Consequences of violating the disclosure requirements
The EU Council admittedly gave member states the option of postponing the planned deadlines for disclosures by six months. Nevertheless, Germany did not take up this option. Therefore, for new cases here you should bear in mind that violations of the disclosure requirements may be punished by the imposition of a fine of up to € 25,000. While in Germany breaches of reporting deadlines for legacy cases are not punishable by a fine, nevertheless, breaches of the respective disclosure requirements in other EU member states may incur penalties.
Please note: The ceilings for fines in other EU states, in some cases, are significantly higher and can reach seven-figure sums (e.g. Poland).
Conditions for arrangements that are subject to disclosure requirements
It is easier to describe how to check whether or not transactions are cross-border arrangements by answering the following questions:
- Is the tax involved one of the ones to which the EU Administrative Assistance Act applies? Essentially these are income tax, corporation tax, trade tax, real estate transfer tax and inheritance tax.
- Is there a tax arrangement? That would be the case if an actual or legal event has been modified because of the tax implications – a structure, a process or a situation has been deliberately created for the user that results in implications under tax law that would not otherwise have arisen.
- Who is involved in the tax arrangement? The following should be considered: users, parties involved and so-called intermediaries (normally consultants).
- Is there a cross-border dimension? The precondition is that one EU member state and at least one other EU state or third country are involved. In the course of this, German tax revenues may not be affected. What matters is whether or not the intermediary or the user has a connection to Germany.
- Is a so-called hallmark (characteristic) within the meaning of Section 138d(2) clause 1 no. 3 of the Fiscal Code [Abgabenordnung, AO] present (cf. Fig.1)?
- If a conditional hallmark pursuant to Section 138e(1) AO is present – reportable if a tax advantage exists.
- If an unconditional hallmark pursuant to Section 138e(2) AO is present – reportable without any further checking.
More information on this can be found in an unpublished Federal Ministry of Finance [Bundesministerium der Finanzen, BMF] circular from 15.6.2020. In an annex attached to this circular there is a so-called “white list”, which had not yet been included in the previously published BMF circular from 2.3.2020. There are case groups mentioned on this white list that are exempted from the disclosure requirement. Examples are the exercise of options or the creation of a single entity for profit tax purposes. It is striking that the list, with altogether 16 points, scarcely has an international point of reference but, instead, predominantly applies to the area of tax related to personal income or inheritance. This list thus provides little further help so that, ultimately, you will have to go through the above checks to determine whether or not hallmarks pursuant to Section 138d AO are present.
Please note: Checking to see if the relevant hallmark is present and performing a so-called “main benefit test” in the event of conditional hallmarks can be very work-intensive in individual cases. If a cross-border arrangement does indeed exist then using an officially prescribed set of data the disclosure has to be made to the Federal Central Tax Office [Bundeszentralamt für Steuern, BZSt] via the BZSt online portal (BOP).
Recommendation: If you believe that a cross-border tax arrangement might have taken place at your company since 25.8.2018 and that the reporting process in this respect has not yet been started then please contact your consultant as soon as possible.