Germany Strengthens Disclosure Requirements for Ultimate Beneficial Owners of Real Estate

The Common Reporting Standard (CRS) has become a powerful tool for global tax authorities in combating cross-border tax evasion by high-net-worth individuals. Through the automatic exchange of financial information by financial institutions each year, CRS enables tax authorities to access individuals' global asset data. While the Chinese tax authorities have yet to actively pursue cases of offshore income recovery through CRS, other countries are increasingly leveraging it.

Recently, KC Global received a tax consultation inquiry from a French client whose $500,000 asset held in a Hong Kong financial account was flagged by the French tax authorities. If the client is unable to provide legitimate documentation proving the legality of the asset, they could face legal consequences for tax evasion in France.

With CRS, tax authorities now have access to detailed information about individuals’ offshore financial assets. By combining this data with big data and artificial intelligence, tax authorities can swiftly and cost-effectively identify taxpayers who may be engaging in tax evasion. The French case demonstrates that even a relatively small amount of $500,000 can be subject to scrutiny, highlighting the increasing importance of global tax compliance and the associated risks.

Of course, many high-net-worth individuals continue to seek ways to circumvent CRS. One common strategy is to invest in real estate. Since CRS only targets financial assets and excludes real estate, it allows individuals to bypass CRS reporting. However, avoiding CRS does not mean there are no risks. Let’s take a closer look at a recent law passed in Germany and how it addresses the use of real estate by high-net-worth individuals to conceal assets.