Automatic Exchange of Information

The German Tax Authority has no shortage of information on foreign income. LHP Tax-Lawyers inform and advise on the automatic exchange of information

The automatic exchange of information is a particularly effective tool used by the Tax Authority to procure information. The Tax Authority does not have to request the respective individual information from a foreign country but rather automatically receives batches of information annually. This does not yet include all types of income. The significance of automatic exchange of information is however increasing constantly. Because the taxpayer only gains awareness of a report in hindsight, it may already be too late to submit a voluntary self-disclosure. This should be discussed on a case-by-case basis. The new legal situation and any possible estoppels should be considered. A discovery of the offence gives rise to an estoppel for a voluntary self-disclosure.

The automatic exchange of information is a particularly effective tool used by the Tax Authority to gain information. The Tax Authority does not have to request the respective individual information from a foreign country but rather automatically receives batches of information annually. This does not yet include all types of income. The significance of automatic exchange of information is however increasing constantly. Because the taxpayer only learns of the report in hindsight, it may already be too late to submit a voluntary self-disclosure. This should be discussed on a case-by-case basis. The new legal situation and any possible estoppels should be considered. A discovery of the offence may give rise to an estoppel.

Facts and information on the automatic exchange of information

The automatic exchange of information has been in place within the EU since 2005. LHP Tax-Lawyers inform about the significance, the scope of affected persons and the history of automatic exchange of information under the 2003 EU-Directive.

What is automatic exchange of information?

The automatic exchange of information is an effective tool to obtain administrative assistance. The foreign country reports certain tax-relevant information about German taxpayers to the German Central Authority for Taxes (Bundeszentralamt für Steuern). This authority then distributes the information to the responsible Tax Authorities. Vice versa, Germany provides administrative assistance to other countries in the same manner (principle of reciprocity).

Different regulations pertain to the automatic exchange of information: Depending on the country, different regulations may apply, but uniform standards apply within the European Union. Depending on the regulation, different types of income and information are part of the automatic exchange of information.

The issue is complex and the following regulations should be distinguished:

The EU Savings Tax Directive This regulation provides for either automatic reporting or an anonymous withholding tax to be applied (the withholding tax, which is a tax at source, is currently only permitted for Austria and Liechtenstein during a transitional phase until 2017/2018).
AIA/ OECD CRS: This is a new uniform standard for the exchange of tax information between participating countries and obligates financial institutions to report relevant information to the domestic tax authorities for the purpose of exchanging the same. The procedure for the global implementation of this OECD standard for the automatic exchange of information is called AIA.
EU Directive for Administrative Assistance Under this regulation, the EU will implement the new global OECD standard for the exchange of information in its procedural law. The new Directive on Administrative Assistance 2014/107/EU by the Council to modify the directive 2011/16/EU in respect of the obligation to automatically report taxation information was adopted at the ECOFIN-meeting on 9.December 2014 in Luxembourg and published on the website of the European Council.
FATCA: Under the FACTA-rules, financial institutions are obligated to disclose certain information about US-clients and their assets to the US Internal Revenue Service. The FACTA-rules are applicable if the USA has entered into a partner treaty with the respective country.

Example for the automatic exchange of information for capital income on the basis of the EU Savings Tax Directive: The Dutch bank X reports personal and account information of its clients to the domestic Dutch tax authority. This information is then reported to the German Central Authority for Taxes, if the client (or the beneficiary) is a resident of Germany. The local Tax Authority will be informed subsequently.

Who is affected by the automatic exchange of information under the EU Savings Tax Directive?

When did the automatic exchange of information under the EU Sales Tax Directive become law?

Which data are subject to the automatic exchange of information under the EU Sales Tax Directive?

What’s ahead?

In the future, further information on capital income and sources of income will be reported, in addition to the interest income mentioned above. Significantly more countries will participate in the exchange of information.

The AIA-procedure is a current issue: This is a new international standard in respect of the automatic exchange of information on income from bank accounts and investment portfolios. In October 2014 and on the basis of the new OECD/G20-standard, more than 50 countries signed an undertaking to implement an extended automatic exchange of information on capital income. These extended regulations will, depending on the country, become law between 2016 and 2018. By now, the governments of approx. 90 countries and other entities under international law have given political undertakings to implement the AIA-standard.