On January 30, 2019, the German Ministry of Finance (Bundesfinanzministerium or BMF) issued draft legislation that would introduce mandatory tax reporting requirements that are broader in scope than those in the EU Directive 2018/822 of May 25, 2018 on administrative cooperation in the field of taxation (“DAC 6”), the latter of which are limited to cross-border transactions. The German measures are discussed below.
Editor’s Note: Poland and Sweden have taken a broader approach as well, in implementing the DAC 6. As of March 21st, the BMF has not yet sent the draft legislation to the Bundestag (lower house of Parliament) for consideration.
DAC 6 Background
DAC 6 introduces EU reporting obligations for intermediaries, such as tax advisors, accountants, banks, and lawyers, who design and promote tax planning schemes for clients. DAC 6 requires EU member states to automatically exchange information on reportable “cross-border arrangements.” EU member states must adopt and publish, by December 31, 2019, the laws, regulations and administrative provisions necessary to comply with DAC 6, and must apply these provisions from July 1, 2020.
A “cross-border arrangement” involves either multiple EU member states or a member state and a third country, where at least one of the following conditions is satisfied with respect to the arrangement:
- Not all participants are tax resident in the same jurisdiction.
- One or participants is simultaneously tax resident in more than one jurisdiction.
- One or more participants carries on a business in another jurisdiction through a permanent establishment (PE) situated in that jurisdiction and the arrangement forms at least part of the PE’s business.
- One or more participants carries on an activity in another jurisdiction without being a tax resident or creating a PE in that jurisdiction.
- It has a potential impact on the automatic exchange of information or the identification of beneficial ownership.
A “reportable cross-border arrangement” is any cross-border arrangement that contains at least one of the “hallmarks” listed in Annex IV of DAC 6. A hallmark is a characteristic or feature of a cross-border arrangement that indicates a potential risk of tax avoidance.
An “intermediary” is any person that facilitates the implementation of a reportable cross-border arrangement. It can also refer to a person, who knows or could be reasonably expected to know that he has undertaken to provide aid, assistance, or advice on facilitating or managing the implementation of a reportable cross-border arrangement.
To qualify as an intermediary, a person must meet at least one of the following additional conditions:
- Tax resident in an EU member state.
- Have a PE in a member state, through which the services for the arrangement are provided.
- Incorporated in, or governed by the laws of, a member state.
- Registered with a professional association related to legal, tax, or consulting services in a member state.
Germany would automatically exchange information received on tax planning schemes through a centralized database with other EU member states, and would impose penalties for companies that do not comply with the transparency measures. The rules would cover all intermediaries, all potentially harmful schemes, all types of direct taxes (income, corporate, capital gains, inheritance, etc.), and all EU member states.
Unlike the DAC 6 approach, Germany would have a two-stage reporting requirement: (1) initial notification consisting of the intermediary (or taxpayer) summarizing the transaction information on a form to the German Federal Central Tax Office (Bundeszentralamt für Steuern or BZSt); followed by (2) a second disclosure with the German registration number of the intermediary and the name of the relevant taxpayer.
New cross-border arrangements entered into between June 25, 2018 and June 30, 2020 would have to be reported to the BZST by August 31, 2020, in line with the DAC 6 deadline.
New arrangements – both cross-border and purely domestic – entered into starting after June 30, 2020 would have to be reported to the BZST within 30 days of one of the following events, whichever occurs first:
- The date the arrangements are made available.
- The date the first step in the implementation is taken.
Whereas DAC 6 requires reporting of cross-border arrangements only, the German measures would also include reporting of domestic tax arrangements that meet certain enumerated hallmarks.
Germany proposes to penalize intermediaries and relevant taxpayers up to €25,000 for each failure to comply with proposed reporting requirements.
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