Tax office in all accounts: The verdict!
The ruling of the Federal Fiscal Court published on 28.03.2024 on the automatic exchange of financial account information is quite something. The Federal Fiscal Court has confirmed the procedure for the automatic exchange of financial account information between countries and the associated transfer of account balances and securities account information as constitutional (case reference IX R 36/21). This decision has far-reaching consequences for taxpayers who hold accounts abroad and brings with it a number of challenges and disadvantages.
The case
A married couple from Switzerland complains in court that the tax office is not entitled to inspect their foreign accounts. They have already declared their foreign income in full. They are defending themselves against the tax office receiving more information than is necessary to calculate their tax.
The judgment of the Federal Fiscal Court
The Federal Fiscal Court rules that the tax office is entitled to receive information on foreign accounts despite the encroachment on fundamental rights via an automatic exchange of financial account information. This ruling means that the state’s tax claim takes precedence over fundamental rights. The tax office is therefore authorized to use this information to ostensibly ensure tax compliance and combat tax evasion.
What are the disadvantages?
Loss of privacy
One of the most obvious disadvantages of the ruling is the far-reaching invasion of privacy. Taxpayers must now expect information about their financial accounts to be automatically exchanged between countries and viewed by tax authorities. This affects not only account balances, but potentially also data on transactions and custody account contents. The right to informational self-determination, i.e. the right of individuals to decide for themselves how their personal data is disclosed and used, will be significantly curtailed as a result.
Increased risk for taxpayers
The ruling underlines the need for taxpayers to be fully aware of and comply with their tax obligations, particularly in the case of accounts and assets abroad. The automatic transfer of data increases the risk that errors or discrepancies in tax returns will be detected more quickly and punished more severely. For many citizens, this means additional pressure to declare all foreign assets correctly and to keep up to date with changes in tax legislation.
Potential security risks
Although the Federal Fiscal Court points out in its decision that the transmitted data is subject to tax secrecy and is protected by law, there are concerns regarding data security. The plaintiffs had pointed out the risk of hacker attacks and the associated unauthorized access to sensitive data. These concerns are not unfounded, as the increasing digitalization and networking of financial systems also create new targets for cybercrime.
The role of the Federal Central Tax Office
The Federal Central Tax Office plays a crucial role in the exchange of information from abroad about bank accounts. This authority is responsible for exchanging data on foreign accounts with the German tax authorities. This exchange enables the tax authorities to check whether taxpayers are declaring and paying tax on their foreign income correctly.
The consequences for taxpayers
The decision of the Federal Fiscal Court has far-reaching consequences for taxpayers with foreign accounts. You should be aware that the tax office is now entitled to receive information about your foreign accounts. This ruling affects not only income tax, but also inheritance tax and gift tax.
The outlook
Although the Federal Fiscal Court has made its decision, the case is not yet closed. The plaintiffs have the option of lodging a constitutional complaint with the Federal Constitutional Court. This court will review whether fundamental rights must actually take second place to the state’s tax claim. It remains to be seen how the highest German court will assess this question.
Conclusion:
The ruling confirms the legality of the automatic exchange of financial account information and clarifies that the fight against tax evasion is a legitimate goal that justifies such interventions. However, this poses a number of challenges for taxpayers: a loss of privacy, increased risk when filing tax returns and concerns about the security of their financial data. This decision highlights the importance of transparency and accurate tax returns, but also raises questions about the appropriate balance between government interests and individual rights. The further development of this case remains exciting and we will keep you informed.
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