TAX NEWS - DECEMber 2009

Germany Tax: Update on reporting requirement in Act to Combat Tax Evasion

The new Act to Combat Tax Evasion imposes certain reporting obligations on taxpayers and includes a rule, according to which withholding tax relief for payments made to a nonresident entity will be granted only if the foreign company discloses the tax residence of each of its individual shareholders who directly or indirectly hold more than 10% of the shares in the company. The disclosure obligation only applies where the direct or indirect shareholders are resident in a "noncooperative" jurisdiction and failure to comply with the disclosure obligation may result in a denial of withholding tax relief even if all other requirements are met (including the tightened substance requirements under the anti-treaty shopping rule).

According to the definition in the law, a jurisdiction will be deemed to be non-cooperative if it has not concluded a tax treaty with Germany that contains an article corresponding to article 26 of the 2005 OECD Model Treaty, or a tax information exchange agreement or has otherwise failed to exhibit a willingness to exchange information. Contrary to the announcement in the statutory regulation to the Act to Combat Tax Evasion, the tax authorities have not yet published the list of non-cooperative jurisdictions ("black list"). It is unclear whether the absence of the blacklist means that taxpayers still have to comply with the full disclosure obligations and whether the tax authorities are entitled to deny withholding tax relief if the disclosure obligations are not met. If this is in fact the case, companies effectively would always need to disclose information on their direct or indirect shareholders when obtaining withholding tax relief either to comply with the rule or demonstrate that the exception applies. According to informal sources, official guidance is currently being discussed at the tax authority level that would confirm that the additional disclosure obligations will only need to be met once a black list has been published. Taxpayers should closely monitor future developments.