Project Service Beta/International Tax Solutions

[Moscow Mule]

Originally Posted by dr4m

Check this out:
http://www.focus.de/finanzen/news/af...id_229796.html

Unfortunately in German. Anyone can translate? It might be interesting literature .

Google makes a bit of a hash of it, but you get the idea...


Steven S., 42, is hot courted - he works as a software developer at General Electric Multi Electric in New York. On a Novembertag call him a colleague of the German mobile operator O2 and raves from his employer, the urgent search specialists. Steven is interested.

He flies to Munich and was raised in the centre. His salary of 15000 requests per month accepted O2. The unusual condition: His future employer shall not directly - but through a foreign agency staff. The pleasant side effect: In this way he and O2 save taxes.

Steven calls at one of the proposed staff agencies. He receives a contract of employment of the company Project Beta Service SA on the British Channel Island of Jersey - an internationally renowned tax haven. The software developer moves to Munich and now works for O2.

At least, portrays the Americans schnauzbärtige seven years later in Munich Steuerfahndern its changing jobs to Germany. The officials determine proceedings against those of O2 - because of the suspicion of aid for tax evasion and Vorenthaltens of earnings. In early November Steuerfahnder searched the Munich headquarters and private homes. With Steven S. is based on a sophisticated system now 350000 euros have paid little taxes.

The tax trick. The Americans, the Project Services Company two invoices: one of 750 euros per day, in the tax haven of Jersey O2 forwards, and another over 250 euros, the Project Services Steven actually pays. The difference of $ 500 goes into a trust fund in Jersey. Remarkable: address and mail box number 316 correspond to those of the personnel agency, whose contracts FOCUS. Compared with the Munich tax office, the IT expert only 250 euros - the 500 euros in the secretive tax haven.

The Americans apparently is not the only one that has the O2 Connection in a tax haven landed. Munich Steuerfahnder wittern a sophisticated system, the mobile operators have deliberately used. The investigators discovered more than a dozen IT specialists, partly since 2001 for O2. They also found documents to show that the attitude of software experts to the tax savings coupled model.

An insider even suspected that some companies in areas up to 100 percent of employees employed in this way. " The potential advantage for O2: In times of weak sales, the company is flexible in layoffs ler, bypasses high social security charges and the wage tax. The German subsidiary of Spanish telecommunications giant Telefonica builds officially just 700 jobs.

According to internal surveys should O2 Group as at least 25 million saved. The financial authorities could now nachfordern - but also revoked the former employee taxes to the German tax authorities now no longer have access. O2 itself does not want to comment. Only so much: "We support the authorities in the investigation."

[tim123]

Oh dear.

And they assured me it was all legit! (No, I didn't use them in Germany)

As an aside, I met one of my ex colleagues yesterday and he had had a letter from the Finanzamt demanding 50,000 Euro in unpaid taxes because he had been paid through an offshore scheme which the German's didn't recognise[1] as his legitimate earnings.

Fortunately, he used a scheme which did payroll all of his billings and didn't try to hide any moneies for him, so eventually he was given the all clear. But he did have a very worrying 18 months. So I do now actually know someone who has been investigated for this.

tim

[1] In the sense that they didn't realise it was the same money that he did declare, rather than they didn't recognise it as a legitimate payrolling method.

[sapcoder]

Tim123, do you not realise yet that the German tax authorities are totally crazy. They give a contractor a hard time even though he was pay rolled for 100% of the money received by the company he was contracted to. Clearly a potential hard time with the authorities is the price you pay for working in Germany.

This is a lesson for you and dr4m, in that O2 and Project Service Beta are simply innocent recipients of the German authority’s tendency to give a hard time.

Most contractors working in Germany are aware of the lengths the tax authorities go to in order to force their way. They are keen exponents of commercial interference and rumour creation, including writing false articles. The Focus article is such a case.

It has been proven that the Focus article was indeed submitted by the tax authorities themselves. Steven S.,42, on whose supposed experience the article was totally based, doesn’t exist. He is a fantasy created by the tax office to try and press home their claims against O2.

As brought to my attention by my German accountant, you will also note the reference to Steven’s age. This is a thinly disguised reference to S.42 of the German General Tax Act which the authorities are using in these particular situations. Clearly the author of the Focus article is trained in tax law and smug enough to give his colleagues a laugh in the process – clearly not your normal Focus journalist.

It is also recognised by contractors in Germany that unlike the authority’s accusation of O2’s “aid for tax evasion” and that they redirect workers through foreign agents, that the reality is their commercial need for flexibility.

In the IT world contractors are essential to bring in on a short-term basis, to orchestrate new and often cutting edge projects. Once work is complete their contract is terminated or skills used elsewhere on another project. True independents like this are used the world over and flexible working has repetitively proven itself commercially time and again.

The experience painted by the Focus article’s fictional character is unusual and is a device by the tax authorities to spread rumour and create common concern to suit their case.

However, many people believe the authorities in Germany are over stepping the mark when they interfere in companies sound commercial decisions. As explained to me by someone who works at O2, O2’s procurement departments invite many companies to offer a portfolio of expertise and it is also common knowledge that PSB itself tendered to supply expertise providing details of its full range of solution delivery. This process is to satisfy a commercial need which cannot be satisfied by employees alone.

Steven S’s example is a fantasy. I do not believe for a second that there are “Trust funds” or “sophisticated systems” uncovered by the tax authorities. There is however a “tax trick” which has been developed and used by the German authorities to extract money by false pretence i.e. create a mythical scenario and if the accused cannot disprove it then they must cough up the money! It is S.42 of the German taxes Act that provides that weapon to the authorities. Such misuse of authority would never be allowed in any other civilised country.

I hope this puts matters in a little bit more perspective.

PS I agree with PatrickN (3 April), that there is a good chance some contributors to this thread are officials of the German tax office who are, as explained above, known for infiltrating the internet to create rumour and evidence. It is then easy for them to misuse S.42 because then the burden of proof shifts to those being targeted by the tax authorities i.e. using their “tax trick”.

[LilDarling]

Dmmkopf!! Sapcoder is absolutely right. For ‘Steven S. 42’ just drop the Steven and leave ‘S. 42’. This has to be more than just an amazing coincidence. For the anoraks among us, S42 is the ‘Anti Tax Abuse Provision’ in the German General Tax Code, Section 42, paragraph 1. An explanation of Section 42 can be seen at http://www.linklaters.com/pdfs/publi...008_070620.pdf

Linklaters is one of world’s leading law firms. In the link, their commentary “doubts that the new provision (due within the Annual Tax Act 2008) will work in practice……..it is also doubtful if it is in line with constitutional law”.

A girl I know in Germany who works in one of the tax offices has been sharing with me some of the scams her superiors are using to falsely accuse individuals, foreigners and nationals, across Germany of tax evasion. Fortunately for those lucky enough to afford legal and tax advice, their German accountants and lawyers have got wise to these attempts and stern intervention soon forces a climb down from the taxman.

[AgentfromHell]

I don't know if aybody is still interested in this topic, but considering that there are plenty of contractors still on contract in Germany and heading out there, I will add my story to the previous accounts.
I have worked with, or should better say, used to work with management companies from around the year 2000 onwards. as you might be able to tell by my nic I wasn't contracting but on the side that paid the contractor bills.

Until about 2003 there seemed to be no issue with contractors using so called "management companies" (Albany, PSB, Capital, Tresag, Point of Contact, etc) in Germany.
Then something happened that initially appeared to only affect small pockets of contractors, particularly in Munich: The Finanzamt started taking an interest in several contractors that were working through the agency I was at and operating via management companies. Then things went quiet again for quite some time until the real bombshell hit in Bavaria and Baden-Würtemberg.
Not only did the Finanzamt take an interest in the contractors, but also in the agencies in germany that were dealing with management companies, i.e. paying the contractor fees to them. There were at least two raids by the Finanzamt at agency premises.

The "sqeaky clean" image of the management comanies started to crumble, when it became apparent that not only a handful, but hundreds of mainly British contractors were only declaring around 50K Euros a year, a pretty meager salary, and the rest of the money disappeared and was paid to the contractors through other means, channelled past the German fiscal authorities in one way or another. The most primitive approaches were to just pay the diffence to an off-shore acount.
The Finanzamt only had to put 1-and-1 together: One the one hand they had German contractors declaring their earnings of around 120K Euros per annum and on the other the "foreigners" were only declaring 50K Euros.
Great Scheme...

However, it appears that getting at the contractors was not that straightforward. So the Finanzamt came up with the "Letter Box" company status. A "Letter Box" company, i.e. a company that only has a name on a letterbox without actually having a active presence in a country, is not recognised as a legally trading entitiy in Germany. As luck had it for the German authorities,most of the management companies had "Letter Box" companies in places like Switherland, Luxembourg, Malta, Cyprus, etc.
Therefore the Finanzamt was able to declare a direct link between the agencies and the contractors (ie. by not recognising the management company) and thus could claim not only that income tax had been withheld, but also VAT as the services had been rendered by a contractor in Germany to agencies based in Germany.
In some cases, as with O2, even offices of end clients were raided.

What is the point of my posting? Well, I believe everybody here is old enough to make decisions of their own whether to use a management company. I know that quite a number of people went through and are going through hell at the moment as the Finanzamt can go back 10 years, to really screw people over. The "help" that the management companies give contractors, when they are being investigated is laughable, if you believe they will help you out.
From an agency point of view, I initially worked with management companies in good faith.
Now, I personally would stay well clear of them for a contract in Germany.

Happy contracting

[AgentfromUK]

As the owner of an international recruitment consultancy based in the UK, I read the entry from a German counterpart (AgentfromHell) hoping for a credible insight into the currently shambolic state of the contracting market in his country. He sadly follows the party line laid down by the German authorities, blaming all foreign “management companies” (presumably endorsed by their contracting parties – all foreign agencies and all their expatriate contractors) for an apparent loss of tax revenue. At this early juncture, I must readily acknowledge that, over recent years, some rogue companies have entered the insatiable German market for expatriate contractors and it is these companies and their rogue contractors that the German authorities should be targeting.

Like AgentfromHell, I have been dealing with “management companies” for many years – mainly because I was originally forced to by UK law – and have developed a deep understanding of their role and have certainly learnt how to route out the rogue traders amongst them. So, let me now fill in some of the gaps missed by AgentfromHell and correct some of the points made by him.

I know many UK agencies are experiencing, what seems to be, a conspiracy led by the German government to deny us all business in Germany. Certainly many of my German-based clients have been “encouraged” by their local tax offices to use local recruitment agencies instead of non-German ones – even if they are within the EU. We all know this is against EU law, but do any of us have the money and the time to take the German government to court?

Of course, as a German agent, AgentfromHell can easily steer clear of, what he terms, “management companies”. The law in Germany allows their agencies to make direct payments to contractors structured as ‘freiberuflers’, freelancers; whereas UK law makes it illegal for a UK agency to make a direct payment to a self-employed individual, wherever he or she is working in the world. But even if UK law was to change, there are sound reasons for recruitment agencies not wanting to pay direct. For example, my agency prefers a larger and superior organisation to take some responsibility for the contract rather than leave it with an individual contractor. German authorities need to understand that the contract chain is not enlarged solely for tax reasons but very much for commercial ones, such as allowing a contractor to operate in the same way as their German counterpart, as a ‘freiberufler’.

Instead of contracting with a, so-called, “management company”, my agency will only contract with an interim company (in fact, one that was included erroneously in AgenctfromHell’s “so-called” list) as that facilitates the contract chain. We also carry out due diligence to satisfy ourselves that all our contractors are declaring their worldwide income in the country in which they are tax resident.

Accordingly, our preferred interim company would never support the infamous “split solution”, whereby every month part of the payment is declared in Germany and the remainder is paid into the contractor’s personal offshore bank account and is not declared – that is 100% tax evasion. With EU governments now having access to personal bank accounts held by their citizens outside their home countries, it is only dumb contractors who continue with the split solution thinking they remain safe from a tax investigation.

Do not misunderstand me. If a contractor does not declare their worldwide income and they purposely defraud the German Tax Authority, they deserve the full weight of the law upon them.

However, not all interim companies are involved with this practice. It is the view of many UK agencies that disreputable tactics are being used by the German authorities to try and force legal interim companies and their contractors to admit to illegal acts which they have not committed. Surely, such aggression needs to be reviewed by an unbiased member of the European Parliament, without the interference of the German authorities.

Everyone knows the largest exponent of split solutions – strangely not mentioned by AgentfromHell – is a management company that claims access to tax solutions in over 80 countries, including Germany! My agency will never use them because they openly pay kick-backs to sales consultants for referrals; pay a small part of the gross contract income to the contractor in the host country; and pay the balance into a personal account opened for the contractor by the company at a bank in Switzerland. The company then arranges for the bank to issue the contractor with a VISA debit card knowing the contractor will access those funds 24x7 without declaration – this is clear tax evasion, definitely not tax planning!

AgentfromHell then continues with reference to the German party line that every “management company” is a, so-called, letterbox company. He clearly does not understand that by blindly blacklisting all interim companies in this way, the German authorities are discriminating against every foreign company attempting to supply services in Germany. Even the German authorities know this is an illegal restriction and transgression of European law, but which interim company has the time and money to take them to court?

Whilst it is clear the German economy is in a desperate state, it seems the tax authorities are embracing foul means to increase the public purse by extracting income taxes and VAT taxes that are not really due. Windfall VAT taxes maybe assessed where the services are rendered by an expatriate contractor in Germany to an agency based in Germany (as described by AgentfromHell). But VAT cannot be extracted where a UK agency is in the chain because it is VAT registered in the UK and, therefore, the contractors’ services become zero rated. So, VAT collection in Germany is certainly enhanced by the authorities ensuring German agencies are involved rather than UK ones. Interestingly, this practice is actually incorrect in German law where a non German interim company is involved, whether letterbox status or not.

On a final point, I need to correct another erroneous issue raised by AgentfromHell. The O2 offices were in fact raided because of practices conducted by O2. To improve its share price, O2 had decided to dispense with hundreds of expatriate employees on a Friday but re-engaged them as ‘freelancers’ on the following Monday – thereby, improving their profits by taking the staff overhead cost to ‘investments’ rather than ‘expenses’. Whilst the result of this action boosted O2’s share price and, as a by product, gave a social security saving benefit to the individual contractors concerned, the authorities were not at all happy with the loss of their PAYE revenue. It was unfortunate that a number of genuinely self-employed expatriate contractors who happened to be working at O2 at the same time had become caught up in the authorities’ fury. And so all these foreign expatriates were openly declared tax evaders and used by the image conscious tax authorities to deflect a public outcry against unfair and unrelated practices that those authorities were increasingly using on German tax payers.

As every day passes, it is becoming clearer the German government wants foreign workers out. This apparent dislike of foreigners (including agencies and contractors) is driving away highly desirable skill sets forcing end users to stop projects that, in turn, will negatively affect the German economy. My agency is one of a growing number becoming focussed on contracting needs outside that country.

[AgentfromHell]

@AgentfromUK
Having worked many years in the UK and delivering to the German market as well as having worked in Germany, I can only come to the conclusion that you are working at a "management company". You take what I have written far too personal to be an "agent", defending the "management companies" with far too much gusto, wanting to create a need where there is none.

The reasoning that you have brought up, may hold true for the company that you work for (I could take a guess which of the companies you are working at...). It is however not sound advice for a contractor who may be working in Germany.

You accuse me of "towing the party line" and naming only a select number of management companies and not mentioning others. The names mentioned are a small number of management companies that operate, some globally others pan-European, and is by no means exclusive. Too many people have set up "solutions" for contractors to name them all.

Your post reminds me very much of a letter that I received via a contractor, in which a representative of a management company tried to trivialise the actions of the German authorities and claim illegality to all actions by the Finanzamt.
It would have made me laugh, if it hadn't mocked the serious trouble that some contractors had got into, due to the fact that they had taken "advice" from that same management company.
The troubles for the contractors included raids on their private abodes in the early morning hours around dawn by tax investigators, technical specialists and police in uniform.

Maybe reason for the O2 was as you discribe, however the fall-out had little to do with what you wrote and it was by no means the trigger for the events that have affected contractors working through management companies.

Your last paragraph is laughable:
"As every day passes, it is becoming clearer the German government wants foreign workers out. This apparent dislike of foreigners (including agencies and contractors) is driving away highly desirable skill sets forcing end users to stop projects that, in turn, will negatively affect the German economy."
Having worked closely with German companies, immigration officers, tax authorities and local councils for years, I can say that what you have written is complete and utter b*llsh*t.

When I wrote "so called Management Companies" I didn't mean to sound negative about the term, but merely wanted to point out that they are not refered to as "umbrella companies".
Of course there is a lot at stake for management companies, so they are bound to defend their "legal" status at all cost and in the same way as AgentfromUK has done in the previous post.

[LilDarling]

Now now girls…… AgentfromHell of his own making, is at one and the same time, sticking two fingers up to reality and baring his sole, showing us exactly from which end his words are coming from.

If AgentfromUK is really a Management Company, surely AgentfromHell must be the code word for SpyfromGermany. I bet ContractorUK are rubbing their hands with glee knowing this is the chosen site for a showdown between good and evil. Will dawn raids give Herr Tax or Frau Tax an early victory or will the MC announce a solution to dumbfound the dmmkopf?

Being British, I’m siding with the underdog. From my previous entry, you know I’ve a spy in the camp who, after gentle probing, admits that under German tax law, it’s for the accused to prove innocence rather than the accuser to prove guilt.

Not only that but a contractor can elect for court action against the tax authorities but the case can take up to 4 years during which time the accused has to be able to bear prohibitive defence costs. And we can all forget EU law because EU non-Germans don’t have the same legal rights in Germany as German citizens.

But the bottom line is that if a contractor is naively not declaring his worldwide income, then he deserves to be s..t on by the taxman.

[AgentfromUK]

Thank goodness for websites such as this one where widely differing views on major contracting issues can be freely opened and dissected. Accordingly, I am very happy to continue the debate with AgentfromHell.

I make no apology for declaring my deep knowledge of so-called ‘management companies’ as they have often been a critical part of the contract chain. AgentfromHell is absolutely right to state I am taking his assertions very personally. After all, what these companies do directly affects my contractors, can affect my clients and potentially can have a major affect on my agency’s business.

Because contracting has been expanding at a rapid rate in recent years, we have all become aware of the increasing number of new companies entering the market pretending to be intermediaries promising compliance for contractors, security for agencies and safety for clients. It has become a key ongoing exercise for me and my FD to recognise what I term “virus entrants”. Like all professional agencies, we now have a strict vetting programme to sort the con artists from the genuine interim companies (as I call them) whose contracted performances we continually monitor to ensure we (and our clients) are getting real value for money. Whilst we use real interim companies to provide us with project teams and individual highly skilled consultants, we have recognised that some clients only want to deal directly with the interim to fulfil their project needs.

Despite having close ties to “German companies, immigration officers, tax authorities and local councils” and with a sound knowledge of “dawn raids by tax investigators, technical specialists and police in uniform”, AgentfromHell is sadly painting only part of the picture. Lawyers and accountants I have spoken to in Germany are worried that such raids are commonly carried out based on accusation with no actual evidence of wrongdoing.

On AgentfromHell’s final points, he and I will have to agree to disagree on our interpretations of the events at O2 as well as on our contrasting views of the outlook for expatriates contracting in Germany. Maybe I should have added that the diminishing tax take from relatively poor performing German businesses and the rocketing tax demands on German citizens, coupled with continually rising unemployment (all well publicised) is forcing the German government to use back door methods to squeeze easily identifiable scapegoats such as foreign workers (for example, expatriate contractors) and foreign businesses (e.g. UK agencies) until they hurt and are eased out - so, why not paint all expatriate contractors as tax evaders and “encourage” all German clients to only use German agencies? I know of UK agencies that have been delisted from German clients’ PSLs - not for commercial reasons but, as one client embarrassingly admitted, because his tax office had put pressure on him to make all future contracts with German agents only. On a wider level and even more worrying is what is represented by the highly publicised €5,000,000 paid last year to a corrupt and dismissed employee of a Liechtenstein bank for stolen information on German citizens. Such a criminal act shows the depths into which the German government is prepared to plunge in order to attack its own citizens. Perhaps this puts the authorities’ forced entry into a contractor’s home (a truly frightening experience for the wife and children) into perspective.

Unfortunately, much of my agency’s business is currently locked into Germany so, until I have built a replacement market elsewhere, I will continue to consider and stay knowledgeable on everything that impacts on my business in that country – including the decision to contract with interim companies to share the burden of contractual responsibilities, especially compliance.

[AgentfromHell]

Originally Posted by LilDarling

Now now girls…… AgentfromHell of his own making, is at one and the same time, sticking two fingers up to reality and baring his sole, showing us exactly from which end his words are coming from.

Oh, I am going to burst out in tears.

Originally Posted by LilDarling

Being British, I’m siding with the underdog. From my previous entry, you know I’ve a spy in the camp who, after gentle probing, admits that under German tax law, it’s for the accused to prove innocence rather than the accuser to prove guilt.

What your "spy" revealed is common knowledge in Germany, sorry to say. Also that tax investigators in Germany use the "Good cop, Bad cop" method is no news, often while their colleagues are rummaging through the wife's undergarment drawers ("Come clean now and it will be a lot cheaper for you... We can come to an agreement...")

Originally Posted by LilDarling

And we can all forget EU law because EU non-Germans don’t have the same legal rights in Germany as German citizens.

Och, zee evel Jerman. Err, no. I think you have seen too many '50s war films.

Originally Posted by LilDarling

But the bottom line is that if a contractor is naively not declaring his worldwide income, then he deserves to be s..t on by the taxman.

And to prevent that from happening contractors should go to a independent German Tax advisor and get counseling. If contractors want to use a management company they should get counseling from a German lawyer specialized in tax, that can detail the risks on any dosh set aside anywhere outside of the Vaterland.

@AgentfromUK (or should I call you Michael?)
How about this: Try to place German contractors, if you feel our fellow countrymen are being maltreated by the evil ancient German foe. Or doesn't that fit into your business model?