29 May 2013

Federal Cabinet approves cross-border tax compliance agreement with the US

On 29 May 2013, the Federal Cabinet gave the go-ahead to the Agreement between the Federal Republic of Germany and the United States of America to Improve International Tax Compliance.

By taking this step, the German government is sending another clear signal of its active support for international initiatives to enhance transparency and tax compliance.

Under the agreement, both countries pledge to collect and regularly exchange financial institution data that are relevant for tax purposes in the partner country. The aim is to prevent taxpayers from using foreign financial institutions and financial service providers for the purpose of evading taxes.

The agreement is based on the model agreement that Germany, France, the United Kingdom, Italy and Spain formulated jointly with the United States and published on 26 July, 2012. Both Germany and the US view this as a key step forward in the effective fight against tax evasion.

The US-German agreement adds momentum to recent international developments. Just over a month ago in Washington, G20 finance ministers and central bank governors explicitly advocated that OECD standards be strengthened in the direction of automatic information-sharing and asked the OECD to work up proposals to this end. Under current OECD standards, access to bank information only has to be granted upon request. In the same vein, a week before the G20 meeting, Germany, France, the United Kingdom, Italy, Spain and Poland announced at an informal meeting of EUfinance ministers in Dublin that they intend to establish an automatic information-sharing system, which will be similar to the one being adopted under the US-German agreement. Additional EU Member States have now joined this initiative.

The US-German agreement is also connected to the rules adopted under the US Foreign Account Tax Compliance Act, better known as FATCA. Under these rules, a 30 per cent withholding tax is to be imposed on certain income – especially income from capital – that foreign financial institutions derive from US sources. This withholding tax can be avoided only if a financial institution agrees to disclose information on accounts operated for US persons. The disclosure requirements stipulated in the US-German agreement now make it unnecessary to impose the withholding tax.

Under the agreement, information is to be exchanged for periods from 2014 onwards.

Press release

© Bundesfinanzministerium