Guidelines on the Application of the Tax Haven Prevention Act
In a letter dated 14 June 2024, the Federal Ministry of Finance (BMF) set out the principles governing the application of the Tax Haven Prevention Act (StAbwG).
The aim of the legislation, which came into force on 1 July 2021, StAbwG it is tax abuse by non-cooperative jurisdictions to prevent this and to crack down on tax havens. The tax jurisdictions classified as non-cooperative for the purposes of the StAbwG are published in the regularly updated Tax Haven Countermeasures Ordinance (StAbwV). The current version of this Order, dated 1 November 2023 (BT Drs. 559/23), lists A total of 16 countries and territories on the blacklist (the EU blacklist) – including, for the first time, Russia – are listed.
The background to this is that countries and territories which do not comply with international tax standards jeopardise tax fairness and tax revenue. The internationally coordinated approach to combating harmful tax practices is therefore an essential component of Creating a level playing field and also benefits the German business community and the companies operating here. The focus of the Europe-wide coordinated Defence measures and increased obligations to cooperate In this respect, both Legal entities, associations of individuals and estates, as well as natural persons, the Business relationships or shareholdings (business transactions) maintained in or in connection with these areas.
In the 34-page administrative circular, the Federal Ministry of Finance (BMF) explains, in particular, the business transactions concerned and, amongst other things, sets out its position on the proposed defensive measures.
- The business transactions concerned
The preventive measures and obligations to cooperate relate to business transactions within the meaning of Section 7 of the StAbwG. This covers all business transactions that have a connection with a non-cooperative tax jurisdiction. This includes in particular, payments flowing out of (outbound) or into (inbound) non-cooperative tax jurisdictions.
- The defensive measures to be implemented in stages
The ones in the Sections 8–11 of the StAbwG Regulatory defensive measures are, in principle, to be applied from 1 January of the following year after a country has been included on the blacklist of non-cooperative countries (inclusion in the StAbwV is decisive).However, under the regulatory framework of the StAbwG, certain measures are only to be applied with a time lag of two or four years from the date of inclusion in the StAbwV. In this regard, the Federal Ministry of Finance (BMF) has clarified that the relevant tax jurisdiction must remain listed in the StAbwV at all times until the later date of application.One example of the defensive measures provided for by law is the prohibition on the deduction of business and income-related expenses under Section 8 of the StAbwG, according to which business and income-related expenses arising in connection with business transactions in these territories may no longer be claimed for tax purposes.
- The increased obligations to cooperateAfter Section 12(1) of the StAbwG Taxpayers also make decisions regarding the Obligations to cooperate under Section 90 of the German Fiscal Code (AO) as well as an increased duty to cooperate.In this regard, the StAbwG contains a list of record-keeping obligations which must be fulfilled no later than one year after the end of the financial year and submitted, without being requested to do so, to the locally competent tax office and, in cases where the conditions of Section 138a of the General Tax Code (AO) are met, to the Federal Central Tax Office (BZSt). These additional obligations include, in particular, records of the business relationship, the underlying contracts, the functions performed, the business strategies and the market and competitive conditions.
In the event of a breach of the enhanced obligations to cooperate, in accordance with Section 162(2), third sentence, of the German Fiscal Code (AO) It is presumed, subject to rebuttal, that income taxable in Germany arising from non-cooperative jurisdictions has not been declared or is higher than declared. Furthermore, in the event of an inexcusable or more than minor breach of the enhanced obligations to cooperate pursuant to Section 162(4a) of the German Fiscal Code (AO), surcharges pursuant to Section 162(4) AO shall be imposed.
- Relationship between the StAbwG and existing double taxation agreements
Pursuant to Section 1(3) of the Austrian Tax Avoidance Act (StAbwG), the benefits arising from double taxation agreements are denied, which further reduces the tax attractiveness of business relationships with these territories.This provision will become particularly significant following Russia’s recent inclusion on the blacklist, as – unlike the vast majority of other non-cooperative states – a double taxation agreement is in place with Russia.
Conclusion
The StAbwG is an important step towards combating tax avoidance strategies and ensuring fair taxation. Businesses and individuals should familiarise themselves with the new regulations and review and adapt their business relationships accordingly.
If you are unsure whether you have declared your income correctly for tax purposes, or if you are concerned that proceedings may be brought against you, Criminal proceedings could be initiated, our Specialist lawyers for tax law and Tax consultant We’re happy to be of assistance.