BMF issues guidance on reporting requirements on foreign investments

The German Ministry of Finance (BMF) recently issued guidance on the interpretation of a rule in the General Tax Code, according to which German tax resident taxpayers must report the incorporation and acquisition or closedown and divestiture of foreign investments, including

• businesses,
• permanent establishments,
• partnerships, and
• corporations or other entities or estates (provided the German resident holds directly at least 10% or indirectly at least 25% of the corporation or the total acquisition cost of the participations in all corporations is more than EUR 150,000).

If a taxpayer fails to comply with the information reporting requirements within one month after the triggering event (e. g. the acquisition or sale) by not reporting foreign investments, by submitting an incomplete report or by failing to report the investments in a timely manner, the tax authorities may impose a penalty of up to EUR 5,000. In its guidance, the BMF published a mandatory form for the reporting which can be downloaded from http://www.bzst.bund.de. Information on the foreign investment, such as the address and legal form, also must be provided. Some exceptions from the reporting obligations apply to financial institutions and assurance companies.

The guidance also confirms the view that non-German partnerships with two or more German resident partners must submit a partnership tax return in Germany. In these cases, the partnership may take responsibility for informing the tax authorities on behalf of the partners about their investment. If the partnership fails to inform the tax authorities, however, the obligation remains on the investor.

Since the reporting obligations imposed by the General Tax Code are already long-standing law, the BMF guidance appears to coincide with the tax authorities’ goal of collecting information on and monitoring cross-border transactions. The authorities are likely to strictly enforce compliance with these information requirements in the future.

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