Online payment services like PayPal are becoming increasingly popular. However, not with tax fraudsters and other criminals, because the tax office has long had access to PayPal accounts and can demand to see the money movements in the event of inconsistencies in the tax return or other suspicious cases.
In the wake of online banking, more and more financial service providers have entered the market to simplify online payments. Money can be transferred more conveniently via their apps than online via your own bank account, and buyer protection also helps if you fall for a scammer while shopping online. But does the tax office actually know what you’re doing via PayPal and the like?
No access at foreign company headquarters
While the legislature was relatively quick to set up new rules for banks to ensure that everything goes according to the book when it comes to online payments, it took a little longer for alternative financial service providers like PayPal and Klarna. One reason for this was that these companies usually had their headquarters abroad, so a state had no legal access to the service provider.
However, this opened the door to the conduct of dubious business, which states and their authorities, especially tax offices and the police, would be better off not knowing about from the point of view of those involved. These times are long gone, however, because the legislature has now reacted to this situation.
Tax office can request account retrieval for PayPal and Co.
First of all, the German government made sure that tax offices had access to bank accounts in the first place. In 2003, the Act to Promote Tax Honesty was passed, which came into force in 2005. The idea was to curb tax evasion by allowing tax offices to request account retrieval via the Federal Central Tax Office (BZSt).
In the event of a call by the tax office, however, no information about account balances or money movements is revealed – neither about the bank account, nor services such as PayPal or Klarna. Unless the authority requests a retrieval, for example, on suspicion of tax evasion. Then the BZSt also transmits sales and account balances. Incidentally, there were several lawsuits against the law, but all of them failed before the Federal Constitutional Court at the latest.
If a declaration is missing, the tax office also checks PayPal accounts
PayPal also falls under the law for the promotion of tax honesty, because on the one hand the online financial service provider has a company headquarters in Germany. On the other hand, PayPal is nothing more than a bank account that only exists online.
However, before the tax office demands to see the PayPal account, it usually asks the owner. If, for example, the owner is unable to explain irregularities in the tax return conclusively, even the sleepiest tax official will become suspicious.
Exchange of information between states
In addition, PayPal’s European headquarters are located in Luxembourg, i.e. in the middle of the EU. Luxembourg is one of the many countries that have signed the agreement on the automatic exchange of information (AEOI) of tax information. Through this, countries exchange account information with each other according to set standards.
You would have to open a bank account in Samoa or Trinidad and Tobago to escape this information exchange. However, if you have nothing to hide from the tax office, you have nothing to fear – not even the authority’s access to your PayPal account.