On 5 February 2018, the Federal Ministry of Finance published an updated application letter on stricter notification obligations for foreign relationships in accordance with Section 138 (2) and Section 138b AO in the version of the German Act to Combat Tax Avoidance (StUmgBG).

The legal basis

With the help of the Anti-Tax Avoidance Act of 23 June 2017, the legislator has reacted to the publication of the "Panama Papers" and wants to ensure further tax transparency by means of stricter reporting obligations. This should enable the tax authorities to identify so-called domiciliary companies more effectively. Key instruments include the

  • Standardisation of the notification requirement for the acquisition of qualifying shareholdings in foreign companies: The existing notification requirement will in future apply to direct and indirect shareholdings of 10% or more.
  • Notification obligation for controlled companies in third countries: Business relationships with partnerships, associations, corporate bodies or assets in third countries (so-called third-country companies) must be reported if there is a direct or indirect controlling influence over them even without a shareholding.
  • Notification obligation for financial institutions: Under certain conditions, financial institutions must notify the tax authorities of business relationships established or brokered by them between domestic taxpayers and third-country companies.

The content of the BMF letter

Domestic taxpayers must report the following circumstances:

  • Establishment and acquisition of companies and permanent establishments abroad,
  • Acquisition, disposal or change of an interest in foreign partnerships,
  • Acquisition or disposal of participations in a foreign corporation, association of persons or estate if a) a participation of at least 10 per cent is achieved or b) the total acquisition costs of all participations amount to more than EUR 150,000. Direct and indirect participations are to be added together, or
  • the fact that they alone or together with related parties within the meaning of the
    1 para. 2 AStG can directly or indirectly exercise a controlling or decisive influence over a third-country company for the first time.
  • The type of economic activity must be stated in each case.

A third-country company exists if a company has its registered office in Germany but its management is located outside the EU/EFTA. A controlling or decisive influence can be based on legal (e.g. voting rights, trust agreement) or factual circumstances (e.g. financial dependence of the third-country company) or both. A controlling or decisive influence may exist, for example, if all significant management decisions, business policy decisions and other significant business decisions are made by the third-country company. 

Form and deadlines

The notification must be submitted together with the income tax, corporation tax or assessment return for the tax period in which the facts to be notified were realised, at the latest, however, by the end of 14 months after the end of this tax period, in accordance with the officially prescribed data set via the officially designated interfaces. This deadline cannot be extended.

Notification obligations in accordance with § 138b AO

The BMF circular also addresses the reporting obligations of credit institutions, financial services institutions, financial companies and insurance companies.

Content of the notification

The identification number, the business identification number of the domestic taxpayer or, if applicable, substitute features must be specified.

Legal consequences of violations

Violations can be penalised with fines of up to 25,000 euros.

Application regulations

The notification requirements are to be applied for the first time to circumstances after 31 December 2017.

ButDomestic taxpayers who were already able to directly or indirectly exercise a controlling or decisive influence on the corporate, financial or business affairs of a third-country company for the first time before 1 January 2018, without a notification obligation under section 138(2) AO old version, must notify the existence of the controlling or decisive influence if this influence continues to exist after 1 January 2018. There is therefore a specific need for action for circumstances prior to 1 January 2018.

Guest article by Carsten Schmid, Transfer Pricing & Friends GmbH, Stuttgart. Further information is available at www.tpa-global.com.