Draft German law requires advisors, taxpayers to disclose transactions

By Ninja-Antonia Reggelin

The German finance ministry on January 30 circulated a draft law requiring advisors or their clients to disclose information on cross-border and domestic transactions and structures to the national tax authorities.

The draft law aims to implement EU regulation 2011/16/EU (DAC 6), which entered into force June 25, 2018. However, the draft reaches far beyond the EU directive as it also covers purely domestic tax arrangements.

Although the directive must be transposed into national law by December 31, 2019, and should apply for the first time by July 1, 2020, EU states must implement this law so that all reportable cross-border tax arrangements put in place on or after June 25, 2018, will be reported retroactively beginning July 1, 2020, and until August 31, 2020, at the latest.

Cross-border tax arrangements

The German draft law is largely a one-to-one implementation of the EU requirements which, in essence, create an obligation to report when a tax structure is cross-border and fulfills one of the so-called “hallmark” characteristics.

An intermediary must inform the tax authorities of these tax arrangements as well as the taxpayer’s involvement in the respective model and a range of other information.

In cases where an intermediary invokes a professional secrecy law (for example, lawyers, tax advisers, and accountants), information about the planned tax structure still must be disclosed; however, the obligation to communicate information about the individual user is transferred to the taxpayer itself.

If there is no intermediary covered by the law, the taxpayer must report all the information.

Further, tax authorities will automatically exchange the information obtained on cross-border tax arrangements with the tax authorities of the other Member States.

Domestic cases

The extends beyond the EU directive as it also covers purely domestic tax arrangements.

The procedure is generally comparable. The obligation to notify, the reporting channels, and deadlines are configured identically. However, the information will not be made available to other EU Member States. The facts requiring notification and the scope of the (anonymous) data to be provided are narrower than in the case of cross-border tax arrangements. Also, the circle of potentially affected users is significantly smaller than in cross-border tax arrangements.

This national disclosure rule applies to taxes on income and assets, trade tax, inheritance and gift tax and land transfer tax. For domestic designs, a reduced number of hallmarks is provided compared to cross-border designs. Domestic arrangements also have some more stringent restrictions. They only need to be reported if at least one user

• is a natural person earnings exceed € 500,000 or
• belongs to a corporate group under article 18 stock corporation act or
• together with other domestic companies from a foreign person or similar person is governed or uniformly managed or is economically linked to a foreign company or
• is covered by company audit regulations.

Deadlines

The new rules should be applied from July 1, 2020, in all cases in which the first step of a cross-border arrangement has been implemented after June 24, 2018. For arrangements between June 24, 2018, and July 1, 2020, the notification must be made within two months after June 30, 2020.

An intentional or careless violation of the reporting obligation will be fined up to € 25,000 in all cases in which the first step of a cross-border arrangement is implemented after June 30, 2020. The obligation for the period from June 25, 2018, to June 30, 2020, is therefore not fined.

The rules relating to disclosing domestic arrangements shall come into force on July 1, 2020.

Next steps

The introduction of mandatory disclosure rules of purely national tax arrangements remains highly controversial among the coalition parties.

As soon as a consultation among ministries — mainly involving the justice, finance, and economics ministries — is completed, the draft will be circulated for public consultation.

The law on cross-border arrangements should be passed at the latest by end of the year.