The Supreme Tax Court has rejected a tax auditor demand for details of payments to or from bank customers in order to facilitate checks on their tax honesty.
The bank secrecy provision of the Tax Management Act precludes random searches by the tax auditors of a bank's customer accounts and records, particularly as a means of checking on the customers rather than on the bank. Some years ago the Cologne tax auditors had the idea of circumventing this prohibition by requesting transcripts and analyses of the payment control accounts. Their thinking was that a control account, being an internal account of the bank, did not enjoy the secrecy protection accorded to the personal accounts of customers.
The case before the Court was brought by a bank resisting a tax auditor demand for details of all cash payments in and out and of all transfers to and from accounts of the bank held with institutes abroad as well as the movements on the accounts held by the bank for its foreign subsidiaries. The tax auditor had made no real effort to conceal that her real aim was to gather details of transactions by the bank's customers with Luxembourg with subsequent notification of their tax offices in mind. The tax office did state during an earlier hearing that the information was needed to check whether the bank had complied with its obligations to identify its customers and to name their accounts correctly, but the Court clearly did not believe that assertion as being anything other than an attempt to disguise a manoeuvre to obtain material for use solely against the bank's customers. That objective was not, however, covered by a tax audit order against the bank. Whilst information legitimately obtained during a tax audit could be used against other parties, it had to be legitimately obtained in furtherance of a legitimate audit objective relevant to the bank itself. In the case at hand, there was no indication of any such objective in general terms, and there could not have been any specific suspicions from the auditor's work to date, since the request was made at the start of the audit and before the field work proper had commenced.
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