The new act is designed to enable the fiscal administration and lawmakers to identify tax avoidance practices and profit-shifting at an early stage and to close unintended loopholes rapidly. The new reporting obligations add to a comprehensive set of measures implemented by the German government to increase transparency and tax fairness and to combat tax fraud and avoidance.
“It’s time we put a stop to opaque tax avoidance models. The new reporting obligation will ensure greater transparency and greater fairness in taxation. Cross-border chicanery causes significant harm to our society, and we will soon be able to uncover and eliminate it earlier. This is an important step, because everyone needs to pay their fair share of taxes, including multinational enterprises.”Olaf Scholz, Finance Minister
The draft act requires banks, tax consultants, lawyers and auditors in particular to notify the Federal Central Tax Office about models involving cross-border tax arrangements that they have designed, organised or sold. They are also required to provide information about the persons or entities making use of these models. The report must be sent to the Federal Central Tax Office no later than 30 days after the tax arrangement was made available for implementation.
Data about reportable cross-border tax arrangements will then be automatically exchanged among the member states via a central directory. The draft act transposes Council Directive (EU) 2018/822 into national law.
Additional measures to combat tax fraud and tax avoidance
The new reporting obligations add to a variety of measures that the German government has put in place to combat tax fraud and avoidance. On the international level, a comprehensive set of measures has already been introduced as part of the Base Erosion and Profit Shifting (BEPS) process, which is aimed at preventing harmful tax competition and cross-border tax avoidance.
Work is currently under way on a model for a global minimum tax. This is intended to ensure that multinational enterprises, particularly those in the digital economy, are not able to avoid paying their fair share of taxes.
The German government is also working at the national level to create greater fairness in taxation. To combat VAT fraud in electronic marketplaces, earlier this year it tightened up liability rules, and introduced additional reporting obligations, for operators of such platforms. The German Finance Ministry has also presented a draft act that would limit the ability to make use of share deals in property transactions. This would ensure greater fairness in the collection of real property transfer tax. In addition, potent new measures have been launched to improve the effectiveness of efforts to prevent money laundering and terrorist financing.