A supposedly elegant way to hide your money from the taxman is to take out a life insurance policy abroad, for example in Bermuda or Liechtenstein. Because then the account and deposit holder is an insurance company. Such accounts are held in Germany, Singapore or Switzerland, for example. However, ships and aircraft regularly disappear without a trace in the Bermuda Triangle, occasionally also investment money.
For Germans, there is a risk that, from a tax point of view, it is not an insurance product at all, for example because there is insufficient death cover or because the custody account management in the life insurance shell is carried out individually on the instructions of the investor. Sometimes this risk is referred to in the fine print, for example with the sentence “There is no guarantee that Life Portfolio International will be recognised as life insurance in the customer’s domicile.”
The customers concerned would then have to pay tax on the current income on an ongoing basis, just like those without an insurance wrapper, or obtain binding information from the tax office for their own protection – both of which are usually undesirable because they lead to annoying questions from the tax office about the origin of the funds. On the other hand, one should not rely on so-called tax opinions of renowned law firms for sales support.
No permitted distribution via banks in Germany?
The Higher Regional Court of Hamburg (judgement of 3.7.2002, file no. 14 U 36/02) sentenced an intermediary for insurance policies not licensed in Germany. It is not possible for insurance agents including credit institutions, as well as insurance brokers in Germany and abroad to broker any life insurance or any insurance policy to a German customer, unless there is a permit for this from the Federal Financial Supervisory Authority (BaFin) or – only for EEA insurers – the distribution takes place in the free movement of services. In all other cases an unauthorized action is present, so that the mediators – also banks with their advisors – are personally responsible for possible damage, including back completion – in addition regularly a fine threatens.
It becomes even more explosive if, in addition, the “Joint Declaration on an Intergovernmental Approach to Improving Tax Honesty in the Cross-Border Area and Implementing the Foreign Account Tax Compliance Act (FATCA)” has been violated.
Vacationing in Bermuda?
If intermediaries and brokers are not permitted to broker an insurance policy that is not licensed in Germany, the only option is to take out a so-called correspondence insurance policy. The customer would have to go directly abroad to the insurer without the assistance or accompaniment of any intermediary in order to conclude his insurance contract there, or otherwise contact the insurer directly. However, some private banks would like to spare their customers this trouble, and mediate anyway – which is then illegal and punishable, §§ 144, 144a Insurance Supervision Act (VAG). Malicious tongues claim that occasionally the fact that no mediation and thus no commission payment can take place with correspondence insurances may also play a role.
The Insurance Regulatory Act also serves to protect customers. If the necessary licence is not available for distribution, for example in the case of insurance shell companies from Bermuda or bearer bonds from the British Virgin Islands, the parties involved are liable in tort, as the Federal Court of Justice (BGH) has long since ruled (judgement of 21.04.2005, ref. III ZR 238/03). It should not be forgotten that also assistants of all kinds are regularly personally liable according to § 830 II BGB (BGH, judgement of 15.05.2012, file no. VI ZR 166/11). The circle of responsible parties also includes intermediary (structural) distributors and their sub-brokers (BGH, judgment of 14 May 2012, Case No. II ZR 69/12). Customers who contact a foreign insurer by correspondence, on the other hand, are not covered by this protection.
Dr. Johannes Fiala
Peter A. Schramm
Our office in Munich
You will find our office at Fasolt-Strasse 7 in Munich, very close to Schloss Nymphenburg. Our team consists of highly motivated attorneys who are available for all the needs of our clients. In special cases, our law firm cooperates with selected experts to represent your interests in the best possible way.
About the author
Dr. Johannes Fiala has been working for more than 25 years as a lawyer and attorney with his own law firm in Munich. He is intensively involved in real estate, financial law, tax and insurance law. The numerous stages of his professional career enable him to provide his clients with comprehensive advice and to act as a lawyer in the event of disputes.
»More about Dr. Johannes Fiala
On these pages, Dr. Fiala provides information on current legal and economic topics as well as on current political changes that are of social and/or corporate relevance.
Arrange your personal appointment with us.
You are already receiving legal advice and would like a second opinion? In this case please contact Dr. Fiala directly via the following link.
The first telephone call about your request is free of charge.