On 12 December 2019, the Bundestag adopted the Act for the Mandatory Reporting of Cross-Border Tax Planning Arrangements. The final approval by the Bundesrat will take place on 20 December 2019.
Resolution of the Bundestag
On 12 December 2019, the Bundestag adopted a law to introduce the mandatory reporting of cross-border tax planning arrangements. The adopted law included the amendments recommended by the Finance Committee. Some other tax regulations have also been amended within the framework of this law. As this is a statute requiring assent, the approval of the Bundesrat is required.
Here is a summary of some of the important amendments to the government bill:
Amendments to the bill on cross-border tax arrangements
In accordance with the recommendations of the Finance Committee of 11 December 2019, the following amendments were made to the government bill:
- The definition of the “tax advantage” has been supplemented and now includes in addition to the granting of tax refunds, also the increase in tax refunds and in addition to the reduction of tax claims also the elimination of tax claims (Section 138d (3) Sentence. 1 General Tax Code “GTC”);
- In the original bill no “tax advantage” was considered to exist provided the tax advantage of the cross-border arrangement only had an effect in Germany and provided that the arrangement as a whole was permissible by law. The law adopted by the Bundestag no longer contains this legal regulation. Rather, the Federal Ministry of Finance is authorized, in conjunction with the Federal States, to issue a circular specifying that for certain group categories and under certain criteria no tax advantage will be assumed within the meaning of the Act. Thus, for the group categories listed therein there should be certainty that no reporting obligation exists. However, for tax planning arrangements not included in the circular – for whatever reason – an obligation to report will exist to the extent that the remaining legal prerequisites (Section 138d (3) sentence 3 GTC) are existent.
- Insofar as not yet provided for in the original bill, hallmarks relating to cross-border payments between related parties are restricted to such payments, which can be deducted by the payer as business expenses. In this respect the German provision now complies with the requirements of the Directive (Section 138e (1) No. 3 letters d and e GTC).
- The obligation for an intermediary to report the names of other intermediaries known to him has now been replaced by an option to report (Section 138f (3) S. 2 GTC).
- Where the user of a cross-border arrangement has not been released an intermediary from his legal professional privilege obligations, the obligation of the intermediary to report the arrangement can also be met where the user provides the information which should actually be provided by the intermediary to the Federal Central Tax Office on behalf of the intermediary (Section 138f (6) S. 4 GTC).
- Violations in connection with the obligation to disclose the economic value of cross-border tax arrangements are no longer included in the list of misdemeanours in Section 379 (2) GTC.
- The Federal Ministry of Finance will be obliged to report to the Finance Committee of the Bundestag annually on 1 June on the number of notifications of cross-border tax arrangements and their treatment (Art. 97, Section 33 para. 4 Implementation Act to the GTC).
Further tax changes
The ability to offset losses on income from forward transactions and from the losses on investments held as private assets has been limited:
- Losses from certain forward transactions, e.g. from the expiration of options or losses on the disposal of forward transactions/futures or similar financial instruments can only be set off against profits from similar transactions and with income from so-called option writer transactions up to a maximum amount of €10,000. Unutilised losses can, however, be carried forward to future years and offset according to the same principles (Section 20 (6) Sentence 5 ITA). The new regulation applies to losses arising after 31 December 2020 (Section 52(28) Sentence 23 ITA).
- Losses arising from fully or partially irrecoverable capital receivables, which also include for example shareholder loans, or arising from the write-off or transfer to third parties of worthless assets, or write-offs within the meaning of Section 20 (1) ITA are also subject to a restricted loss utilization. These may only be set off against other income from capital assets up to a maximum amount of € 10,000 and thereafter carried forward to subsequent years, and then offset according to the same principles (Section 20 (6) Sentence 6 ITA). This provision should apply to losses arising after 31 December 2019 (Section 52 (28) sentence 24 ITA).
- The turnover limit for receipts-based taxation is being raised to EUR 600,000 (§ 20 (1) No. 1 VAT Act).
- “Investing Members” within the meaning of Section 8 (2) of the Cooperatives Act will no longer be considered “members” within the meaning of Section 5(1) No. 10 Sentence 1 of the Corporation Tax Act (CTA)and will therefore be entitled to the tax exemption (section 5(1) No. 10 Sentence 5 CTA).