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German Bundestag Backs US FATCA IGA

by Ulrika Lomas, Tax-News.com, Brussels

02 July 2013


The German Bundestag, or lower house of parliament, has adopted the draft intergovernmental agreement (IGA) between Germany and the US, aimed at improving the automatic exchange of information between the tax authorities of both partner states.

The bill provides the legal basis for transposition of the US Foreign Account Tax Compliance Act (FATCA) provisions into German law. Under the provisions of the FATCA Act, foreign financial institutions will be required, as of 2015, to notify the US tax authorities of accounts held by US clients. Otherwise, they would be taxed at source at a rate of 30 percent on earnings on US investments.

By September 2015, Germany aims to notify the US tax authorities for the first time about accounts held by US citizens and corporations. This notification will cover the year 2013. In return, the US pledges to provide Germany with tax-relevant information.

The lower house nevertheless rejected an application submitted by the Social Democrats (SPD), designed to combat the aggressive tax planning and tax avoidance of large international corporations. Furthermore, lawmakers rejected an application put forward by both the SPD and the Green Party, intended to ensure that the tax payments of multinational businesses are transparent in the future, via the introduction of a country-by-country reporting system in Germany. In so doing, Germany would drive forward plans for such action in Europe, the Opposition parties argued.

The Bundestag also rejected a bill submitted by the German Bundesrat, or upper house of parliament, calling for the statute of limitations to be set at ten years, for the prosecution of all cases of tax evasion, to better combat tax offences.

Finally, the Bundestag gave the green light, by an overwhelming majority, to the Government's bill placing married couples and civil partnerships on an equal tax footing in the country's income tax law, thereby implementing a corresponding ruling by the German Federal Constitutional Court in Karlsruhe from May 7.

In its decision, the Federal Constitutional Court insisted that the unequal tax treatment of married and civil partnerships, within the income splitting mechanism, is simply unconstitutional. It warned that existing provisions in the country's income tax law violate the principle of equality enshrined in basic law (Article 3 paragraph 1).

The bill therefore introduces a new clause, providing that the provisions in the country's income tax law pertaining to married couples also be applied to civil partnerships. This will enable civil partnerships in Germany to benefit from the income splitting tax break. Complying with the Court's request, the new provisions are to apply with retroactive effect from 2001, the year when civil partnerships were first introduced in Germany.

Germany's income splitting or "spousal split" (Ehegattensplitting) regime currently allows married couples to lower their tax burden by pooling and then dividing their earnings to calculate individual income tax.

TAGS: compliance | tax | investment | business | tax compliance | tax avoidance | FATCA | law | tax planning | tax rates | Germany | United States | tax breaks | individual income tax | Compliance

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