Holders of financial accounts abroad who are resident in Germany must also declare them in the German tax return and pay tax on them where appropriate. Foreign investment income such as interest, dividends, account balances and proceeds from the sale of financial assets are in principle also subject to taxation in Germany. Often, however, to avoid taxation in Germany, no information is given to the tax office, either inadvertently or deliberately, to avoid taxation in Germany. If this is the case, a correction of the tax return should be made quickly or, if necessary, a voluntary self-disclosure exempting from penalty should be considered.
This is because over 100 countries have already acceded to the multilateral agreement on the automatic exchange of information in tax matters. Under the automatic exchange of information (AIA), the participating countries undertake to transmit annually to the tax authorities of each of the countries participating in the Agreement information from their credit institutions and insurance companies on investments made by foreign residents. The Agreement lays down a common reporting standard (CRS). The aim is to establish a global standard for the automatic exchange of information on financial accounts to combat cross-border tax evasion.
As of this year, Turkey has been included among the participating states. An up-to-date list of these countries can be found on the website of the Federal Central Tax Office.
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Automatic Exchange of Tax Information: Germany with Turkey
As Turkey has only been participating in the agreement since this year, the first exchange with Germany relates to account information for the 2019 reporting period.
Banks and insurance companies in Turkey must transmit the relevant information on financial accounts of persons resident in Germany to the Turkish authority responsible for this. This data is then initially forwarded to the Federal Central Tax Office (BZSt). Due to an extension of the reporting deadline due to the COVID 19 pandemic, the transmission of data for the calendar year 2019 to the BZSt does not have to take place until 31 December 2020 (cf. letter from the Federal Ministry of Finance dated 1 July 2020).
Finally, the information is forwarded to the competent tax office. It is then checked whether the investment income from Turkey is subject to taxation in Germany, whether the relevant information in the local tax return was correctly provided and whether taxation has taken place.
What You Need to be Aware of
The automatic exchange of information in tax matters is designed to combat tax avoidance in an international context. The competent tax authorities should receive the necessary information to detect possible tax offences connected with financial accounts abroad. The data to be transmitted include the person’s name subject to reporting, the address, date and place of birth, the tax identification number, the tax residence, the account number, the account balance at the end of the respective calendar year and existing investment income. The exchange of information always refers to the previous calendar year.
In principle, information should be sent to the competent authorities of the participating countries by 30 September of the following year, but this year by 31 December. After the Federal Central Tax Office has forwarded the data to the responsible tax office, the tax office compares the data with the tax returns. In the event of discrepancies, subsequent taxation will occur if necessary and criminal tax proceedings may even be initiated. In international tax matters, the double taxation agreements between the states involved regulate which income is taxed where and how and to what extent double taxation is avoided. There is such a double taxation agreement with Turkey. If there is no double taxation agreement, in addition to taxation abroad, taxation is also carried out in Germany, whereby any taxes already paid abroad are credited or deducted.
The data transfer concerns both natural and legal persons liable to tax in a country other than the one in which a financial account exists. It, therefore, covers persons resident in Germany for tax purposes who maintain financial accounts abroad. The person who has a residence or habitual abode in Germany is resident here. However, the nationality of the person is not relevant.
The Possibility of Making a Voluntary Disclosure
If you have a financial account abroad, you should, if necessary, check whether you have disclosed the corresponding assets for tax purposes in Germany. If you have not yet declared your foreign assets in your German tax return, you should initiate a correction as soon as possible per § 153 of the German Tax Code (Abgabenordnung, AO) or, if applicable, a voluntary self-disclosure per § 371 AO.
The voluntary self-disclosure offers the possibility of correcting errors in your tax return to the tax authorities before they are discovered, without being punished for tax evasion. However, the voluntary declaration must be made correctly; otherwise, your situation could deteriorate further. Therefore, a comprehensive examination should be carried out to determine whether the conditions for an effective voluntary declaration are met. These are based on § 371 AO.
A declaration must be made to the competent tax authority in which incorrect information in the tax return is completely corrected, incomplete information is supplemented, or omitted information is made up for. All non-statute-barred tax offences of one type of tax, regularly of the last ten calendar years, must be fully disclosed. To be exempt from punishment through a voluntary self-disclosure, this must also be made in good time, and there must be no other reason for exclusion. For example, a voluntary disclosure does not exempt the offender from punishment if the tax evasion was already discovered at the time of the disclosure and the offender at least had to expect it. Furthermore, exemption from punishment does not apply if the evasion volume exceeds 25,000 euros. Finally, the evaded taxes must be paid in due time.
If a voluntary declaration is considered, it should be made before 31 December of this year if possible. This is because, from that date, the automatic exchange of information via financial accounts increases the probability of discovering a possible tax offence. This also reduces the prospects of an effective self-denunciation guaranteeing impunity.
It should be noted, however, that impunity is only granted in respect of tax evasion. However, it does not exempt from punishment other offences such as money laundering, fraud, embezzlement or delay in filing for insolvency.
Legal Advice on Tax Law
As explained above, before making a voluntary self-disclosure, a full examination of the specific case must be carried out to take the right steps and avoid undesirable consequences. With our extensive expertise, we can provide you with competent advice on all questions relating to the taxation of foreign accounts, the self-denunciation under § 371 AO and tax law in general. With offices in Cologne, Aachen and Düsseldorf and conference rooms in Hamburg, Stuttgart, Munich, Berlin and Frankfurt, you can take advantage of our support and advice nationwide. We also offer our clients our services in English and German for smooth communication.
