The discussion on the possibility of breaking the bank secrecy has been giving rise to great controversy in Brazil and worldwide, in view of the rules that protect intimacy and privacy as well as the impact, many times negative, of the disclosure of financial transactions on the personal life of individuals and the competition among the companies.
The continued deadlock between the financial institutions that try to protect their clients' interest and the pressure exerted by governments given the increasing omission of income, which stealthily takes away huge amounts of unpaid taxes, especially in countries that have rules that prohibit or restrict the disclosure of data of individuals or companies that hold bank accounts or have investments in their jurisdictions.
The Brazilian Federal Constitution guarantees the right to intimacy and privacy and the inviolability of correspondence and confidentiality of data and telephone communications. In these last two cases, the disclosure to applicable bodies upon court order is permitted but only in the events and in the form provided for in law, for the purposes of a criminal investigation or supporting a criminal procedure.
The Brazilian constitution clearly prescribes that the confidentiality may be broken only upon a court order in a lawsuit regularly brought. This means that the tax authorities have no power to access the data by simply opening an administrative procedure. However, as we will comment below, the Brazilian Tax Authorities have been understanding that the confidentiality protection may be circumvented without a court order.
To address specifically the protection of bank data, in 2001 the Supplementary Law no. 105 was enacted to set out the general rule on the confidentiality of active and passive transactions and the services provided by financial institutions.
But that same Supplementary Law allows the analysis of documents, books and records of the financial institutions, including those related to deposit accounts and financial investments, by tax agents, regardless of a court order, provided that an administrative procedure had been opened or a tax procedure is under way, and that the analysis had been considered indispensable by the applicable administrative authority.
The Supplementary Law 105/01 was regulated by a Decree, which establishes the events in which the tax agents may break the bank secrecy directly, for example, omission of income or net gains derived from fixed or variable income investments and realization of expenses or investments in an amount above the available income.
The Decree also establishes that the taxpayer must be given prior notice to supply information and documents voluntarily, and, only if the taxpayer fails or refuses to do so, such information and documents may be directly requested to the financial institutions where the taxpayer has accounts or that intermediate the taxpayer's investments.
In case of omission or supply of false information to the tax agents, severe penalties — which are imprisonment and pecuniary fine — are imposed so that the taxpayers and in particular the financial institutions are compelled to disclose the requested bank data, in spite of the fact that the Constitution guarantees the right to intimacy and privacy as well as to the confidentiality of the data of individuals.
The discussion therefore is centered around whether the rule set out in Supplementary Law no. 105/01, which permits that the bank secrecy be breached directly by tax agents, without a court order, violates the right to privacy and intimacy and to confidentiality of data guaranteed by the Brazilian Federal Constitution.
As mentioned above, the Federal Constitution admits the disclosure of data of individuals only by order of a court and, even so, if a criminal investigation is being carrying out or to support a criminal case, and does not provide that the bank secrecy may be breached directly by tax agents for the purpose of inspection or collection of tax liabilities.
The rule that permits breach of bank secrecy with no need for a court order clearly conflicts with the provisions in the Brazilian Federal Constitution, as it confers upon the tax authority, which is not unbiased because it is a direct participant in the tax authority-taxpayer relation, power to require bank information that in principle are confidential and may be revealed only upon a court order.
A court order is needed for the bank secrecy to be broken to protect the taxpayers from arbitrary impositions and guarantee their right to be heard, which is prescribed in the Constitution, and to prevent tax authorities' abusive and indiscriminate demands of bank information, which sometimes is not even necessary.
Only the Judiciary is truly impartial to determine if a concrete situation demands disclosure of the taxpayer's bank data and, even so, such determination does not dispense with an opportunity for the taxpayer to dispute the requirement.
The Federal Supreme Court has already pronounced on this matter in the decision rendered in 2011 in Extraordinary Appeal no. 389.808. The majority of the Justices decided that the bank secrecy cannot be broken except upon a court order, and declared that the provision in Supplementary Law no. 105/01 is unconstitutional.
As that Federal Supreme Court's decision produces effects only on the parties to the case (as it concerns an individual appeal filed by a given taxpayer), in practice the tax authorities will keep on requesting the taxpayers' bank data without a court order, and those omitting them will be subject to imprisonment and/or imposition of fines.
In spite of that decision, the Brazilian Supreme Court — the court that has the last word in the matter — has not yet achieved a consolidated understanding, and this is so true that currently the analysis by the Federal Supreme Court of some cases to render decisions that will produce general effects throughout Brazil and will be valid for the entire society is being expected. While such cases are still to be examined, the insecurity about the understanding that will prevail will persist.
The conclusion therefore is that the issue of bank secrecy has not yet been solved in Brazil and many are the conflicts between the tax authorities and the taxpayers over this matter, whereas only the Brazilian Supreme Court may settle this issue once and for all by putting an interpretation on it and ensuring an uniform application of the rule to the transactions carried out in Brazil.
The companies and individuals that have a bank account in Brazil will have to continue to face the possibility of the Brazilian Federal Revenue bothering them as it may try to access directly — that is, without a court order — bank data to collect any tax that supposedly was not paid by the taxpayers. We expect that the Supreme Court, grounded on the Brazilian Constitution, will impede that such arbitrariness continues.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.