Since German banks are not required by law - as they are for example in the US - to report investment income directly to the tax authorities, German tax offices must rely entirely on the taxpayers' voluntary disclosure on their tax return.  The extent of unreported income, and the related loss of tax revenue, were deemed to be substantial.

Under the amnesty program, relatively favourable tax rates were applied to the income voluntarily declared by German taxpayers up to 31 March 2005.  With the passing of this deadline, as of 1 April 2005 new procedures allowing German tax authorities limited access to information regarding taxpayers' bank accounts, both checking and investment accounts, are now in place.

No fishing allowed

However, before you get too worried about the taxman snooping around your bank account, it's important to note that the tax authorities must have a valid reason to proceed with a request for information - no 'fishing expeditions' are allowed.

Although a presumption of criminal tax evasion doesn't have to be present, the tax authorities must have reasonable grounds to suspect substantial underreporting or tax avoidance. In addition, they must be able to document that they have been unsuccessful in obtaining the information directly from the taxpayer, and that future efforts to bring the taxpayer into compliance would be futile. 

Additionally, the taxpayer must be informed of the inquiry in advance, unless such notification would endanger the inquiry itself.

A two-step process

In the first step, the local tax office directs its inquiry to the Federal Finance Agency (Bundesamt für Finanzen).  Since this agency maintains a database of all bank accounts, it can run the search independently of the financial institutions themselves.  The following data will be provided:

• the taxpayer's cash and securities account numbers
• the opening and closing dates of these accounts
• the account holder's and his representatives' names and dates of birth
• the names and addresses of other signatories.

At this stage, no information about the balances and activity in the accounts will be made available.

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