Tax Advisory Regulatory Situation
Historically Belarus has had a dual system of regulated legal services market, with one side populated by attorneys-at-law who served individuals and worked either individually or under the roof of territorial Bar Associations, and the other populated by licensed “business lawyers,” working both on their own and within law firms.
This latter group was limited to handling business-related matters and representing clients in commercial courts. Commercial tax advisory services were almost exclusive to business lawyers.
In 2011 business lawyers were banned from representing clients in court, and as a result, a considerable number of business lawyers switched groups, becoming attorneys, as semi-automatic transfer was allowed for lawyers with more than five years of experience. At the same time, a new law allowed attorneys to practice in a more commercial way than before, like traditional partnerships. As a result, most law firms established attorney-at-law “bureaus” alongside their commercial licensed entities.
The accounting business is unregulated in Belarus, with voluntary insurance. Most accounting firms provide some bits of tax advise alongside their core business. As there is an understanding that there is a fine line between tax services and legal advice in the tax practice area, most accounting firms officially eschew formal confirmation of their tax related advice. The same is true for audit companies.
Recent Developments
However, starting from the end of 2017 a new type of advisory work will appear in Belarus: the tax advisory business. Such services will be provided by certified “tax advisors.”
Tax advisors will directly compete with attorneys in the tax advisory and litigation areas. Tax advisors may have both legal and economic backgrounds, and at least three years of experience in the field is required to be admitted to the qualification exams. Tax advisory is supposed to be a very personalized service, and the qualification is granted only on an individual level. Companies may provide tax advisory services if they employ tax advisors – and in such cases engagement letters and final documents are signed by the clients, the directors, and the tax advisors themselves.
From the regulatory point of view attorneys and business lawyers are not directly affected by the law introducing tax advisors, as both are still able to advise on tax matters, and attorneys are still able to represent clients in court. However, we expect that the influx of auditor and accounting firms (which will manage to add legal expertise to their offerings) will influence the position of established law firms.
Insurance
Liability insurance is obligatory for tax advisors. However, the minimal statutory amount is only around EUR 10,000, which is probably not enough for a substantial tax assignment. Top tax advisors probably will purchase more advanced coverage of at least EUR 100,000. It should be noted that insurance will only cover tax penalties, not any additional taxes assessed.
The corresponding insurance regulation is not adopted yet, but it should be of great interest to both tax advisors and their clients, as currently companies are unable to insure their tax position. However, if the insurance regulations and practice become too liberal, more aggressive tax planning will probably be employed by the tax advisors.
Surprisingly, insurance is not at the moment obligatory for attorneys or for business lawyers. We estimate that less than five percent of law firms have insured their professional liability. Thus could represent another competitive advantage for tax advisors.
How the Market Will Change
These new regulations will open the tax advisory and litigation markets to auditors and accounting companies. Previously they were banned from directly representing clients in court and were not able to defend their tax position past administrative appeal. At the same time, business lawyers from law firms will be able to receive a tax advisor certificate and return to tax litigation, increasing their tax practice offerings.
Thus, the tax litigation area will be more open to competition. Most probably attorneys at law will gradually lose their market share, given their limited tax expertise. These developments will also result in a more active court practice related to tax matters and increased general interest of the business in the area. We expect that specialized tax advisory firms will appear, with a mix of accountants, auditors, and business lawyers providing these highly-specialized services.
In any case, we are certain that professional liability insurance for tax advice will revive the market, which are the moment still mostly relies on the in-house tax competences of accountants. In other words, more work will appear, even as more professionals will be allowed to compete for it.
By Roman Shpakovsky, Partner, Vilgerts
This Article was originally published in Issue 4.11 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.