Implementation of the DAC 6 EU directive in Germany as an early warning system to identify tax avoidance

Following the EU directive DAC 6, rules to report cross-border arrangements have been implemented in German law in Section 138d ff. of the German general tax code that will come into effect as of 1 July 2020. Since non-compliance can be sanctioned with multiple fines of up to 25,000 Euros, it is advisable to know about the basic rules and, if applicable to you, to ask us for details. 

Under that directive any person that designs, markets, organises or makes available for implementation or manages the implementation of a reportable cross-border arrangement is an intermediary. An intermediary can be either an individual or a company (i.e. accountants, advisers, lawyers, banks, etc.). However, in some situations, the obligation to report the arrangement shifts to the Relevant Taxpayer, e.g. when an intermediary is a non-EU intermediary, when no intermediary is involved or when the taxpayer is notified that an intermediary has the right to a waiver due to legal professional privilege. The latter applies to Benefitax as German public audit company. 

Taxpayer in this meaning can be any private individual, corporation or partnership for 

a) whom an arrangement has been prepared, 

b) who is ready to implement the arrangement or 

c) who has made the first step to implement the arrangement. 

The deadline to report is 30 days after one of these three conditions has happened. Moreover, the arrangement has to be reported in the annual tax declaration of the year they have a tax effect.

An arrangement will be reportable if it meets at least one of the Hallmarks. For Hallmark categories a, b and certain elements of category c, an arrangement will only be reportable if it is also captured by the so-called ‘Main Benefit’ test. This test means that one of the main objectives of the arrangement is to obtain a tax advantage. It is possible to prove that other reasons have been the main objective. 

The new rules will be applied from 1 July 2020 to all reportable arrangements occuring after 30 June 2020. However, this will be applied retroactively to all reportable arrangements for which the first step has been made after 24th. June 2018, but implementation was before 1st. July 2020. Therefore it is advisable to start checking and documenting now in order to prepare yourself.