Online payment services such as PayPal are becoming increasingly popular. However, not for tax fraudsters and other criminals, because the tax office has long had access to PayPal accounts and can request access to 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 come onto the market that make paying online easier. 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 fraudster while shopping online. But does the tax office actually know what you do with PayPal and the like?
Legal situation then and now
While the legislature came up with new rules for banks relatively quickly to ensure that everything was legal when it came to online payments, it took a little longer for – at the time – alternative financial service providers such as PayPal and Klarna. One reason for this was that these companies were usually based abroad, meaning that a state had no legal access to the service provider.
However, this opened the door to dubious transactions that, in the opinion of some of those involved, states and their authorities, especially tax offices and the police, should not find out about. However, these times are long gone, as the legislature has now adapted to the 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 ensured that the tax offices had access to bank accounts. In 2003, the Law to Promote Tax Compliance was passed and came into force in 2005. The aim was to curb tax evasion by allowing tax offices to request account access via the Federal Central Tax Office (BZSt).
However, when accessed by the tax office, no information about account balances or money movements is revealed – neither via the bank account nor through services such as PayPal or Klarna. Unless the authority requests a retrieval, for example because of suspected tax evasion. The BZSt then also transmits sales and account balances. By the way: There were several lawsuits against the law, but all of them failed before the Federal Constitutional Court at the latest. The legal situation and its application are therefore clarified.
Also read: E-Perso is finally coming to smartphones
The tax office is allowed to check 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, even if it only exists online.
Before the tax office requests access to the PayPal account, it usually asks the owner. If, for example, he cannot conclusively explain irregularities in the tax return, even the sleepiest – or busiest – tax official will listen up.
Exchange of information between states
In addition, PayPal’s European headquarters is located 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 Tax Information (AEOI). This means that states exchange account information with each other according to established standards.
You 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 own PayPal account.