62 MAY 2018 | WWW.STEP.ORG/JOURNAL
CHECKSAND
BALANCESNEEDEDCzech trust law is still in its infancy, but the
introduction of two new registers is poised
to undermine trust structures’ appeal, says
Vlastimil Pihera and Kateřina Ronovská
KEY POINTS
WHAT IS THE ISSUE?
Czech legislators introduced two
new registers on 1 January 2018.
Paradoxically, Czech law is much broader
as concerns access to information on
trust funds, in contrast with its stance on
other legal entities.
WHAT DOES IT MEAN FOR ME?
The Czech functional alternative to the
trust, the trust fund, must be registered
in the central trust fund register to be
considered legal. This register differs
from other beneficial ownership
registers established in accordance with
the EU Fourth Anti-Money Laundering
Directive. Trust schemes operating in the
Czech Republic, even those not governed
by Czech law, should pay attention to the
new requirement.
WHAT CAN I TAKE AWAY?
On 1 January 2018, two new registers
were introduced in the Czech Republic –
the trust funds register and the ultimate
beneficial ownership register – both of
which have raised considerable concerns
in the still-young Czech trust industry.
As it is our belief that the new system
of registering trust structures in the
Czech Republic is of interest to the
international community as well, this
article will outline the registers’ main
features and point out some of the more
intriguing consequences.
I
n 2014, the new Czech Civil Code (the
Code) introduced the concept of a
domestic trust-like instrument: the trust
fund (svěřenský fond). From a domestic
point of view, it was a revolutionary step,
since Czech law, as a typical representative
of traditional civil law, did not previously
recognise any legal structure even
resembling a common-law trust.
However, the legislators did not take the
risk of seeking an original solution, instead
transplanting (with a few technical
amendments) into the Code the
corresponding parts of the Civil Code of
Québec (1991) on trusts.
As a result, Czech trust funds are
treated as autonomous property,
separate from the settlor, administered
for a certain purpose. The trust property
has no owner in the meaning of traditional
civil law, but the administrator (trustee)
of the trust has the power to exercise
ownership rights over the property.
Trust funds can be created for any
purpose by dealing inter vivos or
donatio mortis causa.
Following some initial hesitation, trust
funds are now increasing in popularity as
the primary tool for estate planning in the
Czech Republic.
	
WWW.STEP.ORG/JOURNAL | MAY 2018 63
FEATURES
CZECH TRUST REGISTERS
VLASTIMIL PIHERA IS AN ATTORNEY AT KOCIÁN ŠOLC
BALAŠTÍK, PRAGUE, AND KATEŘINA RONOVSKÁ IS AN
ASSOCIATE PROFESSOR AT THE MASARYK UNIVERSITY
SCHOOL OF LAW, BRNO, CZECH REPUBLIC
TRUST FUNDS REGISTER
Shortly after the Code was passed, the
ethicality of trust funds was called into
question, due to their alleged opacity and,
by association, the risk of abuse as a tool
for money-laundering purposes. These
objections originated at the Ministry
of Justice, which, at length, decided to
establish the Trust Funds Register (TFR)
(Evidence svěřenských fondů) in order to
address the alleged ‘insufficient public
supervision over the operation of trust
funds’. In this way, Czech law followed
French law, which underwent a similar
evolution with its comparable trust-like
vehicle: la fiducie.
The introduction of the TFR was
criticised by many academics and
practitioners, primarily because the new
legislation made the existence of any inter
vivos trust subject to constitutive
registration – i.e. a trust fund is not
considered to be officially established until
it is entered into the register. This
indicates a deep misunderstanding of the
role of trust instruments, and, as such,
represents a major divergence from the
original contractual conception of a trust
as outlined in the Civil Code of Québec. For
Czech trust funds, such an approach
means losing part of their flexibility, and
shifts them towards the concept of a legal
person, such as a foundation. Moreover, to
a considerable degree, it also negates the
reason why this instrument was
introduced in the Czech (continental)
legal system in the first place.
The TFR is only semi-public. The name
of the trust fund, its purpose, the trustee’s
name and residence, and the dates of
registration and termination of the trust
fund are freely accessible to the public.
Information about settlors, beneficiaries
and persons performing supervision,
however, is accessible only to public bodies
such as courts, criminal and investigative
authorities, tax administrators and
financial registration units. Other persons
can only view such information if they can
demonstrate justified legal interest.
UBO REGISTER
While the Czech Ministry of Justice was
working on the TFR legislation, the Czech
Ministry of Finance – in order to meet the
Czech Republic’s obligations arising from
the EU Fourth Anti-Money Laundering
Directive (4AMLD) – was working on the
ultimate beneficial ownership (UBO)
register (Evidence údajů o skutečných
majitelích). However, the regulation of
this register has also received criticism.
Czech law defines beneficial owners in a
narrower way than the 4AMLD. Pursuant
to the Czech Anti-Money Laundering Act,
a beneficial owner is a natural person who
ultimately controls a legal person, trust
fund or other legal arrangement, meaning
the definition does not encompass the
persons who benefit from the transaction
or activity.
Regarding trust funds and similar legal
arrangements, Czech regulation presumes
that the settlor and beneficiary are
beneficial owners only if they also exercise
decisive control over the trust. This
creates uncertainty about the impact of
the clearly inaccurate implantation of the
relevant EU law, and raises questions as to
whether or not the settlors and
beneficiaries should be registered as the
beneficial owners, even if they do not have
any direct power over administering the
trust fund.
The UBO register is not accessible to
the public, only to the Czech financial
intelligence unit and certain other public
authorities, and persons who can prove
interest in connection with preventing
specific criminal offences related to money
laundering or terrorist financing.
FOREIGN TRUSTS REGISTER
Czech law recognises foreign trusts if
they have the main features of Czech
trust funds. This rule was implemented
in 2014, together with the trust fund
regulations in the Code. However, because
of a lack of detail, there is no certainty
as to what ‘exact features’ are decisive
for recognising a foreign trust. The most
logical solution is to adopt the same
attitude as the Hague Convention of 1 July
1985 on the Law Applicable to Trusts and
on their Recognition, which apparently
inspired the current rule. However, it
is far from clear whether such
interpretation will actually be adopted
by the Czech courts.
Moreover, the recent legislation also
introduced the requirement that foreign
trust schemes operating in the Czech
Republic be registered in the TFR. Even
though it is not clear what it exactly means
for a foreign trust to ‘operate’ in the Czech
Republic, there is a risk that the foreign
trust’s registration will be required for it
to be recognised under Czech law. Such an
outcome would be quite unusual and could
cause serious problems in practice. For
example, the Czech cadastral office can
refuse to register the transfer of real estate
to the trustee in their capacity as trustee if
the trust is not registered in the foreign
trust register.
Until this issue is resolved by the Czech
courts, it is advisable for foreign trust and
trust-like schemes that need to be
recognised by the Czech authorities or
courts to be registered in the TFR.
SUMMARY
Although the 4AMLD presumes that
only competent authorities and financial
intelligence units can have access to the
information on ultimate beneficial owners
of trusts, the Czech regulation of the UBO
register does not distinguish between
the accessibility of information on legal
entities and that on trust funds. On the
other hand, the regulation of the TFR (also
in the case of foreign trusts and trustlike
instruments) grants an even more
generous approach to the accessibility of
the information on the beneficiaries and
other constituents of the trust funds to
persons with ‘justified legal interest’.
We believe that such an outcome lacks
any coherence and hope that the Czech
legislators will find a more sober, rational
approach in future.
‘Because of a lack of detail, there is no
certainty as to what “exact features” are
decisive for recognising a foreign trust’