Trust Bloomberg Tax for the international news and analysis to navigate the complex tax treaty networks and global business regulations.
The German upper house of Parliament, the Bundesrat, passed a bill June 2 to stymie tax evasion through letterbox companies as part of a wider crackdown on illegal tax practices in light of last year’s Panama Papers scandal.
The bill, which will become law after being signed by the German president, will require German taxpayers to disclose their relationships to letterbox companies and similar entities that are located outside the European Union and the European Free Trade Association.
Under the new provisions, taxpayers are also required to disclose new shareholdings acquired in these entities if they exceed 10 percent.
Furthermore, the bill introduces a reporting obligation for banks and financial institutions to disclose to tax authorities if they assisted a taxpayer in acquiring direct holdings in a letterbox company of over 30 percent. That means financial institutions will have to cooperate more closely with tax authorities in investigations of tax evasion.
Taxpayers and financial institutions that fail to comply with these disclosure obligations could be fined up to 25,000 euros ($22,162).
The lower house of the German parliament, the Bundestag, approved the bill April 27. It would apply to new shareholdings created from Jan. 1, 2018, onward.
The bill’s critics say its deficiencies could prevent it from having much of an impact due to its low reporting standards for taxpayers and banks, and also because its reporting obligations apply only to banks and taxpayers, not law firms or other service providers who help taxpayers establish shell companies that fall outside the scope of the law.
Lawmakers from the opposition Green Party, meanwhile, had previously criticized the bill as “half-hearted,” as its reporting requirements would apply only to letterbox companies outside the European Union.
EU countries such as Malta, Cyprus, or even Switzerland—which is not part of the bloc—which have had problems with letterbox firms in the past, would be unaffected, said Green lawmaker Lisa Paus during the bill’s reading in parliament April 27.
“As long as there are these simple escape routes, this law only threatens to shift the headquarters and distribution channels of German taxpayers’ letterbox companies instead of finally drying up the tax swamp,” said Paus.
Germany’s Ministry of Finance will eventually release guidelines on how the law should be implemented, attorneys told Bloomberg BNA.
But until the BMF does so, practitioners are faced with a number of questions as to how to interpret provisions in this law on a practical basis.
“Obviously we do need clarity,” Oliver von Schweinitz, a tax attorney with law firm GGV in Hamburg, told Bloomberg BNA June 1. “The whole area has become convoluted and terribly complex.”
Others said such guidance is critical.
“We won’t know clearly how to deal with these questions until the federal finance ministry issues its letter,” Nikolay Herber, a tax attorney at Noerr in Munich, told Bloomberg BNA May 31.
“The biggest issue for advisers will be to deal with this new legislation in a way that the tax office’s letter won’t get clients into trouble later on,” he added.
The Ministry of Finance has not yet scheduled a date for the guidelines to be released.
To contact the reporter on this story: Jabeen Bhatti in Berlin at email@example.com
To contact the editor responsible for this story: Penny Sukhraj at firstname.lastname@example.org
The bill, in German, is at http://src.bna.com/psK.
Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to email@example.com.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to firstname.lastname@example.org.
Put me on standing order
Notify me when new releases are available (no standing order will be created)