Reporting obligations pursuant to Art. 138 AO – what is increasingly coming to light during tax audits

Reporting obligations pursuant to Art. 138 AO apply in particular to foreign businesses and permanent establishments as well as cross-border shareholdings established by domestic individuals and companies. 

In business practice, this area is often underestimated or sometimes ignored altogether – even though the legal requirements have been in place for years. However, tax audits are now increasingly focusing on such issues. 

What is regulated: Content and scope of application 

Art. 138 AO contains several reporting obligations – both national and international. In essence, these obligations relate to transparency regarding activities and shareholdings with potential tax relevance, especially in relation to foreign matters. The following are particularly relevant in this context: 

• Art. 138 (1) AO: Opening of a domestic commercial enterprise or permanent establishment 
• Art. 138 (2) Nos. 1–3 AO: Establishment, acquisition, or discontinuation of enterprises or permanent establishments abroad or investments in foreign companies 

These obligations apply regardless of a company’s size. The decisive factor is the transaction itself – e.g., the establishment of a permanent establishment or the acquisition of an investment with a foreign element. 

Reportable circumstances pursuant to Art. 138 (2) AO – common scenarios 

The following transactions are reportable in the case of foreign transactions: 

• Establishment or acquisition of foreign businesses or permanent establishments (Art. 138 (2) No. 1 AO) 
• Acquisition, disposal, or change of a shareholding in a foreign partnership (Art. 138 (2) No. 2 AO) 
• Acquisition or disposal of interests in foreign companies with a shareholding of 10% or more or acquisition costs of EUR 150,000 or more (Art. 138 (2) No. 3 AO) 
• First-time opportunity to exercise a direct or indirect controlling or decisive influence on a third-country company (Art. 138 (2) No. 4 AO) 

These circumstances often arise in the context of expansion projects, internal group restructuring, or private equity investments – and are sometimes not classified as reportable. 

Deadlines, forms, and procedures 

The notification pursuant to Art. 138 (2) AO must generally be submitted together with the income tax or corporate income tax return or the tax return for the separate determination of the tax base (Feststellungserklärung) for the tax period in which the circumstances to be reported occurred. However, the notification must be submitted no later than 14 months after the end of the relevant tax period (Art. 138 (5) sentence 1 AO). 

The notification is filed using a standardized procedure: 

• The notification is submitted electronically via the ELSTER portal or in writing to the relevant tax office 
• Individual details must also be provided in the tax return – however, these do not replace the formal notification 

Missing reports – something that is increasingly being paid attention to 

In practice, taxpayers regularly fail to file the relevant notifications, for example, because the transactions are not recognized as reportable or because formal procedures have not been clarified. Common causes include: 

• Holdings of less than 25 % are incorrectly classified as not reportable, even though the threshold is 10 %. 
• Permanent establishments abroad are classified as “inactive” and are therefore not reported. 
• It is assumed that an entry in the tax return is sufficient, which is regularly not the case. 

During tax audits, the tax authorities now specifically ask for reports in accordance with Art. 138(2) AO – particularly if there are indications of international connections. The tax authorities may request evidence, investigate facts, and, if necessary, request subsequent reports. 

Legal consequences of omissions – objective classification 

Failure to comply with the reporting obligation under Art. 138 (2) AO may be considered an administrative offense pursuant to Art. 379 AO. In this case, a fine of up to EUR 25,000 may be imposed. Initial findings are generally followed by a request for subsequent reporting, especially if the violation was not systematic or intentional. 

The legal classification always depends on the individual case. The decisive factors are whether the facts are relevant for tax purposes, whether they have been documented in a comprehensible manner, and whether they have already been disclosed to other authorities (e.g., as part of a tax return or in the e-balance sheet). 

Recommendations for practice 

A structured approach is recommended to comply with the reporting obligation: 

• Establishment of internal audit routines based on standardized questionnaires, for example, for acquisitions of shareholdings, company formations, or the commencement of foreign activities and the resulting establishment of foreign permanent establishments 
• Coordination between accounting, tax consulting, and, if necessary, the legal department 
• Central documentation of foreign activities and cross-border shareholdings 
• Regular review of existing structures – especially in the case of growing groups, new investors, or transactions with foreign elements 
• Particularly in small and medium-sized companies without their own tax department, the reporting obligation under Art. 138 (2) AO is often not systematically monitored. This makes it all the more important to establish clear internal rules on how relevant transactions are identified, classified, and reported in a timely manner. 

The reporting obligations pursuant to Art. 138 (2) AO are manageable in practice, but they do require attention and reliable processes.