Since July 1, 2020 the EU Mandatory Reporting Act (“EU-Meldepflichtgesetz”) provides for a reporting obligation for certain cross-border tax arrangements that are legal in themselves, but are nevertheless rated as "aggressive" due to their potentially tax-avoiding effect. Taxpayers who are internationally active should therefore constantly check their business activities for structures that are subject to reporting requirements, as violations of this reporting requirement can result in substantial fines.
Which arrangements are potentially reportable?
The obligation to notify initially requires a cross-border arrangement. Such is the case if the arrangement concerns either more than one EU member state or at least one EU member state and at least one third country and
- the persons involved in the arrangement are tax resident in different jurisdictions,
- at least one person involved in the arrangement is resident for tax purposes in several jurisdictions at the same time,
- the arrangement relates to the business activity of a permanent establishment that is maintained by a person involved in the arrangement in another jurisdiction,
- at least one person involved in the arrangement exercises his or her activity in another jurisdiction without being resident there for tax purposes or without having a permanent establishment or
- the design may have an impact on the automatic exchange of information on financial accounts or the identification of beneficial owners.
In order to trigger the reporting obligation, the cross-border arrangement must also involve a risk of tax avoidance, circumvention of the automatic exchange of information or the identification of beneficial owners.
Which cross-border arrangements have to be reported?
The following arrangements must be reported in any case ("unconditional reporting requirement"):
- Deductible cross-border payments between two or more affiliated companies, if the payee is either not resident in any sovereign territory or in the territory of a country classified as non-cooperating by the EU member states or the OECD;
- arrangements aimed at ensuring that assets are deducted for tax purposes in more than one jurisdiction;
- arrangements through which the same income or the same assets are to be exempted from double taxation in more than one jurisdiction;
- transfers of assets if there is a material difference between the values to be applied for them in the sovereign territories involved;
- certain designs aimed at undermining the automatic exchange of financial data;
- certain arrangements that lead to a non-transparent chain of legal or beneficial owners;
- transfer pricing structures using unilateral safe harbor rules;
- transfer pricing structures that involve a transfer of difficult-to-value intangible assets;
- transfer pricing structures in which the expected annual earnings before interest and taxes are reduced by more than 50% through an intra-group transfer of functions, risks or assets over the period of three years after the transfer.
If at least one of the main advantages that a natural or legal person can expect from a structure, taking into account all the relevant facts and circumstances, is the attainment of a tax advantage, i.e. the prevention or postponement of a tax claim, other structures must also be reported (" conditional reporting obligation "). These include, among other things, certain confidentiality agreements that are intended to prevent the tax advantage from being disclosed to the tax authorities, the purchase of realizable losses by way of a company acquisition, consultancy fees dependent on the success of the design or certain circular asset shifts
Who is required to report?
First and foremost, anyone who is a so-called "intermediary" is required to report. An intermediary is, who either
- wholly or partially conceives, markets, organizes or provides a reportable arrangement or manages its implementation or
- taking into account the objective and subjective circumstances, knew or should reasonably have known that he was providing direct or indirect help, support or advice in connection with a reportable arrangement.
However, if an intermediary is subject to a statutory duty of confidentiality (e.g. tax consultants, auditors and lawyers) from which he has not been released, the reporting obligation does not apply to this intermediary and is transferred to other existing intermediaries or to the taxpayer. The intermediary exempted from the reporting obligation must inform all persons concerned about the exemption as well as about the transfer of the reporting obligation.
How to report an arrangement
If the requirements are met, arrangements that are designed, marketed, organized, managed, implemented or provided from July 1, 2020, must be reported electronically via “FinanzOnline” within 30 days. As part of the report, extensive information about the reportable arrangement and the natural and legal persons involved must be provided and the corresponding documentation must be submitted.
Violations of the reporting obligation constitute a financial offense and can be punished with a fine of up to € 50,000.00 for intent or up to € 25,000.00 for gross negligence.
Stand: 22. Oktober 2020
