Background
On 12 December 2019, the Lower House of German Parliament (Bundestag) passed the Federal Government's draft bill introducing an obligation to notify cross-border tax structures. After approval by the Upper House of German Parliament (Bundesrat) on 20 December 2019 the law was gazetted on 30 December 2019. The legislator is thus fulfilling the obligations of the DAC6 Directive adopted at EU level on 25 May 2018, which introduced the obligation to notify cross-border tax structures throughout Europe. This was triggered in particular by aggressive tax planning by multinational corporations. The aim of the notification obligation is to provide the tax authorities with early information on cross-border tax arrangements by disclosing them so that cross-border tax avoidance practices and profit shifts can be identified and reduced in a timely manner. The German legislator hopes that in this way it will be possible to counteract the erosion of the domestic tax substrate through relocations to low-taxed jurisdictions by means of targeted legislative measures.
Key elements of the mandatory disclosure rules
The law provides for an obligation to notify cross-border tax arrangements primarily for so-called intermediaries. According to the law, intermediaries are those who market, design, organise, make available for use cross-border tax structures by third parties or manage their implementation by third parties. By cross-border tax arrangements are meant arrangements which concern non-harmonised taxes (including in particular income tax, corporate income tax and trade tax as well as real estate transfer tax and inheritance tax) and which fulfil at least one hallmark laid down by law to identify the arrangements concerned. The law lists a large number of such hallmarks, ranging from the agreement of a confidentiality clause to the targeted use of certain transfer pricing structures.
Under certain circumstances, however, also users of the tax structuring may be subject to the mandatory disclosure. Users should be those to whom the design is made available for implementation, who are willing to implement the design or who have already completed the first step of implementation. This comes into consideration in particular if the intermediaries, such as in Germany especially lawyers, tax consultants and auditors, are subject to a legal obligation of confidentiality and the users do not release them from this obligation.
The envisaged deadline for notification of the facts concerned is 30 days after the end of the day on which the cross-border tax structuring is made available for implementation, the user of the structuring is ready for implementation or at least one user has completed the first step of implementation of this tax structuring.
Outlook
It should be noted that taxpayers and consultants may already have an acute need for action, as all tax structuring issues whose first implementation step took place after 24 June 2018 are subject to the notification requirement retroactively. The corresponding notification must be issued in August 2020 at the latest. It is already becoming apparent that the notification requirement for cross-border tax planning will result in a significant increase in compliance costs for taxpayers and tax advisors alike. On the other hand, it is to be welcomed that an initially planned extension of the mandatory disclosure rules to purely domestic arrangements has not been implemented.