What intermediaries, especially insurance brokers, should watch out for
Broker advisors and insurance intermediaries often ask themselves whether brokering life insurance policies from Liechtenstein is perhaps already tax fraud? After all, foreign insurers would love to claim that no taxes were involved. And wouldn’t this be as dangerous as moving supposedly “tax-neutral” money into or out of Liechtenstein foundations?
Tax exemption through correct design and binding information
The German Income Tax Act (EStG) stipulates exactly how the benefits of a life insurance policy are to be taxed. These rules also apply if the product is from abroad. However, intermediaries must assume that advertising statements are often formulated by marketing experts. As a rule, foreign insurance companies do not employ German lawyers or tax advisors, because proper taxation is first and foremost the responsibility of the customer, i.e. the policyholder.
Domestic oral information from tax advisors often worthless
If a client or intermediary has even the slightest doubt about the alleged tax benefits, then they should secure a written opinion from a lawyer or tax advisor with tax experience. If necessary, an examination by an actuarial expert is also required, as taxation is often based on actuarial principles. In such an assessment, more than a dozen complex criteria have to be taken into account so that in the end it is not a question of a certificate of good conduct that is also worthless in terms of criminal law. The safest way would be to obtain binding information from the tax office of the future policyholder’s place of residence.
Reporting obligations and risks of criminal liability
Pursuant to § 45d III EStG, domestic intermediaries are obliged to report the brokered life insurance contracts from abroad to the Federal Central Tax Office (Bundeszentralamt für Steuern, BZS) without being asked to do so – unlike in the case of domestic insurers – if the insurer itself has not undertaken to do so. This alone makes foreign insurers the most unsuitable thing imaginable for those who want to make black money disappear unnoticed. Furthermore, there are documentation and reporting obligations for domestic and foreign insurance intermediaries in accordance with the Money Laundering Act (GWG). The Criminal Code states that the intermediary “assisting” in tax fraud, tax evasion or money laundering is punished in the same way as the perpetrator. Legal information from lawyers with a foreign “legal patent” and from, for example, federally certified tax experts can rarely be relied upon.
Conditions and kick-backs
An actuary can compare the prices and costs of different offers on behalf of a client. Some offers come along superficially with costs i.H.v. up to less than 0.3% p.a.. Later, the customer discovers that the market value of the securities in the insurance policy had doubled within 10 years – but the surrender value only roughly corresponds to the sum of the premiums paid. It has always been a bad idea to look only at tax savings on maturity benefits or tax benefits on savings without knowing the full investment time frame and all the (possibly hidden) costs and kickbacks. Corresponding gaps in the intermediary’s documentation are an invitation to the client to ask for legal help later on in the event of disappointment.
It is the prospective view that counts
Resourceful mediators calculate customers straight from foreign insurance that they would have made so far only a minus business, in order to induce them then to the notice and new conclusion. The fact that they still have no surplus with the new contract after due time is not made clear to them. Such dubious calculations are, however, already fundamentally wrong at the outset, because the past costs already borne do not count for a decision for or against continuation of the contract, but only what can be expected for the future. This, however, will not infrequently turn out far better after initial costs have already been borne, which an actuary can judge with little effort. Cancellation of contracts already in force can at best be worthwhile if someone else – e.g. the intermediary due to incorrect advice – can be held liable for the initial losses. However, this also requires further costs for an expert and a lawyer if it is to be successful.
by Dr. Johannes Fiala and Dipl.-Math. Peter A. Schramm
by courtesy of
www.experten.de (Published under Experts Platform on 10/10/2014)
and
www.my-experten.de (Published in Expert Report 11/2014)
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About the author
Dr. Johannes FialaPhD, MBA, MM
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.
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