Germany’s federal states want to take tougher actions against tax avoidance schemes. In recent years, major US companies such as Apple, Amazon and Google have minimized their tax payments thanks to complex tax models. But many wealthy German citizens have also used such complicated constructs. Often, this is entirely legal because the practices are designed to exploit loopholes in the state’s tax system.
That is why the 16 finance ministers of the German states are determined to close these loopholes. On Thursday, they will discuss a law which would make a disclosure of tax-saving models mandatory nationwide. Handelsblatt got an exclusive look at key points of the proposal, which was submitted by Rhineland-Palatinate and Schleswig-Holstein.
Social Democratic party politicians, whose party has become the junior partner in the just agreed coalition government, hope that the SPD politician Olaf Scholz will be their ally in this struggle as the new finance minister. “We must further intensify the fight against tax fraud and tax avoidance,” demanded Rhineland-Palatinate Finance Minister Doris Ahnen. “The primary objective of a tax reporting duty is to provide the tax legislator with a timely opportunity to react to significant and especially budgetary tax arrangements,” the finance ministers said in a statement.
The move comes after the SPD gave the green light for a revival of a grand coalition with Angela Merkel’s Christian Democratic Union and its Bavarian sister party, the Christian Social Union. In their coalition deal, the parties agreed that tech giants should pay more taxes. “We support fair taxation of large companies, in particular, internet concerns like Google, Apple, Facebook and Amazon,” it said.
Amazon and other tech giants are primarily taxed at the European level, where efforts are underway to make sure they do not avoid taxes by setting up their European subsidiaries in countries that offer preferential corporate tax rates.
According to the proposal now on the table in Germany, tax lawyers or tax consultants would have to report loopholes they used to help their customers save money, to the German tax authorities. The German legislative proposal goes beyond what the European Union had introduced last year. The German federal states argue regulation is also necessary on a national level.
“We support fair taxation of large companies, in particular, Internet concerns like Google, Apple, Facebook and Amazon.”
While the EU focuses on cross-border tax-saving models and applies a duty to disclose income tax, the proposal by Rhineland-Palatinate and Schleswig-Holstein goes further: “From the perspective of the states, the inclusion of inheritance and gift tax as well as real estate transfer tax should be looked at closely,” the statement said.
The disclosure duty should be limited to “especially meaningful cases” to keep the additional hassle for all parties involved low, the ministers argued. However, all tax models through which someone obtains a tax advantage should be subject to notification. Rhineland-Palatinate also wants to create a blacklist that makes known and unwanted tax constructs public.
Not everybody is on board with the new proposal. Several members of the CDU/CSU want to wait for a final decision on the European level before further steps on a national level are taken. The EU finance ministers may reach an agreement at their meeting next Tuesday.
The acting German Finance Minister Peter Altmaier received a letter from the Hessian finance minister Thomas Schäfer, in which his fellow CDU colleague urges for changes to the proposal. Although he supports a duty of disclosure, wrote Schäfer, care should be taken to ensure that the additional work for citizens, tax consultants, businesses and authorities remains reasonable.
He added that it was important that providers and developers of tax avoidance models are notifiable and only in exceptional cases should the taxpayers themselves be involved. His letter came as the proposal brought forward by the European Commission foresees that the taxpayer who saves money with the help of tax avoidance schemes must also be mentioned by name. Due to confidentiality rules in Germany, the taxpayer would, therefore, be obliged to do the notification personally. “This must be prevented in any case,” said Mr. Schäfer.
Jan Hildebrand, who leads Handelsblatt’s financial policy coverage, and Martin Greive in Berlin wrote this story for Handelsblatt. Stephanie Ott in New York City adapted this story to English for Handelsblatt Global. To contact the authors: firstname.lastname@example.org, email@example.com and firstname.lastname@example.org.