– What alternatives are there to the tax havens Andorra, Liechtenstein, Vatican, Switzerland, San Marino, and Monaco –
To date, Germans have invested up to more than € 360 billion in tax havens, as Professor Gabriel Zucman recently determined. The widely praised way of buying tax CDs with allegedly mass self-disclosures is only the tip of the iceberg.
The path of “automatic reporting from abroad” praised by finance ministers has so far affected at least interest income and at best all investment income – only of natural persons. In addition to the so-called camouflage constructs behind which natural persons can hide, there are other evasion strategies that have been tried and tested for decades.
Being a non-profit organisation in Europe helps to reduce or evade taxes
In particular, religious and charitable organisations in other EU countries and in Switzerland like to work with major donors. This can be presented quite legally, as a seriously meant donation – for example to a foundation with special expenses deduction of up to € 1 million per spouse within 10 years. Some small and medium-sized enterprises create a task for their old age through their own foundation, in order to indirectly promote their company or to give something back to society. In many cases this is seen as a piece of civic commitment to the community.
Good business with the monastery
Where there is no church tax, monasteries, for example, are more urgently dependent on donations from business partners. The business model is impressive and starts with an initial payment of, say, € 20,000 against a correspondingly high donation receipt, for example for a so-called special expenses deduction.
This results in a tax credit of € 10,000 at 50% tax burden. The effective expenditure for the founder or donor is thus also € 10,000 after taxes.
Of the € 20,000, however, the monastery abroad is only allowed to keep 10%, despite a 10 times higher donation receipt, a written lie – but no document that is false under criminal law. A further 10% often have to be paid to the intermediary for such transactions.
The rest, 80%, i.e. € 16,000, is refunded, i.e. refunded to the donor via a tax-neutral account or a trustee. This means that the donor has generated the € 10,000 in after-tax expenses, i.e. waiver of net disposable income, in the end € 16,000 tax-neutral money.
Optimization with audacity
Usually, selected charitable or religious institutions would issue receipts for donations of € 100,000 or more in exchange for the right to keep € 2,000 at the end of the project. This will generate € 46,000 tax-neutral money. This follows with 50% tax burden from the donation receipt, i.e. a tax credit of € 50,000 plus the repayment of € 16,000 and minus the expenditure of € 20,000 as actually paid transfer to the religious or charitable organization.
This model-like design had already established itself with corporations in the 1970s and became publicly known through a committee of inquiry of the German Bundestag. The tax-neutral money was donated to various parties. In some cases, there was no further deduction for donations, in particular because the amount of these subsequent donations could no longer be used for tax purposes.
Camouflage constructs, mediated through financial houses at home and abroad, carry the danger that they may one day appear on purchased CD-ROMs or in “offshore leaks”. Such risks can also be avoided in Germany by involving a religious or charitable body, association or foundation.
This has the advantage for the donor that there is usually no suspicion at all out of respect for charity and religion. In addition, such organisations are often not transparent with regard to their finances, without public control, and even specific areas are not public, i.e. secret. If evasion occurs there or at affiliated institutions, state goodwill can be considered secure.
Fundraising per annuity
A method of fundraising for charitable foundations, e.g. in the field of animal protection, which is common in Germany but also particularly common abroad, is the acceptance of foundation funds against a donation receipt and an additional promise of an annuity. For the donor this means doing good, providing for old age and saving taxes all in one. The amount of the life annuity in relation to the foundation contribution can at any time keep pace with the normal private annuity insurance offered for the same contribution with Pfefferminzia Lebensversicherung und Co. Both are taxable only with the low share of income.
But while the life insurance contribution is then not tax-deductible, the foundation or the animal welfare association issues a donation receipt for sometimes more than half of the foundation contribution. This is completely legal, because the consideration of the foundation in the form of the promised life annuity is valued very low for tax purposes. The same also works with the foundation of a house against the promise of a lifelong right of residence and if possible even an additional life annuity.
Of course, it would be a good idea to have this calculated first of all by an actuarial expert, so that nobody pays on it. For non-profit associations and foundations, this is an interesting way of acquiring donations.
by Dr. Johannes Fiala and Dipl.-Math. Peter A. Schramm
by courtesy of
www.kulturexpress.de (published on 30.07.2019)
www.pt-magazin.de (published on 05.08.2019)
www.experten.de (published on 06.08.2019)
www.goldseiten.de (published on 10.08.2019)
www.nfh-online.de (Published on 23.08.2019 in the issue “Neue Fakten hotelintern” on pages 26-67)
www.doldemedien.de (published in CampingImpulse, issue 05-2019, page 40 under the heading: The wrong way)
www.campingimpulse.de (published on 02.09.2019 under the heading: Save tax through charity or religion)
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About the author
PhD, 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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