On 9 June 2015, the German Ministry of Finance (“BMF”) released two draft government bills which constitute milestones in the field of automatic exchange of information. The BMF requests written comments though a variety of lobby organizations (Attachment 1) until the 19th of June 2015.
- Draft ratification law to CAA / Memorandum of Understanding
The Multilateral Competent Authority Agreement (“CAA”) accompanying the OECD Common Reporting Standard (“CRS”) is a multilateral agreement between states to agree on automatic exchange of information in tax matters. The bill “Entwurf für ein Gesetz zu der mehrseitigen Vereinbarung vom 29. Oktober 2014 (Attachment: Anlage I – in German) zwischen den zuständigen Behörden über den automatischen Austausch von Informationen über Finanzkonten” which was sent out by the BMF and drafted to implement the agreement into binding local law (according to Art. 59 para. 1 s. 2 German Constitution). Among other EU-Member States, Germany already has an obligation to enact transposing law based on the revised EU-Directive on Administrative Cooperation (Link). By sending out this draft laws, Germany will soon satisfy its obligation to transpose the directive into local law.
An accompanying Official Circular (“Denkschrift”) (Attachment: Anlage zur Anlage I – in German) to the CRS/CAA details the techniques and processes leveraged for this coordination including details on the role of the OECD coordination body as well as the structure of the multilateral agreement.
It should be specifically comforting for the financial industry that the draft law also includes a limitation on the use of the processed data. For data exchange on general criminal law matters, a formal mutual legal assistance procedure should still be required.
- Draft transposing law to CRS
The core component of the draft bills sent by the BMF is the “Entwurf eines Gesetzes zum automatischen Austausch über Finanzkonten in Steuersachen und zur Änderung des EU-Amtshilfegesetzes und anderer Gesetze” (Attachment: Anlage II – in German). The passage of this bill would not only transpose the revised EU-Directive on Administrative Cooperation into German law but would also include critical components of the multilateral agreement to exchange information on tax matters into local law.
The amending law is structured into several articles including a new law “Draft CRS transposing law” (Art. 1) (“Gesetz zum automatischen Austausch von Informationen über Finanzkonten in Steuersachen”). Furthermore, new provisions within the Law on Financial Managment (“Finanzverwaltungsgesetz”) (Art. 2) will be included, which determine the new responsibilities of the Bundeszentralamt für Steuern (Federal Central Tax Office). The German Fiscal Code (“Abgabenordnung”) (Art. 3) will be amended by inserting a new provision addressing fines. The law on mutual administrative assistance (Art. 4) will also be revised. A repeal of the German transposing law of the EU-Savings Directive (“Zinsinformationsverordnung“) is not part of this new bill, even though a repeal of the EU-Savings Directive has already been agreed upon at the EU level.
The legislator decided to pass this bill by using the ordinary legislative procedure, including a vote from the parliament. In contrary, by transposing FATCA into local law, the German legislator did not use this procedure. Rather, based on §117c German Fiscal Code, an ordinance (“Rechtsverordnung“) was enacted without involving the parliament.
In our view, the following should be particularly highlighted:
- According to § 5 (6) of the Draft CRS transposing law, the Federal Central Tax Office is allowed to conduct tax examinations and audits on Financial Institutions based on §§ 193 – 203 German Fiscal Code.
- According to § 6 (2) of the Draft CRS transposing law, the tax residency must be determined and assigned – independent from any classification as a reporting person – for all account holders. The so called “Wider Approach” is now mandatory for all German Financial Institutions.
- According to § 6 (3) of the Draft CRS transposing law, the Financial Institutions must notify persons who are affected by the reporting in a “uniform manner” prior to the first reporting date. This is a clarification to the rather vague notification duty in the revised EU-Directive on Administrative Cooperation Art. 25 (b) 3. However, at this point, a reference to the German Federal Data Protection Act has not been made.
- Other entities, which classify as “Low risk Non-Reporting Financial Institution” according to § 15 (3) 1.c) including footnote 3 of the Draft CRS transposing law, shall be published in a future circular by the BMF. This is also applicable in relation to non-EU Member States. The same holds true for “Low risk Excluded Accounts” according to § 15 (4) 17. g) of the Drraft CRS transposing law.