Reporting obligations for foreign participations
Domestic taxpayers, such as companies based in Germany that are part of an international group, must report certain foreign activities to the German tax authorities in accordance with Sec. 138 para. 2 German Fiscal Code (“AO”). Failure to comply may result in a fine of up to 25,000 euros.
Why a reporting obligation for foreign participations?
The reporting obligations are essentially intended to ensure that the German tax authorities become aware of all foreign business activities and changed participation relationships of a domestic taxpayer, in order to be able to tax foreign income in the event of Germany's right to tax. Due to the limited jurisdiction and influence in foreign matters, the tax authorities must rely on the cooperation of taxpayers.
How does the reporting obligation according to Sec. 138 para. 2 AO work?
Every domestic taxpayer with residence, habitual abode, place of effective management, or registered office in Germany must report certain foreign events to the responsible German tax office.
Which foreign events are reportable?
- The establishment and acquisition of businesses and permanent establishments abroad
- The acquisition, abandonment, or change of a participation in a foreign partnership
- The acquisition or disposal of shareholdings in foreign corporations, if a shareholding of at least 10% in the capital or assets is reached, or the total acquisition costs of all shareholdings in this company exceed 150,000 euros (exception: in case of listed participations of less than 1% in the capital or assets)
- The fact that for the first time alone or together with related persons, a controlling or determining influence according to Sec. 1 para. 2 of the External Tax Relations Act (“AStG”) can be exercised on a third-country company.
Additionally, in the aforementioned reportable cases, the economic activity of the foreign business, permanent establishment, or company must also be specified
It should also be noted that indirect participations may also be reportable. Thus, a reporting obligation may exist when acquiring a shareholding in a corporation in Germany if, at the time of acquisition, it holds a reportable participation in a foreign corporation.
In what form must the notification be made and what deadline must be observed?
The report is generally to be electronically submitted to the responsible tax office in Germany with the income tax, corporation tax, or determination declaration of the tax period in which the reporting obligation arose. In any case, the report must be submitted no later than 14 months after the end of the tax period in which the reportable fact was realized. This deadline cannot be extended.
If the report is intentionally or negligently not submitted or submitted late, the taxpayer may face a fine of up to 25,000 euros.
How we support you
- We assist you in identifying reportable events. Especially in complex situations, e.g., when multiple reportable events are realized simultaneously and/or indirect participations are involved, a detailed analysis is recommended.
- Furthermore, we take over the preparation of the required notifications for you as well as the electronic submission to the responsible tax office.
- Our experts are available for communication with the tax authorities regarding questions or feedback on the submitted notifications.
- In addition, we are happy to advise you on possible tax consequences and optimization opportunities regarding reportable events.