Germany can, as far as a tax point is located in Germany, regularly tax the world income, i.e. income from abroad. However, the German tax authority must first have knowledge of foreign income. The problem, however, is that state jurisdiction is limited to its own territory. Therefore, own investigation measures abroad are not possible. In order to obtain information about income from abroad, there is the intergovernmental administrative assistance. In the following, we declare its admissibility and the procedure.

1. Purpose of international administrative assistance

1.1 Conflict between taxation tasks and possibilities for action

Tax law usually links to global income, so-called “world income”. Insofar as an actual connecting point, so-called fiscal nexus, lies in a state, that state may also attach legal consequences to facts that lie outside its own territory.

In contrast, it is blocked for the state to place acts of sovereignty on foreign territory. Rather, the national framework of action basically ends at its own national border. This applies not only to enforcement and investigation measures under coercion, but also to actual actions, such as inspection or other direct investigations on foreign territory. Against this background, any kind of information gathering on foreign territory is generally prohibited under international law. But then the question arises if the state can also levy taxes on income outside its territory, as it determines them.

In particular, even in cross-border situations, the German tax administration has the obligation to set and collect taxes uniformly in accordance with the laws. However, since the administrative scope of action is limited to its own territory, this obligation comes into conflict with the possibilities for action of the financial administration.

1.2. Conflict resolution through the Tax Code

The Tax Ordinance solves this conflict through different regulations that serve to record and clarify foreign property conduct. For example, participants in situations relating to processes outside Germany are subject to an increased obligation to cooperate (§ 90 (2) and (3) AO). In addition, there are special regulations for accounting and other records in cross-border situations (§ 146 paragraph 2 AO). In addition, there are special provisions for the notification of an occupation (§ 138 (2) AO).

However, these special regulations are not yet sufficient to obtain all the necessary information that the German tax offices need to determine and collect the tax in accordance with equality. That is why the Member States have started to support each other in carrying out the taxation task. This mutual assistance is known as intergovernmental legal and administrative assistance. This allows the administration of one state to use the administration of the other state as an “extended arm” and to adopt its control powers.

1.3. Types of assistance

In practice, various forms of intergovernmental legal and administrative assistance have developed. On the one hand, states can support themselves in the cross-border delivery of foreign sovereign acts, such as tax notices or requests for cooperation. This type of assistance is called international delivery assistance. On the other hand, states can afford assistance in the compulsory enforcement of their tax claims, which is called international enforcement or recovery assistance. It is conceivable, for example, that the state indicates where the debtor has realizable assets or takes measures to secure the claim. It is also conceivable, however, the entire enforcement of the tax claim due abroad.

A final form of international administrative and legal assistance is that of international information assistance. It is also the most important form. It exists when the tax administration of one country makes information available to the tax administration of another country for the purposes of the tax procedure there. There are three possible sources of information called spontaneous information, request assistance and automatic information.

In the case of request assistance, the international information assistance procedure is initiated by the tax administration of one country requesting significant information from another country in the context of a specific tax procedure. Where mutual assistance does not result from a specific request, either automatic information or spontaneous information is available. These two types of information cannot be separated. Automatic information is to be understood as information provided on a recurring basis on certain categories of similar matters. Spontaneous information, on the other hand, concerns information provided by the communicating tax administration because it shows evidence of incorrect tax assessment or collection in the receiving State.

2. regulation of § 117 AO for intergovernmental administrative assistance

2.1 Overview of § 117 AO

§ 117 AO standardized for the first time intergovernmental legal assistance and administrative assistance in tax matters. It is considered a basic standard and regulates the conditions and limits of administrative assistance. On the German side, it must therefore be observed in the case of intergovernmental legal assistance or administrative assistance for the implementation of taxation. Section 117 (1) AO concerns the use of intergovernmental aid by German tax authorities. § 117 paragraphs 2 to 4 AO regulate the reverse case, i.e. the granting of aid by the German authorities.

2.2 Admissibility of administrative assistance

§ 117 (1) AO refers to German law for the use of intergovernmental administrative assistance. This makes the regulations of national administrative assistance (§§ 111 ff. AO) relevant. The use of administrative assistance is at the discretion of the German tax authority and is not dependent on the fact that international agreements or domestically applicable legal acts of the EU allow it.

Assistance may only be requested if the requirements of § 112 (1) AO are met. In most cases, however, this will not be problematic because the requested assistance cannot be provided by the requesting authority itself for reasons of international law (Section 112 (1) no. 1 AO), it cannot establish certain facts for this reason (Section 112 (1) no. 3 AO) or because it could only carry out the requested action with much greater effort than the requested body (Section 112 (1) no. 5 AO).

The principle of proportionality also applies in the framework of mutual assistance. The request must therefore be appropriate, necessary and proportionate. It should be noted that the questioning of the participant is usually the milder means and is therefore priority.

In addition, the financial administration is prohibited from abusing requests for information to extend powers. This applies in particular if further investigation measures are permitted in the foreign state. Then information is only possible under the powers that exist in Germany.

In order to understand the request for information, it is often necessary for the German authorities to provide certain background information to the foreign authorities. It must then also regularly pass on data about the taxpayer. If it is not ensured that the data accompanying the request are kept secret in the requested State, the tax authorities shall waive the request if there is a risk of disproportionate damage to the taxable person by the disclosure of his economic data. In any case, in view of the principle of proportionality, the data should be limited to what is strictly necessary.

3. Further legal bases for mutual assistance

3.1. Information clauses in double taxation agreements

In addition to national regulations, there are also international legal bases for administrative assistance. The question of the admissibility of administrative assistance must be clearly distinguished from the question of the extent to which the other state is obliged to provide assistance. The obligation to provide information is often regulated in international legal bases, whether the state in question is obliged to provide information. Only if the state in question is obliged to provide information does the other state have a right to the information.

Information clauses in double taxation agreements (DTAs) are important. The model is usually the regulation of Art. 26 OECD-MA. Large information clauses do not only include the transmission of data used to implement the agreement itself. They also cover the exchange of data which are only relevant for the implementation of purely domestic tax law. Whereas small information clauses only cover the implementation of the agreement itself.

3.2. Mutual assistance agreement

In addition, there are special international mutual assistance agreements. These are contracts governing exclusively the conduct of the procedure for intergovernmental assistance. Germany has concluded such mutual assistance agreements with 24 states.

3.3. EUAHiG

Member States are obliged to exchange information at home via the European Mutual Assistance Directive. This directive sets a minimum standard that all Member States must guarantee. The Directive provides for information on requests, non-request-related information, simultaneous audits and participation in investigations.

The requirements of the Directive are set out in the EU Administrative Assistance Act (EUAHiG). It specifies how and under what conditions the German financial administration is entitled or obliged to provide administrative assistance to other Member States. When the German financial administration itself can use intra-European information assistance, however, is not regulated in the EUAHiG. In this respect, the relevant implementing provisions of the other Member States are rather decisive.

Use of data received by administrative assistance

Often the foreign authority provides the information in a report detailing the outcome of the investigation conducted. Sometimes there are also official protocols on the questioning of the foreign participant or a third person. If the tax authority has received the information from the foreign authority, the question arises as to how it can exploit it.

The information provided by foreign authorities constitutes independent, unnamed evidence. Therefore, the evaluation is based on the German tax procedure law. Thus, the principle of free evaluation of evidence applies. Therefore, the German authority is not bound by the determination of the foreign authority. If the information lacks the power of persuasion, it is permissible to ignore it. This is the case, for example, where it is not clear on what the findings are based on or where the arguments are intrinsically inconclusive and contradict other convincing evidence. Therefore, the taxable person may well question any information relating to him. In general, however, the official information has a not insignificant power of persuasion. Whether it is mandatory information or goodwill information does not matter.

The German legal action against the aid measures of foreign authorities is not given. Therefore, the person concerned must assert his rights in the respective state according to the law there.