Germany: Legislative proposal in reaction to Panama Papers


The aim of the draft bill is to enhance the German tax authorities' means to determine and reveal EU-foreign domicile company structures which are supposed to be used to avoid taxation by disguising financial circumstances, cash flows and/or economic activities. An EU-foreign (domicile) company is thereby understood as a partnership, a corporation or an estate having its registered office or its place of management outside of the European Union or the European Free Trade Association.

I. Key elements of the legislative proposal

Key elements of the draft bill are the introduction of enhanced transparency and of additional cooperation obligations of the taxpayers and of third parties (like financial institutions) as well as new investigation rights of the tax authorities.

1. New and enhanced notification obligations of German tax residents

German tax residents shall be obliged to notify the German tax authorities upon:

(a) the direct or indirect acquisition of at least 10% of the shares or the assets of an EU-foreign company. Former relevant thresholds were 10% in direct cases and 25% in indirect cases. Additionally, a notification obligation shall apply in case of the disposal of such a participation;

(b) the fact that the German tax resident alone or together with an affiliate can for the first time control or dominate directly or indirectly the corporate law, financial or business matters of an EU-foreign company;

(c) the economic activities of any relevant EU-foreign company.

The new and enhanced notification obligations shall have effect as of 01 January 2018. Facts and circumstances like participations or controlling influence in the above sense already in place before 01 January 2018 but still relevant after such date shall be notified once with the income tax returns for the fiscal year 2018.

In case of any non-compliance with such notification obligations it shall be possible to impose a penalty of up to EUR 25,000.

2. New notification obligations and secondary liability of financial institutions

Financial institutions shall be obliged to notify the tax authorities under specific circumstances about business relationships of German taxpayers with EU-foreign companies provided they have established or liaised such business relationships. If the financial institutions fail to notify the tax authorities, it shall be possible to hold them secondarily liable for any tax deficits caused by such failure. Additionally, it shall be possible to impose a penalty of up to EUR 25,000.

3. Abolishment of bank secrecy

Under current law the German tax authorities have to take specifically into account within their investigations the mutual trust between financial institutions and their customers (so-called bank secrecy). This situation has been identified by the German legislator as a generally unwanted hurdle regarding tax enforcement and shall, thus, be abolished.

4. Automated access to account details

The possibility of the German tax authorities to have automated access to account details (automatisierter Abruf von Kontoinformationen) shall be extended. In particular, automated access to account details shall be permitted in order to assess in which cases a German taxpayer is authorized to dispose or beneficially owns a bank or securities account of a person resident outside of the scope of the German Fiscal Code.

In this regard, financial institutions shall be obliged to retain within the "know your customer" procedure also the tax identification number of the bank account holder. The general retention period for information after the dissolution of a bank account shall be extended from three to ten years.

5. Collective request for information

Under current (case) law collective requests for information (Sammelauskunftsersuchen) by the tax authorities are already possible (subject to certain requirements). However, the German legislator sees the need to introduce a clear legislative provision which shall, however, not lead to extended investigations means of the German tax authorities but shall only reflect settled case law.

6. New retention obligation of taxpayers

Taxpayers that can alone or together with an affiliate control or dominate directly or indirectly the corporate law, financial or business matters of an EU-foreign company shall retain the records and documents relating to such relationship and to all corresponding income and expenditures for six years. Regarding such taxpayers a tax audit would be possible without any particular reason.

7. Tax fraud

Ongoing tax fraud by using an EU-foreign company in order to disguise tax relevant circumstances shall be added to the catalogue of the particularly severe tax fraud cases meaning that a penalty between six months and ten years’ imprisonment shall be imposed.

II. Next steps

The next debating of the German federal parliament (Bundestag) regarding the draft Steuerumgehungsbekämpfungsgesetz is planned for 28 April 2017.