14.08.2019 | KPMG Law Insights

Automatic exchange of information – millions of tax data evaluated for the first time

Due to the automatic exchange of data on financial accounts between Germany and international tax authorities, which has been taking place since 2017, German authorities have had millions of data records for years. Now, for the first time, the technical means for evaluation are available.

I. Background
In recent years, the German tax authorities have received more than 10 million data records as a result of the automatic exchange of data with other countries. This also includes data from countries such as Switzerland, Liechtenstein, Luxembourg and Israel. The multilateral agreement on the automatic exchange of information on financial accounts between international tax authorities in accordance with the OECD’s common reporting standard was signed in 2014. The first data exchange took place between Germany and 50 countries worldwide from 2017. Information such as account holders, account balances and income such as interest, dividends and capital gains are exchanged. The background to the exchange of information is the effective combating of international tax evasion.

II. evaluation of substantial data sets
According to a report in “Welt am Sonn-tag,” the tax authorities have begun to evaluate the data sets obtained in recent years through the exchange of information. For the first time, the necessary software for data reconciliation will be available to the tax authorities. This allows the records to be filtered and assigned to domestic taxpayers according to their tax identification number. Subsequently, the data is to be distributed to the locally responsible tax offices, which will then cross-check the information with the tax files to determine whether the foreign income has been accurately reported and taxed on the corresponding tax returns.
In this context, the tax offices can pursue transactions dating back up to ten years, provided that income was intentionally concealed. According to the report, in cases where the data reconciliation reveals that foreign accounts have not been properly declared, the tax offices will contact the taxpayers directly and ask them to declare the corresponding amounts. “In cases of doubt, taxpayers will have the opportunity to adequately clarify the facts,” the Bavarian State Ministry of Finance told Welt am Sonntag. According to the report, the states decide for themselves when to send out the first letters. In Lower Saxony, the first letters are to be sent to those affected before the end of August, and in Rhineland-Palatinate and Baden-Württemberg from September. In addition, according to the “Welt am Sonntag” newspaper, citing the Baden-Württemberg Ministry of Finance, these sample letters to taxpayers should include a reference to the possibility of self-disclosure.

III. Possibility of a voluntary declaration exempting from punishment
Any person who knowingly conceals taxable income in Germany when filing his tax return commits intentional tax evasion pursuant to Section 370 AO. Willful tax evasion is a criminal offense in Germany punishable by a fine or imprisonment of up to five years, and in serious cases from six months to ten years.

IV. Urgent need for action
For those affected, there is an urgent need for action. With an exempting voluntary declaration, which is still made in time, there is the possibility to find the way back to tax honesty and thus to avoid punishment. Waiting, on the other hand, entails considerable risks, since the voluntary disclosure is generally blocked if the offense is discovered. Even if a voluntary disclosure is no longer possible due to the discovery of the offense, voluntary cooperation in the clarification of the facts is regularly considered a mitigating factor.
In any case, rash action is strongly discouraged. Instead, it is advisable to consult an expert with relevant knowledge.
KPMG Law, in cooperation with the tax experts of KPMG AG Wirtschaftsprüfungsgesellschaft, offers comprehensive and solution-oriented advice on the correction of tax returns or voluntary disclosures in connection with domestic and foreign income. The advice combines the tax law expertise of KPMG AG Wirtschaftsprüfungsgesellschaft and our criminal tax law expertise from many years of practical experience. If a voluntary declaration is no longer possible, we are available to you as experts with comprehensive advice and professional representation and defense before the authorities and the courts.

Feel free to contact us with any questions you may have on these topics.

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Dr. Heiko Hoffmann

Munich Site Manager
Head of Criminal Tax Law

Friedenstraße 10
81671 München

tel: +49 89 59976061652

Arndt Rodatz

Head of Criminal Tax Law

Fuhlentwiete 5
20355 Hamburg

tel: +49 40 360994 5081

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