Focus Dubai: Germany buys tax CD with tax-relevant data from the Emirate of Dubai

I. Initial Situation: Focus on Dubai – German Tax Authorities Buy Tax CDs (Again)

According to various press reports from June 11, 2021, the Federal Central Tax Office (BZSt) has purchased a CD containing information on tax-relevant facts relating to the Emirate of Dubai. The purchase on February 10, 2021 has meanwhile also been confirmed by Federal Finance Minister Olaf Scholz.

The data provided insights into assets that had been hidden from the reach of the tax authorities in the Gulf emirate. Millions of taxpayers are affected, including thousands of Germans who own land and real estate in Dubai, among other things. It is hoped that the purchase will help to uncover cross-border tax crimes of considerable magnitude.

This means that the Federal Central Tax Office may have data from Dubai on German taxpayers who have not, or not completely, subjected tax-relevant facts to taxation in Germany.

These can be in particular:

• Income subject to tax in Germany but not taxed, with which assets in Dubai, in particular land and real estate, were acquired
• Investment income from investments with financial institutions in Dubai
• Proceeds from the sale of non-cash assets (e.g. real estate) in Dubai
• Rental income from real estate in Dubai
• Other income subject to tax in Germany that was transacted via Dubai (e.g. remuneration for matters subject to tax in Germany that was paid in Dubai)
• Inheritance or donation of assets in Dubai

II. consequences

The data were assigned by the BZSt to the respective supreme tax authorities of the federal states. On June 16, 2021, the Federal Central Tax Office transmitted the data from Dubai to the federal states for criminaltax audits. As a result, a reconciliation with the respective tax data is to be expected and a check whether tax-relevant facts have been declared correctly in Germany. It is conceivable that these data will (also) be evaluated centrally by a task force (as was also the case with the purchases of CDs in Switzerland cases).

If corresponding income, sales or asset transfers have not been properly declared for tax purposes to date, there is a considerable risk that the tax authorities will assume that tax evasion is a criminal offense and will initiate corresponding investigation proceedings.

In addition to the payment of back taxes, there is then the threat of additional sanctions ranging from fines to imprisonment.

III. recommendations for action

Therefore, there is an urgent need for action for taxpayers who have so far provided incorrect information on income, sales or asset transfers related to Dubai in their tax returns or have not declared them at all. With the purchase and analysis of tax CDs from Switzerland, the tax authorities have already shown that they are able to process mass cases quickly.

The press releases that have now been issued should also be seen as an indication of the need for action on the part of taxpayers and thus as a “golden bridge” back to tax honesty. Therefore, previously undeclared income, sales or asset transfers related to Dubai (and other sources of income) should be reported without delay – in order to minimize criminal law risks.

In principle, such a subsequent notification should be designed in such a way that it also fulfills the strict formal requirements for a voluntary disclosure exempting from penalties or fines. In this respect, case law and legislators have considerably tightened the requirements in recent years, so that specialists should be involved in the preparation of the letter.

As long as no comparison of the purchased data with the tax returns of the persons concerned has taken place, we do not believe that the tax authorities have yet discovered any crime. In principle, it would still be possible to file a voluntary disclosure in order to avoid prosecution.

However, the longer taxpayers wait now, the more the risk increases that a voluntary declaration exempt from prosecution is blocked, e.g. due to the discovery of an offense or the initiation and disclosure of preliminary proceedings. Even if, in individual cases, a crime has already been discovered, in practice a late voluntary disclosure also leads to considerable reductions in penalties and even to the discontinuation of preliminary proceedings.

KPMG Law has a nationwide team of highly specialized criminal tax lawyers with very high expertise and experience in cross-border matters (in particular voluntary disclosures of foreign accounts and foreign assets). We are happy to provide short-term support in discussing and implementing a protection strategy in a specific case.