agreement in time for exchanges in 2017;

• has transposed into its domestic law European Directive 2011/16/EU on Administrative Cooperation in the Field of Taxation as amended by Directive 2014/107/EU; and

• has in place EU agreements with five European third countries.1

Table 1 sets out the number of Financial Institutions in the Czech Republic that reported information on Financial Accounts in 2021 as defined in the AEOI Standard (essentially because they maintained Financial Accounts for Account Holders, or that were related to Controlling Persons, resident in a Reportable Jurisdiction). It also sets out the number of Financial Accounts that they reported in 2021. In this regard, it should be noted that the Czech Republic requires the reporting of Financial Accounts based on a prescribed list of exchange partners and some accounts may be required to be reported more than once (e.g. jointly held accounts or accounts with multiple related Controlling Persons), which is reflected in the figures below. These figures provide key contextual information to the development and implementation of the Czech Republic’s administrative compliance strategy, which is analysed in the subsequent sections of this report.

Table 1. Number of Financial Institutions reporting and Financial Accounts reported
	Number
Financial Institutions reporting Financial Accounts in 2021	235
Financial Accounts reported in 2021	1 461 317

Table 2 sets out the number of exchange partners to which information was successfully sent by the Czech Republic in the past few years (including where the necessary frameworks were in place, containing an obligation on Reporting Financial Institutions to report information, but no relevant Reportable Accounts were identified). These figures provide key contextual information in relation to the Czech Republic’s exchanges in practice, which is also analysed in subsequent sections of this report.

Table 2. Number of exchange partners to which information was successfully sent
	2018	2019	2020	2021
Number of exchange partners to which information was successfully sent	60	60	66	74

In order to provide for the effective implementation of the AEOI Standard, in the Czech Republic:

• the tax authority has the responsibility to ensure the effective implementation of the due diligence and reporting obligations by Reporting Financial Institutions and for exchanging the information with the Czech Republic’s exchange partners;

• technical solutions necessary to receive and validate the information reported by Reporting Financial Institutions were put in place by the tax authority; and

• the Common Transmission System (CTS), and in the European Union (EU) the Common Communication Network (CCN), are used for the exchange of the information, along with the associated file preparation and encryption requirements.

It should be noted that the review of the Czech Republic’s legal frameworks implementing the AEOI Standard concluded with the determination that the Czech Republic’s domestic and international legal frameworks are In Place. This has been taken into account when reviewing the effectiveness of the Czech Republic’s implementation of the AEOI Standard in practice.

Findings and conclusions on the legal frameworks

The detailed findings and conclusions on the AEOI legal frameworks for the Czech Republic are below, organised per Core Requirement (CR) and then per sub-requirement (SR) as extracted from the AEOI Terms of Reference (see Annex C).

CR1 Domestic legal framework: Jurisdictions should have a domestic legislative framework in place that requires all Reporting Financial Institutions to conduct the due diligence and reporting procedures in the CRS, and that provides for the effective implementation of the CRS as set out therein.

Determination: In Place

The Czech Republic’s domestic legislative framework is in place and contains all of the key aspects of the CRS and its Commentary requiring Reporting Financial Institutions to conduct the due diligence and reporting procedures (SRs 1.1 – 1.3). It also provides a framework to enforce the requirements (SR 1.4).

SR 1.1 Jurisdictions should define the scope of Reporting Financial Institutions consistently with the CRS.

Findings:

The Czech Republic has defined the scope of Reporting Financial Institutions in its domestic legislative framework in accordance with the CRS and its Commentary.

Recommendations:

No recommendations made.

SR 1.2 Jurisdictions should define the scope of Financial Accounts and Reportable Accounts consistently with the CRS and incorporate the due diligence procedures to identify them.

Findings:

The Czech Republic has defined the scope of the Financial Accounts that are required to be reported in its domestic legislative framework and incorporated the due diligence procedures that must be applied to identify them in accordance with the CRS and its Commentary.

Recommendations:

No recommendations made.

SR 1.3 Jurisdictions should incorporate the reporting requirements contained in Section I of the CRS into their domestic legislative framework.

Findings:

The Czech Republic has incorporated the reporting requirements in its domestic legislative framework in accordance with the CRS and its Commentary.

Recommendations:

No recommendations made.

SR 1.4 Jurisdictions should have a legislative framework in place that allows for the enforcement of the requirements of the CRS in practice.

Findings:

The Czech Republic has a legislative framework in place to enforce the requirements in accordance with the CRS and its Commentary.

Recommendations:

No recommendations made.

CR2 International legal framework: Jurisdictions should have exchange relationships in effect with all Interested Appropriate Partners as committed to and that provide for the exchange of information in accordance with the Model CAA.

Determination: In Place

The Czech Republic’s international legal framework to exchange the information is in place, is consistent with the Model CAA and its Commentary and provides for exchange with all of the Czech Republic’s Interested Appropriate Partners (i.e. all jurisdictions that are interested in receiving information from the Czech Republic and that meet the required standard in relation to confidentiality and data safeguards) (SRs 2.1 – 2.3).

SR 2.1 Jurisdictions should have exchange agreements in effect with all Interested Appropriate Partners that permit the automatic exchange of CRS information.

Findings:

The Czech Republic has exchange agreements that permit the automatic exchange of CRS information in effect with all its Interested Appropriate Partners.

Recommendations:

No recommendations made.

SR 2.2 Such an exchange agreement should be put in place without undue delay, following the receipt of an expression of interest from an Interested Appropriate Partner.

Findings:

The Czech Republic put in place its exchange agreements without undue delay.

Recommendations:

No recommendations made.

SR 2.3 Jurisdictions should ensure that the exchange agreements in effect provide for the exchange of information in accordance with the requirements of the Model CAA.

Findings:

The Czech Republic’s exchange agreements provide for the exchange of information in accordance with the requirements of the Model CAA.

Recommendations:

No recommendations made.

Assessed jurisdiction’s comments on the assessment of its legal frameworks

No comments made.

Findings and conclusions in relation to effectiveness in practice

The detailed findings and conclusions in relation to effectiveness in practice of AEOI for the Czech Republique are below, organised per Core Requirement (CR) and then per sub-requirement (SR) as extracted from the AEOI Terms of Reference (see Annex C).

CR1 Effectiveness in practice: Jurisdictions should ensure that in practice Reporting Financial Institutions correctly implement the due diligence and reporting procedures, which includes a requirement for jurisdictions to have in place an administrative framework to ensure the effective implementation of the CRS.

Rating: On Track

The Czech Republic’s implementation of the AEOI Standard is on track with respect to ensuring that Reporting Financial Institutions are correctly conducting the due diligence and reporting procedures and are therefore reporting complete and accurate information. This includes ensuring effectiveness in a domestic context, such as through having an effective administrative compliance framework and related procedures (SR 1.5), and collaborating with exchange partners to ensure effectiveness (SR 1.6). The Czech Republic is encouraged to continue its implementation process to ensure its ongoing effectiveness.

SR 1.5 Jurisdictions should ensure that in practice Reporting Financial Institutions identify the Financial Accounts they maintain, identify the Reportable Accounts among those Financial Accounts, as well as their Account Holders, and where relevant Controlling Persons, by correctly conducting the due diligence procedures and collect and report the required information with respect to each Reportable Account. This includes having in place:

• an effective administrative compliance framework to ensure the effective implementation of, and compliance with, the CRS. This framework should:

  • be based on a strategy that facilitates compliance by Reporting Financial Institutions and which is informed by a risk assessment in respect of the effective implementation of the CRS that takes into account relevant information sources (including third party sources);

  • include procedures to ensure that Financial Institutions correctly apply the definitions of Reporting Financial Institutions and Non-Reporting Financial Institutions;

  • include procedures to periodically verify Reporting Financial Institutions’ compliance, conducted by authorities that have adequate powers with respect to the reviewed Reporting Financial Institutions, with procedures to access the records they maintain; and

• effective procedures to ensure that Financial Institutions, persons or intermediaries do not circumvent the due diligence and reporting procedures;

• effective enforcement mechanisms to address non-compliance by Reporting Financial Institutions;

• strong measures to ensure that valid self-certifications are always obtained for New Accounts;

• effective procedures to ensure that each, or each type of, jurisdiction-specific Non-Reporting Financial Institution and Excluded Account continue to present a low risk of being used to evade tax; and

• effective procedures to follow up with a Reporting Financial Institution when undocumented accounts are reported in order to establish the reasons why such information is being reported.

Findings:

In order to ensure that Reporting Financial Institutions correctly conduct the due diligence and reporting procedures, the Czech Republic implemented most of the requirements in accordance with expectations. However, some issues were identified. The key findings were as follows:

• The Czech Republic implemented an overarching strategy to ensure compliance with the AEOI Standard developed after conducting a risk assessment that took into account a range of relevant information sources, such as an analysis of the reports submitted by Financial Institutions for AEOI purposes, including multi-year statistical analysis, and cooperation with the AML authorities. The Czech Republic’s compliance strategy facilitates compliance and incorporates a credible approach to enforcement. The Czech Republic intends to keep its compliance strategy and risk assessment under review to ensure its effectiveness on an ongoing basis.

• The Czech Republic has worked effectively to understand its population of Financial Institutions, including relevant non-regulated entities, utilising various relevant information sources, such as the lists of regulated entities, the Foreign Financial Institution list for FATCA, its register of trusts, information from the results from other tax investigations and information submitted by other Financial Institutions. The Czech Republic intends to keep its understanding of its Financial Institution population up to date on a routine basis.

• The institution responsible for implementing the Czech Republic’s compliance strategy appears to have the necessary powers and resources to discharge its functions. With respect to resourcing, the Czech Republic has assigned the equivalent of 4.5 full time staff from different areas within the tax administration to monitor and ensure compliance by Reporting Financial Institutions, which have access to IT systems and tools to conduct risk assessments. Overall, they appear to have effectively implemented an operational plan to verify compliance with the requirements, incorporating appropriate compliance activities.

• It appears that the Czech Republic effectively enforces the requirements, including through the inspection of records of Reporting Financial Institutions and the application of dissuasive penalties and sanctions for non-compliance. The Czech Republic has taken actions to ensure self-certifications are obtained as required and is also ready to take effective action to address circumvention of the due diligence and reporting procedures by Financial Institutions, persons or intermediaries if it is detected. However, while it has taken action on an ad hoc basis, the Czech Republic does not appear to have systematic procedures in place to follow up on undocumented accounts.

• The Czech Republic will keep its jurisdiction-specific list of Excluded Accounts under review to ensure they continue to pose a low risk of being used for tax evasion purposes. It is noted that the Czech Republic does not have a jurisdiction-specific list of Non-Reporting Financial Institutions for ongoing monitoring.

Table 3 provides a summary of the specific activities undertaken, or that are planned to be undertaken, in relation to each of the key parts of the framework described above.

Table 3. Activities undertaken
Activity type	Activities undertaken
Communication and outreach	The Czech Republic has carried out substantial communication and outreach activities, such as the setting up of working groups including the tax authority and the various associations representing the Financial Institutions, organizing seminars for the benefit of Financial Institutions and regularly updating its dedicated CRS page on its website with answers to Frequently Asked Questions.
Verifying that Financial Institutions are reporting as required	The Czech Republic has carried out some verification activities to ensure that Financial Institutions are reporting as required, such as comparing the list of Financial Institutions registered with the list of Financial Institutions that have reported information and identified fifteen Financial Institution that did not report despite having reportable accounts. It has followed up on the issues.
Verifying whether the information reported is complete and accurate	The Czech Republic has conducted some desk-based checks to verify whether the information being reported is complete and accurate. Furthermore, the Czech Republic has conducted some in-depth onsite audits. During these control activities it identified some issues commonly concerning the failure to report Reportable Accounts. It is following up on these issues with a view to ensuring future compliance.
Enforcement	Following the activities mentioned above, The Czech Republic has imposed some penalties and sanctions. It is monitoring the impact of these penalties and sanctions with a view to ensuring future compliance.

With respect to the Financial Account information collected and sent by the Czech Republic, the presence of the key data point relating to dates of birth appeared to be in line with most other jurisdictions. The Czech Republic was not able to confirm that it collects and monitors information on the proportion of Financial Accounts that are reported that include information on the Tax Identification Numbers with respect to the individuals associated with them. This data point is key to exchange partners to effectively utilise the information and is important to developing an effective compliance strategy to ensure the AEOI Standard is being effectively implemented. The Czech Republic was also not able to confirm that it collects and monitors information on the number of undocumented accounts reported by its Reporting Financial Institutions. This information is crucial to implementing the requirement to follow up on undocumented accounts.

More generally, many of the exchange partners that received a significant number of records from the Czech Republic indicated that they achieved a success rate when matching the information received from the Czech Republic with their taxpayer database that was broadly equivalent to, or better than, what they usually achieve.

Based on these findings it was concluded that, overall, the Czech Republic is meeting expectations in ensuring that Reporting Financial Institutions correctly conduct the due diligence and reporting procedures, including by having in place the required administrative compliance framework and related procedures. However, issues have been identified, including with respect to the monitoring of the collection of Tax Identification Numbers by Reporting Financial Institutions and monitoring and following up on undocumented accounts. The Czech Republic should therefore continue its implementation process accordingly, including by addressing the recommendations made.

Recommendations:

The Czech Republic should implement systems to collect and monitor information on the reporting of Tax Identification Numbers and undocumented accounts to inform its compliance strategy.

The Czech Republic should develop and implement a clearly defined policy to follow up where undocumented accounts are reported by the Reporting Financial Institutions.

SR 1.6 Jurisdictions should collaborate on compliance and enforcement. This requires jurisdictions to:

• use all appropriate measures available under the jurisdiction’s domestic law to address errors or non-compliance notified to the jurisdiction by an exchange partner; and

• have in place effective procedures to notify an exchange partner of errors that may have led to incomplete or incorrect information reporting or non-compliance with the due diligence or reporting procedures by a Reporting Financial Institution in the jurisdiction of the exchange partner.

Findings:

In order to collaborate on compliance and enforcement, it appears that the Czech Republic implemented all of the requirements in relation to issues notified to them (i.e. under Section 4 of the MCAA or equivalent) in accordance with expectations. While no such notifications have yet been received, the Czech Republic has the necessary systems and procedures to process them as required. It also appears that the Czech Republic will notify its partners effectively of errors or suspected non-compliance it identifies when utilising the information received.

Based on these findings it was concluded that the Czech Republic is fully meeting expectations in relation to collaborating with its exchange partners to ensure that Reporting Financial Institutions correctly conduct the due diligence and reporting procedures. The Czech Republic is encouraged to continue its implementation process accordingly, to ensure its ongoing effectiveness.

Recommendations:

No recommendations made.

CR2 Effectiveness in practice: Jurisdictions should exchange the information effectively in practice, in a timely manner, including by sorting, preparing, validating and transmitting it in accordance with the AEOI Standard.

Rating: On Track

The Czech Republic’s implementation of the AEOI Standard is on track with respect to exchanging the information effectively in practice, including in relation to sorting, preparing and validating the information (SR 2.4), correctly transmitting the information in a timely manner (SRs 2.5 – 2.8) and providing corrections, amendments or additions to the information (SR 2.9). The Czech Republic is encouraged to continue its implementation process accordingly, to ensure its ongoing effectiveness.

SR 2.4 Jurisdictions should sort, prepare and validate the information in accordance with the CRS XML Schema and the associated requirements in the CRS XML Schema User Guide and the File Error and Correction-related validations in the Status Message User Guide (i.e. the 50000 and 80000 range).

Findings:

Two exchange partners highlighted particular issues with respect to preparation and format of the information sent by the Czech Republic (representing 3% of its partners). These generally related to the provision of a valid message and the correction of record errors notified. More generally, one of the Czech Republic’s exchange partners reported rejecting more than 25% of the files received, and none reported rejecting more than 50% of files received, due to the technical requirements not being met. This is broadly in line with the general experience of other jurisdictions. It was noted that the Czech Republic has already successfully addressed all of the issues.

Figure 1. Technical issues raised by the Czech Republic’s exchange partners

Based on these findings it was concluded that the Czech Republic is fully meeting expectations in relation to sorting, preparing and validating the information. The Czech Republic is encouraged to continue its implementation process accordingly, to ensure its ongoing effectiveness.

Recommendations:

No recommendations made.

SR 2.5 Jurisdictions should agree and use, with each exchange partner, transmission methods that meet appropriate minimum standards to ensure the confidentiality and integrity of the data throughout the transmission, including its encryption to a minimum secure standard.

Findings:

In order to put in place an agreed transmission method that meets appropriate minimum standards in confidentiality, integrity of the data and encryption for use with each of its exchange partners, the Czech Republic linked to the CTS and the CCN, which is used for exchanges within the EU.

Based on these findings it was concluded that the Czech Republic is fully meeting expectations in relation to agreeing and using appropriate transmission methods with each of its partners. The Czech Republic is encouraged to continue to ensure the ongoing effectiveness of its implementation.

Recommendations:

No recommendations made.

SR 2.6 Jurisdictions should carry out all exchanges annually within nine months of the end of the calendar year to which the information relates.

Findings:

One exchange partner highlighted delays in the sending of information by the Czech Republic. It was noted that the Czech Republic successfully addressed all of the issues and sent the information as soon as possible thereafter.

Based on these findings it was concluded that the Czech Republic is fully meeting expectations in relation to exchanging the information in a timely manner. The Czech Republic is encouraged to continue to ensure the ongoing effectiveness of its implementation.

Recommendations:

No recommendations made.

SR 2.7 Jurisdictions should send the information in accordance with the agreed transmission methods and encryption standards.

Findings:

Feedback from the Czech Republic’s exchange partners did not raise any concerns with respect to the Czech Republic’s use of the agreed transmission methods and therefore with the Czech Republic’s implementation of this requirement.

Based on these findings it was concluded that the Czech Republic is fully meeting expectations in relation to sending the information in accordance with the agreed transmission methods and encryption standards. The Czech Republic is encouraged to continue to ensure the ongoing effectiveness of its implementation.

Recommendations:

No recommendations made.

SR 2.8 Jurisdictions should have the systems in place to receive information and, once it has been received, should send a status message to the sending jurisdictions in accordance with the CRS Status Message XML Schema and the related User Guide.

Findings:

One exchange partner highlighted delays in the sending of status messages by the Czech Republic. It was noted that The Czech Republic appears to be successfully addressing the issues to ensure that status messages are sent in accordance with the requirements.

Based on these findings it was concluded that the Czech Republic is fully meeting expectations in relation to the receipt of the information. The Czech Republic is encouraged to continue to ensure the ongoing effectiveness of its implementation.

Recommendations:

No recommendations made.

SR 2.9 Jurisdictions should respond to a notification from an exchange partner as referred to in Section 4 of the Model CAA (which may include Status Messages) in accordance with the timelines set out in the Commentary to Section 4 of the Model CAA. In all other cases, jurisdictions should send corrected, amended or additional information received from a Reporting Financial Institution as soon as possible after it has been received.

Findings:

The Czech Republic appears ready to respond to notifications and to provide corrected, amended or additional information in a timely manner and no such concerns were raised by the Czech Republic’s exchange partners and therefore with respect to the Czech Republic’s implementation of these requirements.

Based on these findings it was concluded that the Czech Republic appears to be meeting expectations in relation to responding to notifications from exchange partners and sending of corrected, amended or additional information. The Czech Republic is encouraged to continue to ensure the ongoing effectiveness of its implementation.

Recommendations:

No recommendations made.

Assessed jurisdiction’s comments on the assessment of effectiveness in practice

No comments made.

Note

← 1. Andorra, Liechtenstein, Monaco, San Marino and Switzerland.