Even Old Shareholdings Must Be Reported – OLG Hamburg, Case No. 2 Orbs 38/24
Shareholdings in foreign corporations must be reported to the German tax authorities upon relocation to Germany. This was made clear by the OLG Hamburg in its ruling dated November 26, 2024 (Case No. 2 Orbs 38/24). Accordingly, the participation in a foreign company must be reported within the prescribed deadline.
According to § 138 para. 2 sentence 1 no. 3 AO (Fiscal Code) in Germany, there is a reporting obligation for qualified participations in foreign companies. The OLG Hamburg now determined that this reporting obligation also applies if the shares in the company were acquired before moving to Germany. The prerequisite is that the taxpayer has their residence or habitual abode in Germany, according to the law firm MTR Legal Rechtsanwälte, which also advises on cross-border tax matters.
The reporting obligation covers not only shareholdings but also income from employment within Germany. Special tax regulations may apply to nationals, particularly regarding taxation and the scope of tax liability. The taxation depends on the extent of income earned domestically or abroad. Generally, a request must be submitted to the competent authority for the notification, with corresponding proof of the participation and the origin of the income required.
An example: A German national who relocates to Germany and already holds shares in a foreign company from which they receive employment income must report this participation and the resulting income to the tax office. The reporting obligation for foreign shareholdings differs from that within Germany, as income and participations earned abroad must be declared separately.
Shares in Corporations Held Prior to Moving to Germany
In the underlying case, a taxpayer had moved to Germany and already held shares in foreign corporations. When dealing with participations in companies, a distinction must be made between different types such as stock corporations (AG) and partnerships; the term participation covers both corporations and partnerships and their legal classifications. The share capital, registered capital, and the shareholders’ contributions are central elements of a corporation and determine the amount of capital as well as the basis of liability. In an AG, the general meeting is the highest body that decides on fundamental matters, whereas in a partnership, the partners directly manage the company’s affairs. The treatment of income and earnings from such participations is of tax relevance, especially in the business context, as this income is subject to varying tax regulations. The company’s assets are formed by the shareholders’ contributions and are subject to specific liability rules. Participations in companies can serve different purposes and concern various areas, such as capital investment, co-determination, or strategic influence. The taxpayer did not report these participations to the German tax authorities. Consequently, the tax office imposed a fine of 30,000 euros for negligent failure to report the acquisition of a direct participation in four corporations. The tax court upheld the taxpayer’s objection. The court assumed that the reporting obligation only applies to shares acquired after relocation.
The public prosecutor’s office appealed against this acquittal and was successful at the OLG Hamburg. The court considered the district court’s narrow interpretation to be incorrect and overturned the acquittal.
Tax Relevance of Cross-Border Participations
The OLG Hamburg referred to the purpose of the reporting obligation. It is designed to enable the tax administration to gain early knowledge of cross-border participations to correctly assess the tax treatment and taxation of foreign-sourced income. The treatment of such income is subject to special rules, particularly regarding international taxation, and the scope of the obligation also includes the submission of appropriate evidence. The rule and purpose of the reporting obligation is to create transparency about structures and income in order to fulfill tax obligations in international taxation. The administration’s goal is to capture all relevant foreign income to ensure proper taxation. Such income is often particularly relevant for tax purposes, for example, when dividends are distributed or shares are sold. If old participations were exempt from the reporting obligation, a significant portion of potentially tax-relevant matters would remain undisclosed. Especially for relocating taxpayers, it is important for the administration to have a complete overview of existing structures.
Furthermore, the OLG Hamburg clarified that the declaration to the tax authorities pursuant to § 138 para. 5 AO must be submitted no later than 14 months after the end of the calendar year in which the relocation occurred. For example, anyone moving to Germany in 2025 must report their participations by February 2027 at the latest. Failure to meet this deadline constitutes an administrative offense, which can be sanctioned with a fine according to § 379 AO, the OLG stated.
No Unavoidable Mistake of Prohibition
In the present case, the court also denied that the affected party could rely on an unavoidable mistake of law. The Higher Regional Court clarified that he should have informed himself about his notification obligations. In case of doubt, it is advisable to file a request for legal clarification, as compliance with the relevant legal and regulatory requirements for corporations such as GmbH or AG is of central importance.
Taxpayers must be aware, following the decision, that they still have an active reporting obligation despite international agreements. It is not sufficient to rely solely on the automatic exchange of information between countries. Even though financial information is now exchanged cross-border through international agreements such as the OECD Common Reporting Standard or the EU Directive on administrative cooperation, the obligation for active notification remains. Evidence, such as official documents or identity verifications, is indispensable within the reporting process to demonstrate proper fulfillment of duties. A typical violation example is the failure to report a foreign bank account: in such cases, significant fines and tax consequences may ensue.
High Transparency Required
This also corresponds to the fundamental intent of the OECD and EU initiatives to combat tax avoidance. German legislation plays a central role and closely cooperates with other countries to ensure compliance with the reporting obligation. The legislature aims to ensure that taxpayers cannot conceal their foreign circumstances. National notification obligations such as § 138 AO complement the global information architecture by improving data quality and helping tax offices correctly assign foreign information. With its decision, the Higher Regional Court Hamburg aligns itself with this international development.
For companies, the reporting obligation is particularly significant as it aims to create transparency about economic activities and shareholdings and fulfill the purposes of statutory regulations. The scope of international reporting obligations is substantial and contributes to increasing transparency in cross-border tax law.
Anyone moving to Germany with existing shareholdings should clarify whether a reporting obligation exists. Violations of the reporting obligation can be costly. International investments must not be concealed from domestic tax authorities.
The decision demonstrates that transparency holds great importance in international tax law, and the acquisition of shareholdings before moving to Germany does not exempt from this notification obligation.
Administrative Procedures and Data Protection
Within the scope of the reporting obligation for foreign investments, administrative procedures and data protection in Germany play a central role. The administration is responsible for consistently implementing the legal requirements regarding shareholdings in corporations while safeguarding the rights of the affected persons and companies. Especially in international participations, such as shares or other company interests, compliance with legal bases and careful examination of reported data is indispensable.
Shareholders of a corporation not only have rights but also obligations arising from the law and the respective articles of association. The administration ensures these obligations — such as the timely reporting of foreign shareholdings — are fulfilled. At the same time, protecting personal data is a key concern: authorities are obliged to handle sensitive information of shareholders and companies in accordance with applicable data protection regulations and protect it from unauthorized access.
Responsibility for enforcing the reporting obligation lies with various authorities and courts. Higher Regional Courts, such as the OLG Schleswig-Holstein, play an important role in jurisprudence and reviewing administrative decisions. In Germany, the judiciary is federally organized: each state has its own courts and administrative structures, while the federal government establishes and coordinates legal frameworks at the national level.
The review and application of relevant laws and regulations by the administration and courts ensure that the rights of shareholders and companies are protected. Lawyers and judges contribute to correct interpretation and implementation of statutory provisions. In case of uncertainties or disputes, authorities and courts offer support and assistance to ensure compliance with the reporting obligation and fulfill public duties such as financing the community through taxes.
Overall, it becomes evident that a functioning interplay of administration, data protection, and judiciary is indispensable to effectively enforce the reporting obligation for foreign shareholdings and protect the rights of all involved parties. The careful application of laws and support by authorities provide the necessary legal certainty for both shareholders and companies in international tax law.
MTR Legal Rechtsanwälte advises on international law and cross-border tax issues.
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