Trouble with the tax office?
For entrepreneurs in Germany - Save yourself the trouble with the tax office with these 3 tips. (Part 1 of 3)
In my experience, many clients are often surprised by the tax office during tax audits. This is particularly the case in a cross-border context. However, it is often just a matter of formalities. If you pay attention to these, you can save yourself a lot of trouble with the tax office.
The article is divided into 3 parts. Don’t miss out on any tips and sign up for my free newsletter today.
Tip 1: Disclosure obligations for foreign shareholdings
Domestic taxpayers must notify their competent tax office of circumstances that have a connection to foreign countries. This includes, for example, the establishment of foreign permanent establishments or the acquisition of shareholdings in foreign companies.
What do you have to report?
- Establishments and permanent establishments abroad that were founded or acquired
- Investments in partnerships abroad that were acquired, discontinued or changed.
- Investments in companies abroad that were acquired or sold (minimum investment of at least 10% or acquisition costs > EUR 150,000)
- The fact that you alone or together with related parties can exercise a controlling influence over the affairs of a third country company
- the type of economic activity of the business, permanent establishment, partnership, corporation, association of persons, estate or third-country company abroad.
How and by when do I have to report?
In general, the notification must be submitted together with the tax return, namely in the tax return for the year in which the event took place. However, the notification must be submitted within 14 months of the end of the year at the latest. The deadline is therefore no later than 28.2. or 29.2. of the year after next. It is not possible to extend the deadline for the notification. This is therefore a “hard” deadline.
Here is an example for a better understanding: A foreign investment was acquired in June 2019. The notification must be received by the tax office by the end of February 2021 at the latest.
The notification must generally be submitted electronically to the tax office. However, as things currently stand, the technical requirements at the tax office are not yet in place, meaning that the form “Vordruck BZSt-2” must still be submitted.
What happens if the report is not made?
Failure to notify the authorities is an administrative offense. This can be punished with a fine of up to EUR 25,000. In the case of reckless tax evasion, the fine can even be up to EUR 50,000.
To save yourself this hassle, it’s definitely worth reporting it.
Please note: Although the legal situation is not clear, the tax authorities also require notification of acquisitions of indirect shareholdings. To avoid a dispute over a fine, notification is therefore also recommended for indirect acquisitions.
Practical tip:
Have you forgotten to comply with your reporting obligations? Then I recommend that you make up for it. In my experience, it is better to make the notification yourself before a tax auditor finds out on their own.
I am often asked whether the tax office needs this information at all. The answer is simple: it is required by law, so it is your obligation to report it. In addition, the formation of a foreign company is usually also shown in your balance sheet. It is therefore not secret information – quite the opposite.
Save yourself the trouble and the possible fine and file the report if you are affected.
The article uses simple language for better understanding and is also abbreviated with regard to the individual conditions required by law. An individual examination in your case is therefore recommended.
Please feel free to contact me!
For further reading:
The duty of disclosure arises from Section 138 (2) of the German Fiscal Code. The consequences of a breach of duty are regulated in Section 379 (2) no. 1 of the German Fiscal Code.
Disclaimer
This article does not constitute legal or tax advice, but is for general information purposes only. Every situation is individual, so I always recommend professional advice to avoid tax disadvantages.
Last updated 19.05.2021
