Transparency Register: New draft bill introduces significant changes and new obligations

On 10 February 2021, the German Federal Government published a draft bill for a Transparency Register and Financial Information Act (Transparenzregister- und Finanzinformationsgesetz, TraFinG, draft bill). The draft bill has been in the legislative procedure since 12 February 2021. The Act is designed to make some crucial changes to the obligations with respect to the Transparency Register, which are part of the German Money Laundering Act (Geldwäschegesetz, GwG). Currently, the plan is for the TraFinG to enter into force on 1 August 2021.

What is the aim of the TraFinG?

The TraFinG is designed, in particular, to make it possible to network the European transparency registers and thus step up the fight against money laundering and terrorism financing.

How will this aim be achieved?

As the German Transparency Register currently only has to be notified if the information on economic beneficiaries is not available from other German registers (e.g. from the Commercial Register), the German Transparency Register does not have all information on the economic beneficiaries, in particular of stock corporations and partnerships (so-called substituting register).

In order to network the European transparency registers, the German Transparency Register must be transformed into a full register. This is the only way to ensure that all the information on economic beneficiaries will be available in a uniform data format so that it can be retrieved throughout Europe through the transparency registers of all EU Member States.

Which significant amendments does the draft bill introduce?

In order to achieve this aim, the draft bill proposes to delete without replacement the so-called notification fiction, which has meant that many stock corporations and partnerships, in particular, have so far not had to notify their economic beneficiaries to the German Transparency Register. In the future, almost all companies with a registered office in Germany will have to notify their economic beneficiaries to the Transparency Register.
According to the draft bill listed stock corporations (and their subsidiaries) will have to notify to the Transparency Register in the future; these companies are currently exempt from this requirement.

What deadlines must be observed?

According to the draft bill, staggered transitional periods will apply within which those compa-nies, which were not previously required to notify their economic beneficiaries to the German Transparency Register, will now have to make the necessary notifications:

• Stock corporations (AG), partnerships limited by shares (KGaA) and societas europaea (SE) will have until 31 March 2022;

• Limited liability companies (GmbH), cooperatives, European cooperative and partner-ships will have until 30 June 2022;

• All other companies that have an obligation to notify (e.g. GmbH & Co. KG) will have until 31 December 2022.

What obligations will foreign companies have?

The reporting obligation to the German Transparency Register for foreign companies in the event of the acquisition of property located in Germany (asset deal), which has already been in place since 1 January 2020, will now be extended to share deals.

According to the draft bill, foreign companies will also have to notify the German Transparen-cy Register of their economic beneficiaries when they wish to acquire shares in a German company that owns real estate in Germany. Notification will be required wherever the planned share deal triggers the obligation to pay property transfer tax in accordance with § 1 para. 3 of the German Real Estate Transfer Tax Act (GrEStG). Under the current law, this will be the case where at least 95 % of the shares are acquired in a company that holds real property.

Foreign companies will only be exempt from this notification requirement if all information about their economic beneficiaries has already been notified to a transparency register of another EU Member State.

If a foreign company has failed to fulfil its notification requirements prior to the notarisation of the sale and purchase agreement (asset or share deal), the German notary is prohibited from notarizing.

What are the consequences of a breach of the obligations to the Transparency Register?

Failure to fulfil the notification requirements or providing false or incomplete information to the Transparency Register or failing to notify within the required time limits constitute administrative offences. Fines of up to EUR 150,000 can be imposed on companies or their directors for simple infringements, while fines of up to EUR 1 million or twice of the economic benefit of the infringement can be imposed for repeated or systematic infringements.

In addition to fines, since 1 January 2020, binding decisions imposing fines for the infringement of the obligation to notify the Transparency Register will also be published on the website of the Federal Office of Administration (Bundesverwaltungsamt) for five years for anyone to view (naming and shaming). The website specifies the type of infringement as well as the name of the company.

Need for further action and conclusion

The elimination of the so-called notification fiction will mean numerous German companies will have significantly more work. These companies must not only notify their economic beneficiaries to the Transparency Register for the first time, but they must also regularly review the information that has been provided and update it as necessary. This means that companies will need to implement a compliance system (effective internal monitoring and reporting system).

In the future, foreign companies must comply with their reporting obligations to the Transparency Register when acquiring shares in a German company with property in Germany. If they fail to notify the economic beneficiaries to the German or foreign Transparency Register, the German notary will not be able to perform the notarisation. It is therefore advisable to find out more about the requirements to notify the German Transparency Register before any notarisation is to take place.

We will let you know of the final legal text of the TraFinG and its practical effects before it enters into force.


Petra Bolle

Volker Szpak