Germany publishes revised tax law requiring disclosure of cross-border transactions

By Ninja-Antonia Reggelin

The German finance ministry on September 26 published an official draft law requiring advisors or their clients to disclose information on cross-border transactions and structures to the national tax authorities.

In contrast to an earlier, unofficial, draft, this document seems to have found approval among coalition parties kicking off the legislative process for the law to be implemented by the end of the year.

The draft German law aims to implement EU regulation 2011/16/EU (DAC 6), which entered into force on June 25, 2018. 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.

No domestic tax arrangement reporting

The draft had been held back for a long time as the coalition was divided on the question of whether, in addition to EU requirements, an additional duty to notify national arrangements should be introduced. This requirement is omitted in this new official draft. It remains to be seen whether this will be revisited in a separate legislative procedure.

Compared to the unofficial draft, there are no significant changes relating to the obligation to report cross-border tax arrangements. It is mostly a one-to-one implementation of the EU requirements which, in essence, creates 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 and 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.

Disclosure number

What is new is that, in addition to issuing a registration number (ArrangementID) to identify a specific design, a so-called disclosure number (DisclosureID) is also communicated to the intermediary by the German tax authorities.

The DisclosureID should allow Germany’s tax authorities to link the intermediary and user notifications. If no intermediary is covered by the law, the taxpayer must report all the information.

When implementing the arrangement in another EU Member State, the corresponding counterparty must be notified. The information must be included in the tax return of the country where the tax advantage of the tax structure has an impact.

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

A violation of the obligation to report is considered an administrative offense with a possible maximum fine of 25,000 euros. However, the sanctions should only apply to arrangements implemented after June 30, 2020. False or missing notifications between June 25, 2018, and June 30, 2020, which should be reported until 31.08.2020, would therefore not be sanctioned.

The German cabinet is scheduled to approve the draft on October 9, sending it to Bundestag and Bundesrat. The German tax authority will conduct a separate hearing on the technical requirements (e.g., file formats and data interfaces) for the transmission of notifications.