The German legislature recently issued an amended revised draft of the “Act to Combat Destructive Tax Practices and Tax Fraud”.

Amongst others the draft act imposes the following sanctions on states which do not comply with the OECD standards of transparency and exchange of information requirements:

• the tax exemption for intercompany dividends may be denied;
• the deduction of business expenses related to offshore business transactions may be denied.

Contrary to the first draft from January 2009, the revised draft provides that a taxpayer may avoid such sanctions by complying with increased cooperation and evidence obligations which are intended to counteract the tax authorities´ limited investigative possibilities in regard to non-cooperative states.

Even though the German legislature did not name any non-cooperative states in the amended draft and the amendments make it weaker than the first draft; Swiss, Austrian and Luxemburg officials stated that their states should not be regarded as tax havens and criticized the unilateral actions of several G20 states in regard to the combating of tax fraud.

German officials responded by emphasizing that in order to successfully encourage tax havens to cooperate in international tax matters; it is also necessary to maintain international pressure by means of unilateral actions until respective international treaties can be signed and adopted.

The draft act is expected to be adopted by Summer 2009.