Online payment services such as PayPal are becoming increasingly popular. However, not in the case of tax fraudsters and other criminals, because the tax office has long had access to PayPal accounts and can demand insight into the money movements in the event of inconsistencies in the tax return or other suspicious cases.
In the course of online banking, more and more financial service providers have come onto the market that simplify online payments. Money can be transferred more conveniently via their apps than online via your own bank account, and the buyer protection also helps if you fall for a scammer when shopping online. But does the tax office actually know what you do with PayPal and Co.?
No access for foreign company headquarters
While the legislature relatively quickly set up new rules for banks to ensure that everything runs smoothly when it comes to online payment transactions, it took a little longer for alternative financial service providers such as PayPal and Klarna. One reason for this was that these companies mostly had their headquarters abroad, so that a state had no legal access to the service provider.
However, this opened the floodgates for the handling of dubious transactions, which states and their authorities, especially tax offices and the police, should not find out about from the point of view of those involved. However, these times are long gone, because the legislator has now reacted to this situation.
Also read: Did you know what the tax office knows about you?
The tax office can request account access for PayPal and Co
First of all, the federal government made sure that the tax offices had access to bank accounts at all. In 2003, the Tax Compliance Promotion Act was passed, which came into force in 2005. The aim was to curb tax evasion by allowing the tax offices to request an account access via the Federal Central Tax Office (BZSt).
However, when the tax office calls it up, no information about account balances or money movements is disclosed – 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. The BZSt then also transmits transactions and account balances. By the way: There were several lawsuits against the law, but all of them failed at the latest before the Federal Constitutional Court.
Also read: A payment method you should never use with PayPal
If there is no explanation, the tax office also checks PayPal accounts
PayPal also falls under the law to promote tax honesty, because on the one hand the online financial service provider has its headquarters in Germany. On the other hand, PayPal is nothing more than a bank account that only exists online.
Before the tax office requests access to the PayPal account, they usually ask the owner. For example, if he cannot explain irregularities in the tax return conclusively, even the sleepiest tax officer will prick up his ears.
Exchange of information between states
In addition, PayPal’s European headquarters are in Luxembourg, 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. As a result, the states exchange account information with each other according to defined standards.
One would have to open a bank account in Samoa or Trinidad and Tobago to escape this exchange of information. However, if you have nothing to hide from the tax office, you don’t have to worry about anything – not even the authorities’ access to your PayPal account.