Group Enquiries

A group enquiry is a request by one country (requesting country, e.g. Germany) to another country (requested country). The particularity is, that the request may pertain to a number of taxpayers of the requesting country, but these taxpayers have not been identified individually at the time of making the request. They are rather defined by the common features specified in the request. The group members are identified by the entity holding the information (e.g. banks and other persons in the other country). The entire batch of group data is subsequently reported to the requesting country (e.g. Germany).

Example Austria: In 2014, German tax authorities requested the Austrian tax authorities to report the names and account details of German clients who invested a specified amount of capital at a specified date. This group enquiry was directed to the Austrian Federal Ministry for Finances (BMF), which is the responsible central authority for group enquiries. The Austrian BMF refers the request to the potential holders of such information, e.g. the central banking authority. The central banking authority will then in turn transmit the request to the individual banks and request a response. The banks then report the information available to them and identify the individual members of the group who match the specified characteristics. Finally, the information is reported to the German tax administration, which will conduct its own investigation.

Example Switzerland: The revised Swiss Administrative Assistance in Tax Matters Act (StAhiG) came into force on 1.8.2014. The StAhiG is the Swiss domestic legal basis for administrative assistance granted by Switzerland. This law provides for group enquires made under the standards resolved by the OECD-council in the summer of 2012 to be permissible. Despite these changes, so-called “fishing expeditions” will not be possible for matters from 2013 onwards. It remains to be decided, whether Germany will in fact submit group enquiries to Switzerland.

Note: Our tax-lawyer Dirk Beyer has discussed the practical issues relating to group enquiries in the periodicalNWB 2015, page 774.

The legal basis for group enquiries is Article 26 of the double tax treaty with the respective other country. This is however subject to Germany and the other country agreeing on the interpretation of Art 26 in this way. An agreement may be reached by revising Art 26 of the DTT or by a supplemental protocol for the interpretation of the DTT.

Requests must not be made for the purpose of so-called “fishing expeditions” (expressly noted in the commentary to Art 26 of the OECD model agreement). The request must thus include precise indicators which unequivocally point to tax fraud.

There are further requirements and limitations under German procedural law (the German law in this respect is the Tax Act (Abgabenordnung, AO). Group enquiries are structurally comparable to the German investigative measure “request for collective reporting”, which implies that the jurisprudence aiming at limiting requests for collective reporting applies correspondingly (our tax-lawyer Dirk Beyer in the periodicalNWB 2016, page 774, 776). This means, that a request for collective reporting and thereby also a group enquiry must be necessary in light of the circumstances. A request is necessary, if a sufficient grounds in the meaning of § 208 Sec 1 lit 1 no 3, § 93 Sec 1 AO are present, which means tax evasion is a suspected based on either

• precise indicators (e.g. due to the particularity of the object or the amount of value, the particularity of a transaction), or
• On the basis of common experience (also concrete experiences in particular areas)

(Compare with judgement by the Federal Fiscal Court - BFH - dated 16. 1. 2009 - VII R 25/08).

Because random investigations (including requests for collective reporting) are not permissible without sufficient reason (§ 208 Sec. 1 lit 1 no. 3, § 93 Sec. 1 AO ), “fishing expeditions” are also not permissible under German procedural law.

In our opinion, a German tax authority may only make a group enquiry if this is necessary, which means that a reason as explained above must exist (concrete facts/common experience in taxation inconsistency). It is, in our opinion, further necessary, that the group is defined sufficiently homogeneously, because a decision whether the concrete facts/common experiences exist can only be made on this basis.

It remains to be clarified by jurisprudence, which options of judicial remedies against group enquiries exist and if an appeal against the issuance of such group enquiries is provided for by law. Judicial remedies would require a

• differentiation, as to whether legal protection must be sought in Germany or in the foreign country, and the affected taxpayer would have to be informed beforehand to be able to seek judicial remedies
• before the German Tax Authority gains possession of the information (this duty to notify is currently discussed in Switzerland).

Additionally, a prohibition of exploitation may apply in respect of taxation or criminal proceedings. It all hinges on the circumstances of the individual case. The topic of group enquiries is a very recent one and as such yet unsupported by case-law. Under German law, a prohibition of exploitation does not follow from each and any erring in law. If the affected taxpayer was however prevented from seeking legal remedy due to a failure to notify him, this is, in our opinion, a significant argument in favour of a prohibition of exploitation.