BFH: Exchange of Financial Data Constitutional – Ref.: IX R 36/21
The automatic exchange of financial account information (AIA) has become a powerful tool in the global fight against tax evasion. Taxpayers in Germany cannot claim that the exchange of such information infringes on their fundamental rights. The Federal Fiscal Court (BFH) made it clear in its judgment of January 23, 2024 (Ref.: IX R 36/21) that the exchange of financial data is constitutional. However, individuals facing allegations of tax evasion still have the option of filing a voluntary disclosure to avoid penalties.
For many years, those seeking to hide income from tax authorities stashed their money in offshore accounts in Switzerland, Austria, or Liechtenstein. Those tax havens, however, are a thing of the past. Many countries now cooperate with national tax authorities and participate in the automatic exchange of financial account information (AIA). This involves transmitting extensive information about account balances, income, and earnings to tax authorities. Undisclosed funds in foreign accounts are thus quickly detected, exposing individuals to potential tax evasion proceedings, according to the business law firm MTR Legal Rechtsanwälte, which also advises on tax and tax criminal law matters.
Request to Delete Transmitted Financial Data
Taxpayers with a joint account in Switzerland tried to challenge the automatic exchange of financial account information in Germany. After failing at the Federal Ministry of Finance, they pursued their case before the Federal Fiscal Court. The plaintiffs held a joint account and portfolio in Switzerland. The Swiss authorities transmitted their account balances to the German Federal Central Tax Office (BZSt) as part of the automatic exchange of information, which stored and processed the data.
The plaintiffs opposed this and demanded the deletion of the transmitted data, arguing primarily that the transmission of account balances violated their fundamental right to informational self-determination.
Lawsuit Rejected by the Federal Fiscal Court
The lawsuit was dismissed by the Cologne Fiscal Court and failed again on appeal before the Federal Fiscal Court. The plaintiffs had no right to request cessation or deletion of their data originating from the automatic exchange of information. The BFH ruled that the BZSt’s processing of data was lawful and conducted within the framework of the automatic exchange of financial account information.
Germany and many other countries have committed to exchanging information about foreign bank accounts to strengthen the fight against tax evasion. The automatic exchange of financial account information serves to ensure tax compliance and prevent tax evasion, the BFH explained. The plaintiffs were not entitled to claims under the General Data Protection Regulation (GDPR) or to a public-law request for cessation or remedy.
Right to Informational Self-Determination Not Violated
The right to informational self-determination guarantees that individuals can generally decide for themselves how their personal data is disclosed and used. However, this right is subject to limitations. An intrusion into this fundamental right is permissible when pursuing a legitimate public interest while adhering to the principle of proportionality. This was the case here, according to the BFH. Without control mechanisms, the taxation of foreign capital income would largely depend on the honesty of taxpayers. The automatic exchange of financial account information is therefore a legitimate means of combating tax evasion. It ensures tax compliance and prevents tax flight, the BFH emphasized.
Voluntary Disclosure to Avoid Penalties
Tax evasion is strictly sanctioned, with potential consequences including fines and imprisonment. However, individuals with undisclosed income in foreign accounts can still file a voluntary disclosure to avoid penalties.
Legislation imposes certain requirements on voluntary disclosures to make them penalty-free. They must be complete and include all tax-relevant information from the past ten years. Furthermore, they must be submitted in a timely manner—before authorities uncover the tax evasion. Even minor errors can invalidate the penalty-free status of a voluntary disclosure. Nevertheless, such disclosures can still lead to reduced penalties in some cases.
MTR Legal Rechtsanwälte has extensive experience in tax criminal law and in preparing effective voluntary disclosures.
Feel free to contact us!
