International Exchange of Information

The movement of goods, capital and services is increasingly international. People are more mobile. The jurisdiction of the German tax authorities, however, ends at the German border. The legislator therefore wants to ensure, that German tax authorities have a legal basis for the procurement of information from a foreign country. This is based on the principle of reciprocity, so that Germany will also provide assistance to foreign countries.

In practice, the following distinction is made:

• outgoing information requests from German authorities to foreign authorities and
• incoming information requests from foreign authorities to the German authorities.

Mutual assistance in investigations may only take place, in principle, in the presence of established legal bases, such as double tax treaties. There is however also the option of discretionary administrative assistance, i.e. in individual cases lacking a legal basis.

Note: Clients cannot expect to be notified in advance of any and all requests for information by foreign or domestic authorities (prior hearing). It depends on the individual case and the respective applicable laws, as to whether the person in question will be notified in advance of administrative assistance being obtained from or granted to a foreign country.In practice and prior to the exchange of information, it is therefore not always warranted that judicial protection can be obtained.

These terms are sometimes used interchangeably in newspapers and on the Internet, but there is an important distinction:

Administrative assistance means the procurement of information for tax purposes. For example: A plot of land was sold by V in France and the German Tax Authority asks France for information about the property value, so that they can calculate the capital gain for tax purposes.Administrative assistance will be obtained by German tax authorities or granted by foreign authorities.

Legal assistance means the procurement of information by the public prosecutor's office for the purpose of prosecuting an offence (in particular for criminal tax proceedings). Example: Criminal tax proceedings have been commenced against T and the public prosecutor's office has requested the interrogation of a witness in Austria, because it is expected to hear incriminating information against T.

Developments in the cross-border exchange of information have gained unstoppable momentum and have led to a multitude of treaties. Because an array of legal bases are mentioned in the press, these will be briefly addressed here in order to help clarify the terminology.

The requirements and the scope of mutual administrative assistance between countries are laid down in different regulations, e.g.

• in international treaties, particularly in the so-called double tax treaties (DTT), where administrative assistance is either regulated in a so-called ancillary information clause or a comprehensive information clause (see below); the majority of DTTs are based on the OECD model agreement.
• There are also specific administrative and legal assistance treaties (such as those with Finland, Austria, Denmark and Sweden).

Note: The concept of the "double tax treaty’ (DTT) sounds misleading. Contrary to the ambiguous name, DTTs are not intended to tax income twice. On the contrary, they include particular regulation aimed at avoiding double taxation (such as a method for giving credit for foreign taxes paid). You can find out more detailed information on avoiding double taxation under the key heading international tax law.

At the beginning of each year, the Federal Ministry of Finances (BMF) publishes an overview of the current status of the DTTs and DTT negotiations in the federal tax Gazette (BStBl) (most recently in January 2015 inBStBl 2015, part I, p. 128). Interested clients can access the individual DTT treaty wordings on the website of the Federal Ministry of Finance under “double tax treaties and other country-specific publications”. We are happy to discuss individual DTTs in a legal advice consultation.

When a taxpayer becomes aware of a proposed request by a German authority to foreign authorities, we are often asked if there are any options for objecting against these measures. This also applies vice versa, if the person in question has learned that a foreign country will or has made a request for investigation to Germany.

The first step is to distinguish what legal recourse is available. The Fiscal Courts have jurisdiction for administrative assistance and for challenges brought against actions of German authorities. Criminal courts on the other hand have jurisdiction for matters relating to legal assistance.

According to German law, an appeal may be lodged against German sovereign measures that are an administrative deed, if the appeal is admissible (in the event of a failure, there would be a subsequent option to commence legal proceedings before the Fiscal Court). Not all measures in the area of administrative assistance are however such administrative deeds, direct judicial assistance might be considered in certain circumstances. In addition, an appeal under German law is ruled out as far as measures taken by a foreign country are concerned. It may however be considered, to request the court to issue an order to German authorities directing them to reject a request for information. Reasons against providing information must then be presented and the person in question will have learned in advance of the request for information.

Example: Austria ordered that administrative assistance should be obtained from Germany regarding citizen A. This decree is not a German administrative deed and can therefore not be contested by way of appeal in Germany.

Note: The question of contestability depends on all regulatory acts in the context of the request being assessed as to whether they are contestable German administrative deeds. This is for example the case, when the German Tax Authority requests citizen A, who is residing in Germany, to provide information about a property in Cologne, so that Austria can then tax A retrospectively. This request is an administrative deed, although it is based on an original request by Austria.

Example: The delivery of information and documents when handling a request for information and the dissemination of information without a request (spontaneous information), such as tracer notes to the responsible foreign authority, are not administrative deeds according to the jurisprudence by the Federal Fiscal Court (BFH), so therefore an appeal against the decision cannot be admitted. It should rather be looked at obtaining direct legal protection from a court, including a preliminary injunction.

In individual cases, our tax-lawyers assess whether utilizing the information is permitted in the first place. It should also be examined, if the information obtained by a measure may also be used in other proceedings, or if there is a prohibition of exploitation. The question in individual cases is, whether the investigation results obtained by way of administrative assistance (in a taxation proceeding) is permitted to be utilised in criminal proceedings. Investigation results in criminal tax proceedings can often - but not always - be used in taxation proceedings (§393, Sec 3, No 1 Tax Code (AO). The Tax Authority is also not constrained from obtaining administrative assistance for the purposes of taxation, even after commencement of criminal or fine proceedings.