Contracting in Germany

[AlfredJPruffock]

IME all of the overseas management companies that offer reasonable returns operate in the way that you have suggested.

And wrt Germany, I have been told that the Finanzamp have recently had a round up of people operating through dodgy schemes and assessed them for tax on the gross billings, though I have no idea of the details.

tim

The Finanzampt excell at seeking through Dodgy schemes then sending you a whacking tax demand - often for may years retrospectively - I know some UK contractors whom have fallen foul of these boyz - they are NOT nice people to deal with .

As they say in Germany - everybody has one foot in prison.

If they catch you - either cough up or leg it - altough for good measure they will pass on your info to the UK authorities - what happens after that Im not too sure.

[Close2Bankrupt]

Finanzsmt investigations

From further research into this, and discussions with other contractors / accountants, there are two issues currently being investigated by finanzamts in Germany:
- Income TAX, i.e. not decalring all income (German possibly also EU law states that all Income regardless of where it is earned, or located, must be declare dto the German authorities.) If they find out you have not decalred everything, then they will force you to redo you tax return, and additionally force a penalty / interest payment on that money. Supposedly prison is not an option but you could go to court and be put on prohbation.
- VAT, i.e. if they can prove that the the management company you use is there only as a front to filter the income i.e. does not provide a true IT service, but your end client is in Germany, then they can additionally force you to pay all the VAT that should have been paid, whether you have invoiced for it or received it.

If the management company is on the black list, then the finanzamt can go direct to your end client in Germany, and see how much Income was paid to your management company (German authorities see no difference between YOU and your management company in the case of black listed companies), and then come after you for the Income tax and VAT!

THE BIG QUESTION IS HOW DO YOU FIND OUT IF THE MANAGEMENT COMPANY IS ON THE SO CALLED BLACK LIST?

[Close2Bankrupt]

No Risk Contract in Germany

...‘Bavarian’ and ‘Close2Bankrupt’ created a story about PSB and, because I had previously contracted through PSB, I stupidly (yes, I admit) played along with them.....

I presonally would like to point out that I have nothing to do with, and want very little to do with the German government, with the exception of finding a safe and legal way for me as an Brit to contrcat in Germany.

I actually accepted a contract in Frankfurt and start tomorrow 7/4/08. As I could'nt find any clear information on PSB or any of the other management companies, to state whether they were 100% legit, then I have taken advice of a local accountant, and some colleagues that have also done stints in Germany, and have registered as Selbständige / Frieberüfler.

Supposedly as a Brit, there are a number of tax treaties etc, that will allow me to claim tax breaks for my stay in Germany such as dual housefold, so I should be able to reduce my taxes without and additional risks.

[feeble]

"And wrt Germany, I have been told that the Finanzamp have recently had a round up of people operating through dodgy schemes and assessed them for tax on the gross billings, though I have no idea of the details."

Does this actually refer to contractors which used PSB?

I'm also contemplating using these guys, but have heard that they had been caught out in Germany once? I don't know whether this is true though, so wondering whether anyone has some more info...The net retention they offer seems very high.
My contract will be in another country though.

[tim123]

I'm also contemplating using these guys, but have heard that they had been caught out in Germany once? I don't know whether this is true though, so wondering whether anyone has some more info...The net retention they offer seems very high.
.

I can't answer the question that you asked, but IME PSB offer a similar retention to the other management companies by using a similar method.

I know of nobody offering a good retention rate in Germany using a fully declared method of operation.

tim

[Close2Bankrupt]

From my understanding all of the management companies offer a similar deal, and tell you that they are either fully tax compliant, or are currently tax compliant due to a loophole in the German laws.

I think the only difference between these companies, apart from the percentage they charge, is the way the "other money" is handled, ie in an offshore account in your name, or offshore account in the name of a trust, and off course how you can access that money, ie via a loan from the trust, or some provide credit cards to access the money.

The problem is that there is no way of finding out if the company you want to use has been blacklisted, or is under investigation.

[Moscow Mule]

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.

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]

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.

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.