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Germany is putting pressure on dubious tax arrangements

On 25 June 2018, the EU Directive 2018/822 on the automatic exchange of information in the field of taxation with respect to notifiable cross-border transactions came into force. This directive serves to detect aggressive tax arrangements and must be transposed into national law by the EU Member States by 31 December 2019 at the latest.

In Germany, a draft law is currently under discussion which provides not only for the reporting obligation for cross-border but also for purely domestic tax arrangements. According to the content of this draft bill, for example, the targeted acquisition of loss-making companies, certain cross-border payments between associated companies, arrangements bypassing the regulations on the automatic exchange of information and also arrangements with legally or economically opaque ownership relationships are defined as transactions subject to reporting requirements.

Tax evasion through the use of letterbox companies

In this respect, further tightening of the legal situation is to be expected, which is in line with, for example, the current criminal sanctioning of the use of so-called letterbox companies. According to Art.?370 of the German Tax Code (Abgabenordnung), anyone who reduces taxes or obtains unjustified tax advantages by using a third country company over which he or she can directly or indirectly exercise a controlling or determining influence, alone or together with related parties, for the purpose of concealing significant tax facts, is punishable by imprisonment for up to 10 years.

Tax distinction for foreign family foundations

A review of investments in what are termed foreign family foundations is again also gaining in importance in this context. Pursuant to Art.?15 of the Foreign Tax Act (Aussensteuergesetz), the assets and income of a family foundation which has its management and registered office outside the Federal Republic of Germany are attributed to the founder or the persons entitled to receive or accumulate income, and are subject to income taxation in Germany (transparent family foundation). Such an allocation of assets and income for tax purposes is only waived if, among other things, it is proven that the founder or the persons entitled to receive or accumulate income (Art.?15 (6) of the Foreign Tax Act – opaque family foundation) are legally and actually deprived of the power to dispose of the foundation?s assets. When using a transparent family foundation, the German tax authorities also regularly assume deliberately punishable conduct, since it must at least be obvious to any taxpayer that the use of such a tax structure may very well have an impact on domestic taxation.

The examination of such family foundations and cross-border arrangements under Liechtenstein law are part of the daily work of ECOVIS colleagues from Liechtenstein and Germany.


Alexander Littich LL.M., lawyer, tax lawyer, specialist in criminal law, ECOVIS L + C Rechtsanwaltsgesellschaft mbH, Landshut, Germany

Dr. Janika Sievert LL.M. Eur., lawyer, tax lawyer, specialist in criminal law, ECOVIS L + C Rechtsanwaltsgesellschaft mbH, Landshut, Germany

Thomas Hosp LL.M., auditor and tax advisor, ECOVIS Kanzlei Magister Thomas Hosp, Schaan, Liechtenstein

Ecovis is a leading global consulting firm with its origins in Continental Europe. It has over 6,500 people operating in over 70 countries. Its consulting focus and core competencies lie in the areas of tax consultation, accounting, auditing and legal advice.

The particular strength of Ecovis is the combination of personal advice at a local level with the general expertise of an international and interdisciplinary network of professionals. Every Ecovis office can rely on qualified specialists in the back offices as well as on the specific industrial or national know-how of all the Ecovis experts worldwide. This diversified expertise provides clients with effective support, especially in the fields of international transactions and investments – from preparation in the client\-\-s home country to support in the target country.

In its consulting work Ecovis concentrates mainly on mid-sized firms. Both nationally and internationally, its one-stop-shop concept ensures all-round support in legal, fiscal, managerial and administrative issues.

The name Ecovis, a combination of the terms economy and vision, expresses both its international character and its focus on the future and growth.

Posted by on 26. June 2019. Filed under Internet. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry

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