On April 11, 2016 the German Minister of Finance presented a 10-step plan as a reaction to the so-called Panama Papers. This 10-step plan aims at creating more transparency regarding letterbox companies (For more information, see our article from April 12, 2016). On April 14, 2016 Germany was one of the 5 jurisdictions that announced that they were going to automatically share information on the ultimate owners of companies (For more information, see our article from April 15, 2016). On June 3, 2016 the German Ministry of Finance issued a press release announcing that on a national level advancements are being made in the fight against tax fraud via letter companies that are residing in tax havens. In the press release the German Federal Ministry of Finance announced that it came to a basic agreement with the German States on proposals for tightening tax legislation.

According to the press release the German Federal Government together with the German States propose to make concrete changes to the Tax Code. The Tax Code is the "tax constitution", in which the basis of the German taxation procedures is regulated. In the press release it is stated that the aim of the proposed changes is to arrange that the tax authorities will receive comprehensive information regarding business relations between German taxpayers and letterbox companies residing in tax havens. It is furthermore stated that the proposed changes to the Tax Code aim at equipping the tax authorities with new investigative powers. According to the press release, until now the tax authorities are subject to tight restrictions to get access to crucial information. According to the press release the Head of the Tax Department of the German Federal Ministry of Finance and the Heads of the Tax Departments of the Finance Ministries of German States (Länderfinanzministerien) propose to change the Tax Code in three areas:

1.      Extended notification obligation for taxpayers;

2.      Notification requirements for banks;

3.      Extended investigatory powers of the tax authorities.

Below we will describe a few of the proposals suggested by the Heads of the Tax Departments.

Extended notification obligation for taxpayers

According to the press release German taxpayers are already obliged to notify the acquisition of shares in a foreign company to the tax authorities if a certain minimum holding is reached.

It is now proposed to extend this obligation to any business relationships with foreign companies. Furthermore it is proposed that the notification obligation should not only regard formal relationships but also situations in which a taxpayer actually exercises a dominant influence over a foreign company (without having the formal ownership).

An infringement of the new extended notification obligation should be punishable with an administrative fine. The Heads of the Tax Departments propose in case of an intentional or reckless violation the maximum amount of the fine is increased from Euro 5,000 to Euro 25,000.

Notification requirements for banks

A new tax Notification requirement for banks is proposed. Credit institutions have to notify the tax authorities which investments in letterbox firms they have facilitated or established. They also have to inform the tax authorities which economic relations with letterbox companies they have established or facilitated. They have to report the name and address of the account holder and/or beneficial owner.

It is proposed that a breach of this notification is to be punished by a considerable administrative fine. Furthermore it is proposed that the bank is made liable for any losses of tax revenues.

Extended investigatory powers of the tax authorities

The so-called fiscal banking secrecy (§ 30a of the Tax Code) is to be repealed.

The automated account access procedure has to be extended to the determination of relationships with letterbox companies. This would enable the tax authorities to become aware of relationships with letterbox companies without further condition, and in particular without prior consent of the taxpayer. This would enable them to use this information to determine who is the beneficial owner of an account of a letterbox company and whether this person has provided the tax authorities with the necessary information.

The already possibility of collective requests for information should be explicitly laid down in law.

The so-called identity check as to be made by banks is limited to name and address (§154 of the Tax Code). It is proposed that this identity check is extended with the tax identification number.

Tax evasion by covert investments is to be included in the catalog of very serious tax fraud. Therewith the period of limitation for prosecution would be 10 years.

Click here to be forwarded to the press release as issued by the German Ministry of Finance (in the German language).

Copyright – internationaltaxplaza.info

Find the next member of your Tax Team by placing your job ad on International Tax Plaza’s Job Board!

and

Stay informed: Subscribe to International Tax Plaza’s Newsletter! It’s completely FREE OF CHARGE!