As a reaction to the Panama Papers, in April 2016 the German Bundesministerium der Finanzen (German Ministry of Finance) released a 10 step plan to combat tax fraud, devious tax avoidance and money laundering. On April 7, 2017 the German Ministry of Finance gave a status update on the 10 step plan.
The 10 step plan as presented by the German Ministry of Finance consisted out of the following 10 steps/measures:
1. Panama must cooperate;
2. Harmonization of the various national and international black lists;
3. Global automatic exchange of information in tax matters;
4. Monitoring of the automatic exchange of information;
5. Global introduction of national ultimate beneficial owner (UBO) registers;
6. Worldwide linking of national UBO registers;
7. Introduction of mandatory disclosure rules;
8. The introduction of tougher sanctions;
9. No escaping of sanctions by taking advantage of statutes of limitation;
10. Central Intelligence Unit (reporting suspicions) – Financial Intelligence Unit.
Below we will discuss some of the remarks made by the German Ministry of Finance in its status update of April 7, 2017.
Panama must cooperate
In the status update the German Ministry states that the negotiations with Panama to come to an exchange of information in tax matters and to come to an automatic exchange of information of financial account information are difficult. The German Government is however still pushing to conclude agreements regarding these matters in the first half of 2017.
Worldwide linking of national ultimate beneficial owner registers
The draft law on the implementation of the Fourth EU Money Laundering Directive which was adopted by the German Government on February 22, 2017 creates the prerequisites for a central electronic transparency register, which provides information on the beneficial owners of companies. In addition to authorities and obligated parties, other persons and organizations, such as non-governmental organizations and specialized journalists, will have access to the Transparency Register.
In order to prevent cross-border abuse of legal persons and legal agreements an EU-wide linking of national transparency registers has to be arranged and certain amendments to the Fourth EU Money Laundering Directive have to be adopted.
Since money laundering and tax evasion generally don’t stop at the European borders but often makes use of corporate structures located outside of Europe, the international exchange of information is very important. In this respect the G5 (Germany, the UK, France, Italy and Spain) in a letter of April 14, 2016 that was addressed to the G20 called on jurisdictions to improve access to data on beneficial owners by taking appropriate measures. As per December 14, 2016, 54 jurisdictions joined the initiative. Click here to be forwarded to the overview of the 54 jurisdictions that have joined the beneficial owner initiative as available on the website of the UK Government, which will open in a new window.
Introduction of mandatory disclosure rules
On behalf of the German Ministry of Finance, the Max Planck Institute Munich submitted a report "Notification requirement for tax design models in Germany - references for an admissible and at the same time efficient legal regulation" which makes it possible to make a notification requirement in German law which meets both constitutional and European requirements. According to the German Ministry of Finance implementation is currently under intensive scrutiny at both a federal and a state level as well as by the EU Commission.
The German Ministry of Finance also states that it is also necessary to take account developments that take place at an EU level in this respect. In May 2016, the Council of the EU Finance Ministers called on the EU Commission to consider submitting a proposal for a directive arranging the obligation to provide information on tax arrangements. In the autumn of 2016 the EU Commission launched a public consultation on the matter, which ended in February 2017. At the beginning of March 2017, a commission working group meeting took place. During this meeting, the Commission and representatives of the Member States discussed various options for a possible notification requirement. The German Ministry of Finance expects the Commission to present a proposal for a directive on the matter before 2017 the summer break.
Tougher sanctions
In the coalition agreement, with a view on criminal behavior of companies, it was already agreed to broaden the application of the law of administrative offences and to examine a corporate criminal law applying to multinational corporations. The Federal Ministry of Justice and Consumer Protection (BMJV) had announced that a draft report would be submitted in 2016. This draft is however still pending.
No escaping of sanctions by taking advantage of statutes of limitation
On December 16, 2016 the German Government presented a draft bill for a Steuerumgehungsbekämpfungsgesetzes (law to combat tax evasion). The purpose is to make it more difficult to evade taxes by using letter box firms. To achieve this extended cooperation obligations for taxpayers, new reporting requirements for banks and wider investigation powers for the tax authorities will be introduced.
In addition, according to a newly drafted provision will 10 year statute of limitation period will apply if taxpayers have not disclosed "important" relations with a third-country company that are relevant for the determination of taxes due to the tax authorities. In addition, a new element is being introduced that applies to a particularly serious case of tax evasion in which the taxpayer uses a third-country company to cover tax-relevant facts, thus continuing to reduce taxes or obtain unjustified tax advantages. The ten-year statute of limitation period for criminal prosecution is also to be applied in these cases.
Click here to be forwarded to the updated as published by the German Ministry of Finance April 7, 2017.
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