Following on from our part 1 summary on the various changes in German law scheduled for 2016, find out about FATCA, CRS and the implementation of the Transparency Directive.
Banking and Capital Markets - Structured Finance
- FATCA: required US-related reporting
In 2013, Germany and the US agreed to the Foreign Account Tax Compliance Act (FATCA) with the first FATCA-related report out on 31 July 2015. In short, FATCA is an anti-avoidance tax measure and designed to prevent US citizens from hiding income and assets overseas. Under FATCA regulations, German residential financial institutions with reference to the US are obliged to register themselves with the German Federal Central Tax Office and with the US Internal Revenue Service (IRS). These companies must appoint a responsible officer to take care of filing the required reports.
The German residential financial institutions report specific data on their bank accounts to the German Federal Central Tax Office at latest by 31 July of the following tax year. This data is automatically forwarded by the German authorities to the IRS. Failure to comply with FATCA requirements result in a 30% withholding tax on certain US source payments.
- CRS – Common Reporting Standards
On 31 December 2015, the German Act for Standard for Automatic Exchange of Financial Account Information (FKAustG) came into effect. The aim of the automatic exchange of financial account information is to avoid cross-border tax fraud and evasion. This Act implemented the Common Reporting Standards (CRS), which was developed by the Organisation for Economic Co-operation and Development (OECD), with G20 countries and in close cooperation with the EU. Meanwhile, to date, 97 countries have shown intentions to adopt the Standard for Automatic Exchange of Financial Account Information.
German residents affected by CRS will need to provide specific data on their financial accounts to the German Federal Central Tax Office. The first report will be filed for the 2016 fiscal year by 31 July 2017, and then annually by 31 July. The legal basis for CRS is FATCA, however there are some differences between FATCA and CRS. The question for applicability depends on whether or not the residential state and tax office has signed a contract with the foreign tax authority requesting financial information. Those obliged to file reports must only register with the local tax authority, and not with the IRS. No responsible officer is required. Failure to comply with CRS may result in a fine of EUR 50,000.
- Implementation of the Transparency Directive (2004 /109/EG) into national law
The implementation of the EU Transparency Directive into German law in November 2015 led to changes to the Securities Trading Act (WPHG), causing various new notification duties as well as increased sanctions for violations of these duties. The thresholds which trigger notification duties on the acquisition or sale of shares which grant voting rights are set by a German issuer. They are no longer calculated on the level of each company, but are consolidated on a group level. If the parent company files a respective notification, the affiliated companies are relieved from their duty to file a notification.
The effective date for notification duties on the sale or the acquisition of shares has been brought forward. While previously the notification duty was triggered with the actual settlement of a deal, according to the new legislation, the duty is triggered with the trade of the shares even if the transfer is still pending. Another change imposed is the abolition of mandatory quarterly reporting for issuers of securities that are admitted to a regulated market. The deadline for the issuance mandatory semi-annual reporting has been extended from two months to three months.
Amendments in legislation also lead to tighter sanctions for the non-filing of notifications. Fines that have been imposed have increased drastically; corporations can be penalised up to Euro 10 million or as much as 5% of annual turnover. The German federal financial supervisory agency (BaFin) is obligated to publish its decisions to impose sanctions on its website, naming affected persons or corporations ("naming and shaming"). The changes also lead to an extension of potential notification duty violations, which can result in a temporary loss of shareholder rights.
An additional notification duty had been imposed on all issuers whose securities are admitted to trading on a regulated market, and have chosen Germany as home member state. As of 26 November 2015, they must publish this decision immediately.
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