On 21 December the German government adopted a bill to combat tax avoidance and to change certain other tax provisions. The Government’s main intention is to make it more difficult for German taxpayers to avoid tax by using letter-box companies. In addition to numerous provisions imposing obligations on the taxpayer to co-operate with the tax authorities, the bill abolishes the bank secrecy rules.
The aim of the new bill is to enable the tax authorities to obtain detailed information about business relationships between German taxpayers and letter-box firms in tax havens and to that end to provide the tax authorities with new investigatory powers.
Here a brief summary of some of the proposed measures:
Obligation to report the acquisition of qualified holdings
The existing rules regarding reporting obligations relating to the acquisition of qualified holdings in foreign entities are to be changed so that the treatment of direct and indirect holdings are standardised. The bill also provides for an extension of the reporting deadline up until the tax returns are filed.
Reporting obligations for non-EU directly or indirectly controlled partnerships, companies, associations and estates
In future taxpayers are also obliged to report business relationships to non-EU partnerships, companies, associations and estates which they directly or indirectly control irrespective of whether they have a formal interest in the enterprise or not. A breach of this obligation will lead to an extension of the statute of limitations. Furthermore a breach can lead to a penalty of up to € 25,000.
Financial institutes to be liable for tax shortfalls
In future financial institutes will, under certain conditions, be obliged to report to the tax authorities, business relationships of German taxpayers with non-EU entities, where the financial institution established the relationship or acted as an agent. A failure to report can result in the financial institution becoming liable for any tax shortfalls resulting from its omission. Furthermore a breach can lead to a penalty of € 50,000.
Abolition of bank secrecy rules
The so-called bank secrecy privilege should be abolished. This is to be distinguished from the civil law bank secrecy privilege according to which data transmission by banks to other enterprises is protected. Whilst this bank secrecy privilege did not entitle the banks to refuse to provide the tax authorities with information, it did limit the tax authorities’ powers of investigation. It may be noted that investigations without cause will continue to be prohibited.
Extension of Automatic Access Procedures
The procedure for the automatic access to accounts for tax purposes should be extended. Under the new rule it will be possible for the tax authorities to investigate cases where a German taxpayer has either the sole power of disposal over or is the economic beneficiary belonging to an account or depot of an individual, a partnership, a company, an association or an estate with his/its residence, registered office, headquarters or place of management outside Germany. In addition the data retention period for banks should be extended to 10 years after account closure.
Procedures for collection of information defined
The tax authorities’ options to collect information should be codified in accordance with Supreme Tax Court case law.
Collection and recording of tax identification data
As part of their identification procedure, banks must also collect and record the tax identification data of the account holder and of each person with a power of disposal. This information will be provided exclusively to the tax authorities as part of the procedure for collection of information.
New obligations for the retention of documents
A new obligation for the retention of documents should be imposed on persons, who, alone or with related parties, can exercise directly or indirectly a controlling or dominant influence over a non-EU entity in company law matters or in financial or business matters. In future, it should be open to the tax authorities to carry out a tax audit of these taxpayers’ affairs without requiring special justification.
Catalogue of tax evasion offences considered as extremely grave extended.
Tax evasion arising through a hidden business relationship with a non-EU entity controlled by the taxpayer should be included in the catalogue of tax evasion offences considered as extremely grave. As a result the limitation period for the investigation such offences will be extended to 10 years.
Also included in the bill is a general extension of the limitation period in cases of tax evasion from 5 years to 10 years.