I. Difficulties

The EU Administrative Assistance Act (“EUAHiG”) of 26 June 2013 (BGB. I law 1809), which has been last amended by Article 4, the Act on Implementing the Amendment of the EU Assistance Directive and by further sanctions against profit cuts and profit transfers on 20 December 2016 (BGBl. I law 3000), permits an information exchange between the national tax authorities within the scope of a tax audit carried out at the same time (Sec. 12, 4 ff. EUAHiG).
A simultaneous tax audit represents an external audit within the meaning of Sec. 193 Germann Tax Act (“GTA”) and will be executed according to national regulations. With this type of audit, the only specialty lies in the collective specification of the scope of the examination by the revenue authorities of the countries involved and in the mutual information exchange during the audit.
Relevant for the information exchange should be the requirements of Sec. 4 EUAHiG, according to which a request of the foreign fiscal authority must be present, in which the likely significance of the information for the national taxation must be outlined. Furthermore, the requesting fiscal authority is obligated to fully use all national sources to acquire the information first. Only after the examination of the request may the information be communicated, whereby the taxpayer („company“) should be given the option of attending a hearing before transmission.
The Federal Ministry of Finance though has made it in their letter of 6 January 2017 clear, that in the framework of a simultaneous audit, no hearing of the concerning company with regard to specific exchange of information is required, as long as the company had already been consulted by the simultaneous tax audit and had explicitly been made aware of the impending exchange of information. This will particularly become critical, when non-affiliated companies are to be audited. A disclosure of sensitive data could lead to competitive distortion.
The interference seems to be even more serious, once some light has been shed onto the missing co-determination and control rights of the company in the taxation procedure.

II. Right of hearing

EA disclosure of information on taxes through the fiscal authorities generally violates the tax secrecy of Sec. 30 GTA, insofar as the disclosure is not justified. Therefore, the company must become aware of the data about to be handed over to the foreign tax authorities; otherwise, one cannot review its lawfulness and is therefore unable to enforce their rights. The transmission might already cause a damage, which cannot be reversed.
As a rule in general, the company must have had a hearing before any information is being passed on, Sec.117 para. 4. S.3 Hs. 1 GTA in connection with Sec. 91 GTA. This does not apply, however, when the national fiscal authority is offering information under EUAHiG to foreign fiscal authorities (Sec.117 para. 4 S. 3 Hs 2 GTA), although the national fiscal authority should perform a hearing. The fiscal authority provides a decision after its due assessment to its best judgement on whether or not a hearing takes places.
In this context, it seems problematic that with simultaneous tax audits the company will only attend a hearing at the beginning, but not in regard to a specific exchange of information. At the hearing for the simultaneous tax audit, often only the abstract possibility of an information exchange is being communicated, not, however, the specific information which will be forwarded. At the time of the initial hearing, the information, which should be handed over to the foreign fiscal authorities, is mostly unknown.
Consequently, due to a lack of a further hearing, the company cannot verify whether the German tax authorities fulfill the qualifications of the statutory authorization after EUAHiG and thereby respect the limitations of the tax secrecy.
Hence, we must face the question: How can the company enforce its rights effectively and prevent the transfer of sensitive data to foreign fiscal authorities at the same time?

III. No right of access to records

In addition, the tax law does not recognize a right of access to records in favor of companies.
That means the company has no chance to check the lawfulness of the administrative action by an inspection request and, if necessary, to file a lawsuit. In fact, the Federal Ministry of Finance supports the view that the fiscal authorities must decide upon the motion of the company after reasonable discretion. Thus it is crucial whether the company can justify the motion. Regardless, the right of access to a file concerning such data, which was forwarded by the company itself or are at least known to it, as well as notes of the tax authority, is excluded.
It has yet to be clarified whether the request of a foreign fiscal authority should already be considered as an internal note, which the company is not entitled to see. As a result, if information is being forwarded, which has been collected during the simultaneous tax audit and therefore the company is familiar with, the tax authority can decline the request.

IV. Interim relief

In order to prevent a disclosure of data, a motion for a temporary injunction may be made at the fiscal court.
The request shall state, as to why a legal violation of the person concerned results from a disclosure of information (so-called entitlement to an interim order), as well as to why an immediate decision of court is necessary (so-called basis to an interim order). The entitlement to an interim order results from Sec.1004 para. 1 of the German Civil Code (“GCC” analog in connection with Sec. 30 GTA. The basis of the interim order must at least contain the information which should be disclosed, as well as the countries concerned and an explanation, why the disclosure would represent a breach of the tax secrecy.
However, there are considerable doubts whether this legal protection is in fact enforceable. How should a company be able to name the relevant information, when it has absolutely no knowledge of it? If the company is being denied both a hearing and the examination of the files, he will also be denied every chance of taking legal action in front of a court.

V. Conclusion and future outlook

DFor the monitoring of the exchange of information, the tax law only offers inadequate options. If a simultaneous tax audit is being announced, one should make use of every chance offered up to influence the process from the beginning. One can only achieve a protection of data, when special attention is being paid to the process and the company always promptly attempts to assert his rights.