Germany's Federal Ministry of Finance has published a draft Act introducing powers to impose sanctions on business relationships and shareholdings of residents of countries on the European Union's list of so-called non-cooperative states for tax purposes.

The draft Act to Combat Tax Avoidance and Unfair Tax Competition will apply to natural persons, corporations, associations, trusts and certain partnerships that are subject to German-resident or non-resident taxation. Its sanctions will not be applied uniformly across the EU list, but only to jurisdictions named on legislative decrees issued by the German Federal Ministry of Finance with the approval of the German Federal Council. These will be jurisdictions that do not provide sufficient transparency in tax matters, engage in unfair tax competition (zero or low corporation tax rates), or have not committed to implementing the minimum standards of the OECD/G20 base erosion and profit shifting (BEPS) framework.

The proposed measures cover both inbound and outbound payments and will come with obligations for taxpayers to cooperate in terms of documentation and disclosure. Expenses from business transactions with individuals or corporations resident in designated non-cooperative states will not be deductible for German tax purposes, unless...