New (German?) Tax Rules for Bank Accounts

Just got a letter from my accountant, so I thought I'd to a quick translation for your enlightenment, as Ex-Pats with accounts here will be affected.

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Automatic collation of capital returns and speculation profits from 01.04.2004 onwards.

due to various changes in law, all credit institutes are compelled by law to maintain files of all accounts, with names of holders and access entitled persons, and to make thes available to the Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin).

From 01.04.05 onwards, the taxation authorities also have the possibility to access these files and to assess at which credit institute any tax-payer holds accounts or depots, also backdated for previous years.

Further, the banks have to collate all capital returns and speculation profits in a new, legally required yearly statement. Which can also be examined by the tax authorities.

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Now what does this mean, apart from the obvious declaration of investments etc. which might not have been declared before?

It means they can directly see when and how much money goes into and out of an account held at a german bank. They can also see where the money came from or went to.

If you are resident here, you are supposed to declare all accounts, including foreign ones. However, bank secrecy rules meant they could not access your account particulars, unless you were under investigation and they got a court order to do this. So, if you didn't tell them about any other accounts, they were none the wiser.

Now they can just look and see, and if they see money coming from and/or going to accounts in the same name as the account holder, they will ask for "clarification".

I don't know how international the empowerment is, but I do know that the german tax authorities will converse with inland revenue and, as they just want our best (money that is), you can bet the inland revenue will be helpful (I know of cases from colleagues, where the tax authorities have been very helpful to each other, even before these changes). I also expect this regulation will be quite universal in Europe, to catch the money "floating" between various EU countries outside the tax system.

Looks like that new mattress I've bought's going to come in handy then

The assumes that one has actually made money speculating in the market!

I am wondering just how far this extends. For example if I sold property in UK while resident in Germany I wouldn't pay any capital gains tax in UK because I am non-resident, would the Finanzamt try to tax me here?

If they heard about the sale, yes. But fortunately the various national computer systems don't communicate with one another very well - yet!

Exactement, madam... Oops! Wrong language

Yes, the rules state that you pay tax on "all income" in the country where you are mostly resident. So if you have income from investments outside Germany and you live, work and pay tax here, you have to declare the foreign earnings too.

Up til now, if you didn't tell them, they didn't know. They may not find out, if you don't transfer any of the gains to an account here. On the other side, if the inland revenue get wind of your gains, and you tell them you are resident here, they may inform the Finanzamt of the fact.

This is not new in itself. Years ago, a colleague worked a few years "off the record" here. The Finanzamt found out about him while investigating a company he'd worked for and inquired of the Inland Revenue if he had been paying tax in GB and told them how much he had earned. The IR then came to him and gave him the choice of paying the T in GB at GB rate, or here at German rate (meaning he had to become resident here to do it, as the rates were more advantageous here at that time). Now that was only about 20K DM of tax (about GBP 5000 at that time). I assume the proceeds of your house sale will be considerably more

The advances in communication within the EU mean the exchange of info is easier, and the new rules mean finding out is easier too. If you transfer any more than EUR 10k onto your account here, they will definitely want to know where the money came from. If you transfer anything that looks like earnings on a regular basis onto your account they will want their share of that too.

What I don't know is at what point they stop considering a house sale as capital gain here -- It may be that, if you use the money to buy a house here, you don't have to pay any tax. The best thing to do is ask a Steuerberater, as tax law here is so complicated, very few really know all the ins and outs (not even the people at the Finanzamt).

This leads to "dealings", meaning the arguments an StB brings to bear are likely to hold ground, whereas if you go up against the FA yourself you will lose to their interpretation. You have to remember that a Steuerberater is literally a "tax advisor" or a financial lawer, as distinct from an accountant, or "Buchhalter".

It's a hypothetical situation as I'm not actually planning to do this at the moment, however, I have always thought it would be better to do it before moving back to the UK which I might do one day.
Perhaps we should all be opening accounts in Switzerland.

Won't work either, there are agreements to cover financial gains and transfers reporting throughout the EC and associated states, including CH, IoM, Ch Isles, etc.

All part of the fight on terror.

CH is a "virtual" member of the EU -- After all, it is entirely surrounded by the EU -- It just hasn't officially joined, although they are considering this, because of their traditional neutrality.

RMA: They don't yet communicate automatically, but they do communicate "manually" if a particular case gets flagged and it becomes "worthwhile" from a financial point of view. They won't bother about a couple of hundred, or even thousand, Euros here and ther, now and then. But if it's regular or a larger amount they will bother to ask and tell. The amounts which get flagged are a lot lower now than a few years ago, especially since they are pretty cash-strapped here.

Aside: I know from aquaintances "on the inside" that the Finanzamts are ordered to deal with declarations with arrears as quickly as possible, and put those with likely refunds on the backburner for as long as possible. Many put the wait down to "beamten Lethargie", but it is an active policy.

What about unearned income from renting property in UK? Often that is taxed at source.

Rebecca: Income is income. If you have income, and you live here, they expect you to declare it and pay your dues.

As already written: You should be addressing these questions to a "Steuerberater", as German tax law is very complex and the attitude of the finanzamts is very aggressive.

If you have already payed tax at source, this may be deductable, but then you'd still have to pay the difference if the tax here was more. I am not so sure you would get a refund if it was less, but a Steurberater might get you a tax-free concession on the amount.

The only time the authorities here will free you from a yearly tax return is if they realise you are doing it yourself, and they are getting to keep more of your money than they really are entitled to.

If your income situation is any more complicated than working for cash on the hand and paying cash to your mate for allowing you to sleep in his spare room, you really need a Steuerberater.

If you are officially gainfully employed, there are many concessions and allowances in tax law here. This starts with the cost of applying for a job, the trip to work, working equipment and special clothing, insurances, etc. You can even justify a "work room" at home under certain circumstances, which means you can set-off part of the rent and services, furnishings, a computer, professional publications, further education, etc, etc.

Believe me, YOU WILL NOT be able to negotiate this jungle yourself. If you claim something you are not entitled to, they will usually throw your complete return out, or make demands based on obscure interpretations of tax law.

I have been here over 20 years, and have a collection of correspondence, where they have tried it on, together with the answers my Stb has given them -- they backed off every time. For example:

When I moved from Cologne to Erft (borders on Cologne), I changed my Stb. The previous one sent a letter to the Finanzamt informing them he wasn't representing me any more. 3 days later, their first demand came floating in. I should send my yearly returns for the previous year within 2 weeks, or they would assess me!

This was mid January. Returns are normally not due until the end of April of the year following the business year. I had an extension notice, which allowed me an extra year to enter my returns.

Of course, they thought I had just stopped using a Stb, my old one didn't say he'd been replaced. Believe me, the letter my new one wrote was "interesting", eloquently, but literally, accusing them of bludgeoning and scare tactics, and questioning the legal basis of their assertions.

Be sensible, go to a Steuerberater.

A good one here will save you a multitude of what he costs, especially if you have multiple sources of income and "foreign" investments. I am more "au fait" with german tax law than many locals are, most expats are not! It is sensible to find a reasonably priced Stb, although most of their charges are fixed. It is just plain stupid to avoid paying one altogether.

We already have a Steuerberater who has been getting us refunds for several years but he hasn't sent us the scary letter that yours has.
I wasn't expecting you to advise me on how to do my tax return I simply thought the points I raised may be relevant to others reading this thread.

Rebecca:


Is a direct question as far as I can see. Even if you did not intend "doing it yourself", other readers might. So, in that point it is relevant.

Because a Stb is getting you refunds, does not mean he is getting you all the refunds you deserve -- as in all professions, quality does vary, some just go through the motions, others are pro-active. The first Stb I had here got the chop, after the Finanzamt informed me that I "must be" due more than he had claimed!

If you have foreign (from a german point of view) investments and/or income that is not declared here, your Stb should have informed you of this change, as it is quite a serious revision. In the letter from mine there was even the advice to make a "Selbstanzeige" on foreign assets/income not already declared here, to avoid punishing fines.

If your Stb has not informed you of these changes, and knows that you have foreign assets, then it may be that he has already declared them. If he doesn't know you have foreign assets, he should have asked -- it is not only foreigners who are affected, many germans have assets outside Germany exactly to avoid paying tax on them.

If he hasn't informed you and knows you have undeclared foreign assets, then I would question this, and consider finding a better Stb! I'd consider that anyway, for it would have been reasonable of him to assume you may very well have foreign assets, in which case, he should (have) warn(ed) you.

As with everything, much is dependant upon individual circumstance. Over the years, I have seen many expats (not just brits) in my aquaintance fall fowl of the fiscus here, some from laziness, others from cockiness, some from downright stupidity or plain ignorance. From that point of view, I would hope that some, who may be reading along, might be awakened to take appropriate action before they get caught out. The seriousness is not to be underestimated, the finanzamts have been waiting for this to be able to get behind all those "hiding" capital abroad.

Expats will be a prime target, as it is reasonable to assume that they may have capital abroad, even if it is only a house rented out, or a savings account. If it only costs them EUR 50 to find out, then 10k in the Halifax is going to interest them, never mind a house worth 50 or 100k.

Many rely on RMA's attitude: "They don't communicate well with each other..", followed by "So they won't catch on to me" or "I'm too small a fish...". Well that is exactly what has changed -- They do communicate, and they are in the process of making it easier for themselves to know when it is worth communicating. You can be rest assured, that the dragnet will be out as soon as possible, all they have to do now is look up your bank transactions and make a phone call.

I will just close this discourse with the following statement:

I did not write all this "just for the hell of it" or, for that matter "just for fun" -- I can think of much more fun things to write, and this IS a serious matter. If, however, it saves just one person from the clutches of the german (or other) fiscus, then it has had its value.

Just to clear up a point, first of all, I did follow the statement up with a "yet", which I should perhaps have set in "bold". And in any one of instance, it probably holds true.

That notwithstanding, I can only reiterate mike_a's statement, if you live here over a longer period of time, you need a Steuerberater, if for no other reason that if you don't have one, the Finanzamt will hit you with everything it can think of , whether it's right or not and without a Steuerberater, you'll have the devil's own job proving you're in the right. On the other hand, as also stated, if a Steuerberater prepares your tax return, the Finanzamt on the whole will not challenge it. This is a result of the fact that German tax law has become so complex and includes so many self-contradictions, that even experts no longer have any idea what is what. This results in the fact that the richest 10% or so of the population, who can afford the best Steuerberater and lawyers pay no tax. I've read a few times that of all the written documentaion on tax law in the whole world, 80% is German. Whether this is a typical Internet age self-perpetuating myth, I've no idea, but most German's I know believe it.

Unless you're prepared to put a lot of effort into it, (which assumes fluent German as a prerequisite), even if you have a normal job with nothing exceptional, your Steuerberater will save you more tax than he costs in fees! I've been here (on a permanent basis) since 1986, for nearly ten years after that I still had a house in England but because I always had a Steuerberater there was never any problem.

The employees of the Finanzamt are actually legally required to give the best possible tax advice to people who request their assistance, but anybody who thinks that in times of near bankrupt "Gemeinden", an employee of the Finanzamt with one eye on promotion is going to go out of his way to help a foreigner who doesn't speak very good German and who he can assume has no idea of German law, is not just naive but stupid!