The general legal basis for the international exchange of information is codified in Section 117 AO. This standard is entitled "Intergovernmental legal and administrative assistance in tax matters" and essentially refers to other legal sources, such as German law for the utilisation of intergovernmental administrative assistance by German authorities vis-à-vis foreign authorities (Section 117 (1) AO), nationally applicable international agreements and legal acts of the European Union as well as the EU Administrative Assistance Act for the granting of intergovernmental administrative assistance by German authorities vis-à-vis foreign authorities (Section 117 (2) AO).

Bilateral agreements: Upon request

Until the introduction of the automatic exchange of information, the international exchange of information in tax matters was regulated bilaterally in double taxation agreements. This exchange regularly only takes place at the request of a domestic tax authority to the state providing administrative or legal assistance.

Agreement on the avoidance of double taxation

The basis for most German and European double taxation agreements is the OECD Model Tax Convention for the Avoidance of Double Taxation (OECD-MA). The exchange of information is regulated there in Art. 26 OECD-MA. This contains the so-called. large or comprehensive exchange of information laid down in the Convention. It enables the exchange of information on taxes of any kind and description levied on behalf of the contracting states or their local authorities. All information required for the implementation of the agreement and data required under national tax law are exchanged.

The rarer case in the practice of double taxation agreements small exchange of information on the other hand, provides for the exchange of information required for the only of the agreement itself are required. This is the case if the legal consequences under treaty law depend on the result of the information, for example in the case of questions regarding the residence of a taxpayer or the existence of a permanent establishment. The small information clause can only be found in older double taxation agreements.

Agreement on the exchange of information

Isolated agreements on the exchange of information also generally include the large-scale exchange of information. On 10 November 2015, the Federal Ministry of Finance (BMF) published a letter on the application of tax information exchange agreements (TIEA) (IV B 6 - S 1301/11/10002, BStBl. 2016 I, 138). The double taxation agreements concluded by Germany offer the possibility of utilising official support through the exchange of information upon request in individual cases for the purposes of taxation proceedings or criminal tax offence and fine proceedings. This letter regulates details on responsibility and procedural issues.

The content and structure of the agreements largely correspond to the OECD model agreement for the exchange of information in tax matters from 2002. However, these agreements do not provide for a spontaneous or automatic exchange of information.

Administrative assistance is regularly granted upon request by transmitting information that is likely to be significant from a tax perspective for income tax, corporate income tax, trade tax, value added tax, insurance tax, inheritance tax and the surcharges levied thereon. It is also possible for officials of the requesting contracting party to enter the territory of the requested contracting party and, with the consent of the persons concerned by the request, to obtain income and inspect documents directly. Furthermore, foreign officials may be present during external tax audits with the consent of the requested contracting party.

Mutual legal assistance granted under these agreements is limited to the transmission of information in furtherance of criminal or administrative tax proceedings. Mutual assistance shall include the procurement of the requested information by the requested Contracting Party. The requested contracting party shall determine the extent to which it applies criminal procedural measures, such as searches or witness interviews, to clarify the facts relevant under criminal law.

EU Administrative Assistance Directive and EU Administrative Assistance Act

The EUAHiG provides for both information on request and information without a request. In terms of scope, the comprehensive exchange of information is provided for, comparable to the large-scale exchange of information under the double taxation agreements. This means that the large-scale exchange of information applies in all EU member states, even without an agreement. All EU member states are obliged to provide each other with information on request.

There is also a European legal basis for the automatic exchange of information on wages and salaries, supervisory board remuneration, certain life insurance policies, pensions and rental income, among other things.

A spontaneous exchange of information between EU member states, OECD members, Singapore and Liechtenstein can take place regarding information that the local tax authorities believe may be relevant for taxation in the taxpayer's home country. Information must be exchanged if tax evasion, profit shifting or other unauthorised tax advantages are suspected.

What follows from this?

A dense network of different information exchange systems enables the tax authorities to receive and analyse a considerable amount of data and information from abroad, both for criminal audits and for regular external audits. Your TAXGATE team of experienced practitioners will be happy to support you with questions on this topic and offer comprehensive legal assistance in the event of critical situations, such as unjustified tax claims, tax disputes in the context of external audits or criminal tax proceedings. We also focus on the preventive implementation of an internal control system (ICS) with tax compliance guidelines, which are becoming increasingly important, especially for VAT.

This article is part of a series. You can access the other parts here.

Dr Frank Thiede is a tax consultant at TAXGATE, a tax law firm specialising in transactions, investments and tax compliance.

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