As the cum/ex scandal made very clear, there are criminal structures involving global operations that have the deliberate aim of evading taxes. They have caused Germany to lose billions of euros worth of tax revenue. Public prosecutors have launched investigations against several hundred individuals. In 2018, German Finance Minister Olaf Scholz initiated the process of setting up a task force to combat tax schemes on the capital market. The aim is to enhance tax fairness in a targeted and effective way. In future, the new task force will detect illicit tax schemes and large-scale tax fraud such as cum/ex arrangements more quickly and put a stop to them.
The task force will be established as quickly as possible so that offences can be investigated and, more importantly, so that new tax planning arrangements can be detected more quickly. This will allow targeted steps to be taken to prevent or stop abuse. A project on preventing capital market-related tax schemes was set up at the German Finance Ministry in April 2019 to work out in detail how measures can be made as effective as possible. The project group has now presented proposals on how to combat tax fraud and tax avoidance more effectively. Minister Scholz immediately took steps to start implementing these proposals. The staffing and financial resources required for the task force were taken into account during the consultations on the 2020 federal budget.
A total of 43 new positions are being created at the Federal Central Tax Office (BZSt), plus a further five positions at the German Ministry of Finance. The BZSt is a federal authority whose responsibilities include federal tax audits. It also conducts various taxation procedures that have an international dimension.
From July 2020 onwards, there will be an obligation to report to the BZSt any cross-border tax schemes that, based on certain characteristics, could indicate tax avoidance. The Federal Central Tax Office will be hiring 84 additional members of staff for this. In total, far more than 100 additional positions will be created to combat tax fraud and tax avoidance.
Under current plans, the task force will be based in Bonn/Frankfurt. Both cities have public prosecutors’ offices specialising in financial crimes. The task force will be staffed with financial industry experts.
Tax fraud such as cum/ex arrangements takes place in a highly specialised environment with very complex structures. When uncovering tax schemes on the capital market, it is therefore especially important to bring together expertise that local tax authorities often do not have individually. The new unit will enable the German government to gather and evaluate information more effectively and, if necessary, to coordinate measures with other authorities, especially at the Länder level.
A key element of the task force’s work will be to support federal and Länder authorities in handling pending cases. Initially, these will primarily consist of cum/ex cases that are currently being processed by various tax investigation units and public prosecutors’ offices at the Länder level. The task force will perform the important task of collating and evaluating information on actors and patterns of behaviour. It will also act as a point of contact for the Land authorities, the Federal Financial Supervisory Authority (BaFin) and foreign investigative authorities. This will considerably ease the burden on the Länder authorities working on these cases, as well as making it possible to detect further cases.
The task force will be the central point of contact for all authorities at the Länder and federal level that encounter possible tax schemes in the capital market during the course of their work. These suspicious cases will be collected and analysed. The expertise of the task force’s staff will allow arrangements to be identified and processed much more quickly and thoroughly than was previously the case. Local financial and criminal investigation authorities will be able to react quickly to fraudulent and aggressive tax planning arrangements. This will also give law-makers early indications that there might be a need to take action.
To expand the BZSt’s own investigative capabilities, the possibility of establishing a separate tax investigation office at the BZSt is being explored. Unlike tax auditors, tax investigators have the same rights and responsibilities as the police under the Code of Criminal Procedure (Strafprozessordnung). In particular, they have the power to carry out searches and seizures in suspicious cases.
A whole series of other measures are being taken in addition to setting up the task force. For example, the Bundestag is about to pass legislation introducing an obligation to report cross-border tax arrangements. From 2020 onwards, tax advisors and lawyers (among others) will be required to notify the BZSt, well in advance of tax assessment by the tax office, of any cross-border tax arrangements that indicate tax avoidance on the basis of certain characteristics.