German Draft local laws to CRS/CAA

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.


  1. 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.

  1. 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.

Bulgaria ratifies FATCA Agreement with the U.S.

On 11 June 2015 the Bulgarian National Assembly ratified the Intergovernmental Agreement with the U.S. to improve international tax compliance and to implement FATCA, which was signed on 5 December 2014 (Link). Two parliamentary groups (the BSP-Left Bulgaria Coalition and the Ataka party) expressed their opposition to this Agreement claiming that it is non-reciprocal (Model 1B). Despite these reactions the ratification bill was accepted with wide majority (114 votes to 28 and 3 abstentions (Link)).

The Holy See signs Model 1 FATCA Agreement with the U.S.

On 10 June 2015, the Holy See (acting also in the name and on behalf of the Vatican City State), signed a Model 1 Intergovernmental Agreement (IGA) with the United States of America to improve international tax compliance and facilitate the exchange of tax information with respect to the Foreign Account Tax Compliance Act (FATCA) (Link). The Agreement, which is the first intergovernmental agreement to be concluded between the Holy See and the U.S., was signed by Archbishop Paul Gallagher, secretary for Relations with States and the U.S. Ambassador to the Holy See, Kenneth F. Hackett.

Filers are reminded about their FBAR and FATCA requirements

On 10 June 2015, the IRS issued an announcement reminding taxpayers with a Report of Foreign Bank and Financial Accounts (FBAR) filing requirement that they should report their foreign assets by 30 June 2015 (Link). More precisely, FBAR concerns taxpayers who have an interest in, or signature or other authority over foreign financial accounts whose value exceeded $10,000 at any moment during 2014. These taxpayers have an obligation to file Form 114 directly to the Financial Crimes Enforcement Network (FinCEN). Form 114 is available online through the BSA E-Filing System website and can only be submitted electronically.

In the same announcement, taxpayers living abroad are also reminded that they may have an obligation to file FATCA Form 8938 (Statement of Special Foreign Financial Assets) with their tax return by 15 June 2015.

Update! FATCA XML Schema Prohibited Characters

On 9 June, the IRS issued an alert stating that there is an error in the FATCA XML Schema Best Practices web page related to the inclusion of entity references in FATCA XML documents.  To prevent file error notifications, the IRS requests that files do not include any of the characters mentioned in the FATCA XML Schema Best Practices web page (Link). The IRS further recommends that filers review the corrected FATCA IDES Technical FAQs C16 and C17 (Link). The FATCA XML schema reference documents will be updated to include these restrictions.

Swiss Federal Council Proposes Enhanced Due Diligence Procedures

The Swiss Federal Council issued a press release on 5 June 2015 (Link) calling for enhanced due diligence requirements in order to prevent the inflow of untaxed assets. These requirements should apply with regard to clients resident in countries where the future agreements on the Automatic Exchange of Financial Account Information do not apply. They will not apply in relation to clients resident in countries that have signed a Multilateral competent authority agreement (MCAA) with Switzerland. US clients are also included as FATCA is considered to effectively have an MCAA. These due diligence requirements are not applicable to clients who are resident in Switzerland for tax purposes.

For all other clients, a risk-based assessment should be conducted by financial intermediaries when accepting assets in order to effectively determine whether these assets have been duly taxed. The supervisory authorities and the recognized self-regulatory organization will determine in due time the details of the risk-based assessment. In brief, in cases where a risk-based assessment leads to the assumption that the offered assets are untaxed, the financial intermediaries should reject the business relationship if it is a new client. For preexisting clients, if the client offers untaxed assets, this creates the suspicion that the preexisting assets are also untaxed. The financial intermediary shall request proof of tax compliance or regularization of the situation. If none of this takes place in the allocated timeframe the business relations with this client shall be ended unless the proof of tax compliance is impossible to obtain or regularizing the situation is liable to create “unreasonable adverse effects”.

Seven more countries join CRS by signing the Multilateral Competent Authority Agreement

On 4 June 2015, seven more countries joined the multilateral agreement implementing the standard on automatic exchange of tax information (Link). Australia, Canada, Chile, Costa Rica, India, Indonesia and New Zealand are the latest countries to join the Multilateral competent authority agreement (Link), raising the total number of signatory countries to 61 (Link).

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