Taxation of Currency transactions

13 posts in this topic

I tried to find something on this... No luck...

 

Background..

I have some bank accounts in the UK, I have some cash in there and I get an old pension type thing paid in to one of them. 

 

Due to the whole pound falling thing, I thought I would take some of my savings and play with a currency account or two.

HSBC offer them, so it is possible ot have 3 accounts (pound, euro, dollar) and transfer between them fee free. I thought it would be fun to see how much cash I can make.. Won't be a lot, if any..

Issue is, to open the account they ask for where I am resident for tax purposes and what my income is...

These kind of questions make me suspicious...

If I were to make any money on playing with the currency in my account, I guess it would be ok to pay the tax the UK?

If so, do I only have to declare my income in the UK, and not have to inform them about what I earn here?

 

Cheers...

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Think again.

You are taxable with your worldwide income in Germany.

 

If you look into §23 Absatz 1 Nr. 2 EStG and into this newspaper article you will see that if you kept the foreign currency for less than a year and made a profit, you will have to declare that profit in Anlage SO and tax it with your personal income tax rate (not with the flat rate tax rate Abgeltungsteuer 25% with which capital income is normally taxed).

If you make that profit by selling the foreign currency after more than a year, the profit is tax free.

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33 minutes ago, PandaMunich said:

It means that people can no longer hide interest income from the Finanzamt, since 101 countries share information on accounts in their jurisdictions with the German Finanzamt.

Hide is a big word. With €100,000 savings account abroad and 0,1% interest you talk about €100 ^_^.

 

As a side note: In each Bundesland you find different IT systems for the Finanzamt. What does that mean? Well, suppose I move from Munich to Hamburg, then the Finanzamt in Munich will print out my dossier and send it by mail to Hamburg. There, they will type in the data manually in their different IT/ERP-system. When I saw this on television recently, I almost fell off my couch, so how do they want to share data with 101 countries? Their processes date back to the 1990s.

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  1. this is not only about interest, but about any kind of capital income, i.e also about dividends or the profit from selling shares.
  2. it's the German banks who report their data to the Bundeszentralamt für Steuern, not the Finanzämter. 
    In turn, the Bundeszentralamt is the interface for the foreign tax departments who report non-German capital income of German residents to Germany. The local Finanzamt then gets fed this data by the Bundeszentralamt, so the Finanzämter are strictly data users, not data providers.
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PandaMunich, this is really very useful to know. I just hope that although info is share about ALL the people involved, I just hope that Finanzamt will pay attention to the top x% of earners, and that I am not in the x:-))

 

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What happens of you pay tax on your overseas holdings there where they are held?

The last time I checked with an accountant (last week) they said that if you pay tax where it is held, you do not need to pay tax here.

However... Not sure...

 

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He/she is wrong, Germany was very careful to put the rule that the worldwide capital income has to be taxed in the country of residence into all their double taxation treaties.

 

Any foreign source tax that may have been deducted reduces the 25% German tax you owe on it, but you still have to declare the capital income in your German tax return in Anlage KAP and pay the difference in tax rates.

 

The foreign source tax rate is specified in the double taxation treaty that Germany has with that country.

For example, if you look at the double taxation treaty between Germany and the UK, you have a 15% source tax on dividends paid to a private person:

 

Article 10 Dividends

(1) Dividends paid by a company which is a resident of a Contracting State to a resident of the other Contracting State may be taxed in that other State.

(2) However, such dividends may also be taxed in the Contracting State of which the company paying the dividends is a resident and according to the laws of that State, but if the beneficial owner of the dividends is a resident of the other Contracting State, the tax so charged shall not exceed:

a.) 5 per cent of the gross amount of the dividends if the beneficial owner is a company (other than a partnership) which holds directly at least 10 per cent of the capital of the company paying the dividends;

b.) 10 per cent of the gross amount of the dividends if the beneficial owner is a pension scheme;

c.) 15 per cent of the gross amount of the dividends in all other cases

 

and then in article 23 you have the tax credit:

 

Article 23 Elimination of double taxation

(1) Tax shall be determined in the case of a resident of Germany as follows:

a.) There shall be exempted from the assessment basis of the German tax any item of income arising in the United Kingdom and any item of capital situated within the United Kingdom which, according to this Convention, is effectively taxed in the United Kingdom and is not dealt with in subparagraph b). In the case of items of income from dividends the preceding provision shall apply only to such dividends as are paid to a company (not including partnerships) being a resident of Germany by a company being a resident of the United Kingdom at least 10 per cent of the capital of which is owned directly by the German company and which were not deducted when determining the profits of the company distributing these dividends. There shall be exempted from the assessment basis of the taxes on capital any shareholding the dividends of which if paid, would be exempted, according to the foregoing sentences.

b.) Subject to the provisions of German tax law regarding credit for foreign tax, there shall be allowed as a credit against German tax payable in respect of the following items of income the United Kingdom tax paid under the laws of the United Kingdom and in accordance with this Convention:

       aa) dividends not dealt with in sub-paragraph a);

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3 hours ago, PandaMunich said:
  1. this is not only about interest, but about any kind of capital income, i.e also about dividends or the profit from selling shares.
  2. it's the German banks who report their data to the Bundeszentralamt für Steuern, not the Finanzämter. 
    In turn, the Bundeszentralamt is the interface for the foreign tax departments who report non-German capital income of German residents to Germany. The local Finanzamt then gets fed this data by the Bundeszentralamt, so the Finanzämter are strictly data users, not data providers.

 

From an IT point of view I don't think this will already fully work next year since we talk about 101 countries!! Perhaps some countries will be able to deliver financial data, but not all of them. This is a monster international IT project on governmental side and we all know how often these projects fail or are way over deadline and budget. For example, the Dutch tax authority have several failed IT projects already. You don't even have to look at Greece here :).

 

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You did understand that they shoved the main compliance effort onto the banks?

So if you want to claim it's a monster IT project on the banking side (details in here), ok, but the governmental side is quite light.

 

Figuratively speaking, think of it as the banks sending their country's central tax authority (in Germany: to the Bundeszentralamt für Steuern) already addressed envelopes with tax data, so the central tax authority just has to forward that envelope to the address (= foreign tax authority) written on it.

 

Such an EU-wide system has already been in place from 2005 to 2015, through the implementation of the EU savings directive, and the German interface was the Bundeszentralamt für Steuern, so they have experience in this.

This EU-wide system has now been replaced by the OECD's worldwide AEOI (Automatic Exchange of Information) standard we have been talking about all this time.

For details of this change-over, please read this: http://www.lexology.com/library/detail.aspx?g=02ab29d9-12c0-42cd-b363-9dcca24a4064

 

Under AEOI, the following data will be reported to your country of residence, no matter whether the account holder is a person or a company (sources p. 74-75 of the Implementation Handbook and p. 3 in here):

  • interest
  • dividends
  • income from the sales of shares/mutual funds/...
  • income from insurance contracts
  • the balance of the account/shares portfolio/insurance contract on 31. December of each year

 

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