Germany weighs strict rules for mandatory disclosure of aggressive tax positions

By Ninja-Antonia Reggelin

Germany is considering a draft law on mandatory disclosure of aggressive tax positions, advanced by Germany’s state finance ministers, which would require greater disclosures than those required by the EU.

These heightened mandatory disclosure requirements would apply to transactions put in place beginning yesterday, June 25.

EU directive on mandatory disclosure

The EU’s amended directive on administrative cooperation in the field of taxation (DAC6), which entered into force yesterday, obligates EU member states to adopt national legislation requiring advisors and/or their clients to disclose information on certain cross-border transactions and structures (called ‘arrangements’) to the national tax authorities.

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

Although commentators have legal doubts concerning the retroactive character of the EU Directive, Germany seems to implement the law sooner rather than later to provide legal certainty for taxpayers.

State finance minister proposal

Several German state finance ministers have been working on a proposal to implement these rules more strictly than the EU proposal. The ministers agreed to a draft law on June 21 during the Standing Conference of Finance Ministers which could serve as a blue print for the final German law.

The German State finance ministers call upon the federal government to provide rules for disclosing domestic tax planning structures, in addition to cross-border cases as foreseen by the EU, noting the particular importance of the EU’s directive amending Directive 2011/16 / EU on mandatory automatic exchange of information in the field of reportable cross-border models.

Moreover, the draft law not only encompasses arrangements for income tax, as required by the EU, but also in other tax laws, such as inheritance tax and real estate transfer tax.

Scope of German proposal

According to the draft, arrangements that serve to reduce a German tax claim, to postpone the creation of a tax claim into other tax periods, or to justify claims for a tax credit or reimbursement need to be disclosed.

Intermediaries should notify tax authorities in-line with the EU directive. Taxpayers are required to notify, as well, if they wish to use a tax arrangement without the assistance of an intermediary, such as where a company develops a tax structure in its own tax department.

Under the German proposal, disclosure is not required if the tax arrangement is already demonstrably known, it leads to a tax benefit that does not exceed € 50,000, the sum of the taxable person’s positive income in two of the past three years has not been more than € 500,000, or the tax structure is not tailored to large companies or corporations.

The notification must contain an abstract description of the design and tax implications and should be transmitted electronically to the Federal Central Tax Office within 30 working days of the occurrence of the reportable event.

Thereafter, the government will decide whether laws need to be adjusted for any existing or unintentional loopholes.

Anyone who violates the obligation to disclose may be required to pay a fine of up to € 100,000.