Ministry: Whistleblower law to overburden tax authority

Tax and Customs Board official.
Tax and Customs Board official. Source: Tax and Customs Board

Even though the Ministry of Finance has granted approval for Estonia's so-called whistleblowers bill that aims to protect people who report professional violations, Minister Mart Võrklaev criticized taking the execution of the directive beyond what the EU has prescribed and pointed out that the Tax and Customs Board is already working at capacity to verify incoming tips.

Minister of Justice Kalle Laanet in late May sent out for approval a bill to protect people who covertly report violations in public sector agencies and private companies with more than 50 employees.

Võrklaev wrote in a letter to the Justice Ministry that while the Ministry of Finance has approved the bill, it considers certain provisions insensible in their current form. For example, the bill introduces few filters for applicable violations, meaning that protection of whistleblowers is applied when reporting whichever tips regarding work relationships.

"It seems to us that the EU directive is being applied in a much more onerous manner than what the directive involves. At the same time, there is nothing to suggest this more stringent execution could result in better protection for people reporting violations," Võrklaev said.

He repeated the Finance Ministry's proposal of limiting applicable violations to cross-border tax law.

"The EU directive is not aimed squarely at boosting domestic tax norms but rather aims to promote lawful behavior in the wider single market context," the minister explained.

Võrklaev wrote that the Tax and Customs Board (MTA) is already swamped by having to check existing tips of which it receives over 2,000 annually, while the agency has no statistics on how many of those concern work relationships.

A little over half of all tips have to do with payment under the table, and the Finance Ministry believes a notable part of those concern people's employers. Singling out relevant information is labor-intensive as the quality and factual proof provided is very low for most tips – people mostly act on emotion rather than facts, and it is possible to use fewer than 10 percent of tips in proceedings.

"The MTA is already working at capacity when it comes to checking tips. The bill's entry into force could result in an avalanche of new tips, while it does nothing to ensure their quality," Võrklaev found.

The Finance Ministry also finds that the bill prescribes very high standards for feedback and data processing. This would necessitate the creation of a new and separate proceedings and data processing channel.

The bill also does not allow the MTA to treat the information as regular tips unless the whistleblower has made a note of it. The agency would have to determine whether the tip constitutes work relationship information in every separate case.

Võrklaev suggested that executing the bill in the prescribed scope would create the need hiring additional staff, which constitutes expenses the bill does not provide for.

That is why the Ministry of Finance does not deem it sensible to over-execute the EU directive to cover all manner of tips information and does not support the bill in its current form.

"Higher standards are justified for violations of considerable effect, as prescribed by the directive. The bill must, therefore, provide a clear definition of tips about which kinds of violations merit these heightened standards."

Clash with auditors' professional secrets requirement

Võrklaev also wrote that the so-called whistleblower bill is at odds with the Authorized Public Accountants Act insofar as concerns sworn auditors' professional secrets regulation.

The minister gave the example of an auditor finding out about a violation in the course of their work –  would the new law protect them or should their conduct be governed by professional secrecy regulations?

"This question could be answered in the bill's explanatory memo. Right now, it seems that the sworn auditor's customer might not be covered by the professional secrecy obligation. Is this something the draft legislation is aiming for?" Võrklaev asked.

The finance minister suggested that companies may lose trust in auditors if this is the case as the latter might become whistleblowers.

The ministry recommends adding an exception to accommodate for auditors' professional secrets obligation, which the EU directive also allows.


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Editor: Marcus Turovski

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