International exchange of information
In recent years, Germany has been vigorous in promoting the international exchange of tax information and has either agreed to obligations regarding the exchange of information in DTTs or concluded Tax Information Exchange Agreements (TIEAs) with countries with which it has not concluded a general DTT.
The Foreign Account Tax Compliance Act (FATCA) agreement of 31 May 2013 with the United States (US) on the automatic exchange between national tax authorities of bank account information on each other's residents has been in force since December 2013.
Moreover, Germany has signed and implemented into domestic law the Multilateral Competent Authority Agreement on Automatic Exchange of Financial Account Information as of 29 October 2014, which is based on the Convention on Mutual Assistance in Tax Matters (1988/2010), which itself was also signed and implemented into domestic law by Germany. The first exchange of information on financial accounts in tax matters based on the so-called common reporting standard (CRS) from Germany took place in September 2017.
Automatic exchange of information has further been pushed as part of the BEPS Project of the OECD. The Multilateral Competent Authority Agreement on the Automatic Exchange of Country-by-Country Reports as of 27 January 2016 was signed by Germany and implemented into domestic law in 2016. At the level of the EU, the Directive on Administrative Cooperation in the Field of Taxation was extended with respect to the exchange of information regarding CbCR as well as advance cross-border tax rulings and APAs. Both amendments were implemented by Germany into domestic law in December 2016.
Mandatory reporting of cross-border tax arrangements (DAC 6)
With the Act Introducing An Obligation To Report Cross-border Tax Arrangements of 21 December 2019 (DAC 6 Act), Germany has implemented the provisions of the Directive amending the EU Mutual Assistance Directive 2011/16/EU (DAC 6) on the mandatory automatic exchange of information in the field of taxation on reportable cross-border arrangements. Since 1 July 2020, the regulations are to be applied.
The reportable tax arrangements included in the German provisions are mainly in line with the Directive. Germany has adopted the hallmarks listed in Annex IV of DAC 6 and has not added further hallmarks. In line with DAC 6, certain hallmarks will trigger a reportable tax arrangement only to the extent that the main benefit test (MBT) is met. Taxes covered under the latter are all taxes that are levied by the EU member states except VAT, customs duties, and specific excise duties.
The reporting for cross-border arrangements must be made electronically to the German Federal Tax Office ('Bundeszentralamt für Steuern') according to the officially prescribed data forms within 30 days after the start of the reporting period. In addition, with regard to so-called 'marketable cross-border tax arrangements' that do not have to be adapted individually, there are some special reporting periods and requirements.
Violations of the reporting obligation are treated as administrative offences and are punishable by fines of up to EUR 25,000.
BEPS Project of the OECD
On the initiative of the G20 group of countries, the OECD developed a 15-point Action Plan to address BEPS by multinational companies. It aims to adjust local tax regimes and DTTs to keep pace with globalisation and technical developments.
Germany transposed some of the measures developed by the OECD or provided for by the European Union into domestic law, in particular rules concerning the international exchange of information in tax matters. Further, applicable from 2018 onwards, Germany introduced a restriction on the deductibility of royalty payments to related parties in certain cross-border situations where a preferential tax regime is considered harmful.
In August 2016, the EU Anti-Tax Avoidance Directive (EU-ATAD) entered into force, which includes certain minimum standards to combat tax avoidance schemes (interest limitation rule, exit taxation, general anti-abuse rule, CFC rules, hybrid mismatch arrangements).
In May 2017, the Council of the European Union further adopted a directive amending the EU-ATAD (ATAD II) to address hybrid mismatch arrangements with third countries. The standards of the ATAD were implemented into German law in June 2021 through an amendment of the German CFC rules, an amendment of the rules on exit taxation, and the introduction of new rules on hybrid mismatch arrangements.
Together with numerous other countries, Germany signed the so-called 'Multilateral Instrument' (MLI) at an official signing ceremony on 7 June 2017. In November 2020, a Consent Act, which served to transpose the MLI into national law, passed through all its parliamentary procedures. Based on this legislation, 13 German DTTs are expected to be modified by means of the MLI. In addition to this 'transposition bill', a further 'implementation bill' (no draft to date) will be necessary in Germany to modify these DTTs. Beyond the changes in the DTTs through the MLI, Germany is currently negotiating a number of bilateral agreements to modify other German DTTs or (respectively) has finalised the negotiations. These negotiations relate predominantly to selected elements of the MLI. So far, bilateral negotiations for an amendment to the DTTs have been finalised with 13 countries. The amendment of seven of the respective DTTs (the treaties with Cyprus, Denmark, Estonia, Ireland, Finland, Liechtenstein, and the United Kingdom) entered into force in 2021 and are applicable from 2022 onwards. Additionally, the DTT between Singapore and Germany has been amended from 2022 onwards and elements of the MLI have been included. Lately, the DTTs with the Netherlands and Mauritius entered into force in 2022 and will be applicable from 2023 onwards.
Tax Haven Defence Act
The Tax Haven Defence Act of 25 June 2021 ('Steueroasenabwehrgesetz') contains tax defence measures in relation to tax jurisdictions that are on the EU's black list (to provide, in particular, for restrictions on available deductions [Section 8], for stricter rules on CFC adjustments/add-backs [Section 9], for the expansion of WHT obligations [Section 10], for the suspension of the participation exemption under Section 8b Corporation Tax Act [Section 11], and for an expansion of the obligation to cooperate with the tax authorities [Section 12]).
The EU blacklist is updated at regular intervals and currently (as of February 2023) includes the following tax jurisdictions:
- American Samoa
- The Bahamas
- British Virgin Islands
- Costa Rica
- Marshall Islands
- Russian Federation
- Trinidad and Tobago
- Turks and Caicos Islands
- US Virgin Islands