On 1 November 2016, the Federal Ministry of Finance (BMF) presented a draft bill for a law to combat tax avoidance and to amend other tax regulations (StUmgBG). New reporting and notification obligations are to be introduced for taxpayers and banks, particularly for situations in countries outside the EU or the European Free Trade Association (EFTA) ("third countries"). Compliance with these new obligations is to be enforced through stricter penalties and control options for the tax authorities. By including the EFTA countries (Iceland, Liechtenstein, Norway and Switzerland), the draft bill is primarily aimed at classic offshore locations outside Europe, while within the EU and EFTA, the exchange of information as well as administrative and legal assistance will increase the transparency of foreign relationships.
In addition to the establishment or acquisition of businesses or permanent establishments abroad and shareholdings in companies, a notification obligation is also to be introduced as soon as a taxpayer can directly or indirectly exercise a controlling or determining influence on the corporate, financial or business affairs of a third-country company for the first time. A notification obligation is also to apply to certain financial companies that have brokered relationships between a taxpayer and third-country companies (Section 138b AO draft).
The measures are flanked by the inclusion of tax evasion using a covert third-country company in the catalogue of particularly serious tax evasion. As a result, it will no longer be possible to make a voluntary disclosure in such cases and the limitation period for prosecution will be increased from five to ten years. In addition, the statute of limitations for assessment is only to take effect once the third country facts have been reported and is to be suspended in certain cases. This is tantamount to a de facto cancellation of the previous statute of limitations. Apart from further legal concerns regarding the retention periods, the measure is questionable, but should act as a deterrent, particularly with regard to future matters.
The draft also (finally) abolishes tax-related banking secrecy. Collective requests for information to credit institutions would then be possible. This measure is serious and would grant tax investigators considerably increased investigative powers.
In response to the publication of the so-called Panama Papers, the new legislative proposal primarily aims to make the use of letterbox companies for the purpose of tax evasion more difficult (cf. TAXGATE Blog from 08.04.2016 and 26.4.2016 and Elser/ Thiede: The letterbox company from a German tax perspective, in: Börsen-Zeitung dated 7 April 2016, p. 2).
Both for medium-sized companies and for (tax-compliant) private investors, the planned new regulations should generally not result in any direct material tightening. However, it is generally advisable to review existing third-country business relationships with regard to the planned reporting obligations, even if the corresponding income has been properly declared to date.
For taxpayers who, despite immense pressure from most financial institutions in the known tax havens, have not been able to bring themselves to make a subsequent declaration, the net is being cast even tighter. In such cases, it is still advisable to carefully analyse the situation and prepare appropriate steps if necessary.
For banks and financial service providers, the provisions of the StUmgBG mean even greater attention for their clients' third-country business relationships, although many institutions are likely to have already addressed this through compliance guidelines. Nevertheless, existing internal control and behavioural guidelines should be adapted to the extended reporting obligations where necessary.
