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Follow up to the mandatory registration obligation within the German Transparency Register – and its upcoming introduction of the Once-Only Principle?
As of 1 August 2021 all legal entities under German private law and all registered partnerships fall within the mandatory obligation to register their ultimate economic beneficiaries within the German Transparency Register (Transparenzregister) according to the new German Transparency Register and Financial Information Act (Transparenzregister- und Finanzinformationsgesetz; in short: TraFinG).
Thus, this reporting obligation applies to the following German entity / corporate forms:
Among the German Kapitalgesellschaften / capital companies:
- Gesellschaft mit beschränkter Haftung (in short: GmbH) / German limited liability company
- Unternehmergesellschaft (haftungsbeschränkt) (in short: UG (haftungsbeschränkt)) / German entrepreneurial company (with limited liability)
- Aktiengesellschaft (in short: AG) / German stock company
- Kommanditgesellschaft auf Aktien (in short: KGaA) / German partnership limited by shares
- Societas Europaea (in short: SE) does not fall within the scope of the German Transparency Register due to its European company form
Among the German Personengesellschaften / private companies:
- Partnerschaftsgesellschaft (in short: PartG) / German partnership company
- Gesellschaft bürgerlichen Rechts (in short: GbR) / the German partnership under civil law is exempted from the reporting obligation for it is not yet a registered partnership.
The introduction of the registered partnership is planned as of 2024 according to the MoPeG.
Among German Handelsgesellschaften / trading companies:
- Offene Handelsgesellschaft (in short: OHG) / German general partnership
- Kommanditgesellschaft (in short: KG) / German limited partnership
as well as for the following legal form connection: GmbH & Co. KG
eingetragene Genossenschaften / registered cooperatives and eingetragene Vereine / registered associations.
Who may register at the German Transparency Register?
Obligated parties in the context of para. 2 GwG / Geldwäschegesetz / German Money Laundering Act, such as e.g. lawyers, shall identify their contractual partners and, if applicable, persons acting on behalf of the contractual partners as well as any ultimate economic beneficiaries prior to the establishment of the business relationship or prior to the conduct of the transaction (in practice, this identification is mostly carried out within the KYC / Know-Your-Client review) and may register the identified within the German Transparency Register on grounds of a respective power of attorney in the context of a mandate.
The above may also be directly arranged by the contractual partner himself.
That way, an entry in the German Transparency register may also be carried by legal representatives (e.g. by managing directors of a GmbH).
Entry of the so-called ultimate economic beneficiaries
According to the German Money Laundering Act / Geldwäschegesetz the so-called ultimate economic beneficiaries of a company are generally all natural persons who directly or indirectly hold more than 25% of the capital shares, control more than 25% of the voting rights or exercise control in a comparable manner.
In order to identify and register the ultimate economic beneficiary it is in principle sufficient to record the first and the last name of the ultimate economic beneficiary. In principle, there is no necessity to record the identity card / passport. Further data shall only be recorded in case of an existing higher risk of money laundering or terrorist financing. However, the place and date of birth, the nationality and the place of residence of the ultimate economic beneficiary may be recorded irrespectively of any identified risk.
No Once-Only Principle as an automatic data transmission from other registers
Prior to the TraFinG a registration within the German Transparency Register was initially only necessary, if the information on the ultimate economic beneficiary did not already result from existing electronically accessible entries in other registers, such as e.g. the commercial register or the register of associations.
There is no connection or link between already existing data within the other registers and the data that has to be provided to the German Transparency Register.
In addition to that, to date, there is no possibility of an automatic transfer of the relevant data (so-called Once-Only Principle), so that each entry in the German Transparency Register has to be carried out manually.
This has already led and will continue to lead to a high organizational effort for the affected companies.
Planned connection of the German Transparency Register with the electronic German Real Estate Register
The new German governmental coalition agreement of the new German government picks up on this topic. The German governmental coalition of the parties SPD / FDP / Grünen (Germany uses the metaphor of a traffic light / “Ampel” to describe the new government due to the fact that the colors of the parties are red / yellow / green).
According to the coalition agreement, the new German Government has set the following goal for itself ‘to improve the quality of the data within the German Transparency Register, so that the ultimate economic beneficiaries are effectively registered in all mandatory cases’. The new German government also pushes for ‘a digital connection with other existing registers in Germany’.
According to the new German Government, the electronic German Real Estate Register / German Datenbankgrundbuch shall be connected to the German Transparency Register in order to terminate ‘any concealment of the true owners of real estate properities’. This connection and its use shall thereby be structured in compliance with data protection regulations.
All this would lead to a significant change of the current status quo. Currently, the German Real Estate Register may only be accessed by notaries on ground of a legitimate interest. A public real estate register would change that completely.
Taking data protection regulations into account, Sections II and III of the German Real Estate Register cannot be made accessible at all.
New legal and practical questions with regard to the structuring of the planned connection between the German Transparency Register and the electronic German Real Estate Register
In particular the planned connection between the German Transparency Register and the electronic German Real Estate Register raises new legal and practical questions:
How should such a planned link be structured?
Will such a connection also enable an automatic transfer of data in the sense of the Once-Only Principle, so that the data from the Real Estate Register is transferred to the German Transparency Register without having to be entered manually again?
Such a connection could make things easier, at least for German companies. The real estate properties of German companies are registered in the electronic Real Estate Register, that way some data could be transferred to the German Transparency register.
However, it should be noted, that foreign companies must register their ultimate economic beneficiaries within the German Transparency Register when acquiring real estate property in Germany in case they are not are already recorded at a foreign transparency register.
A transfer of existing data from the German Real Estate Register is not possible, since the entry at the Real Estate Register only takes place with the acquisition of the property.
What does the data protection compliance of the register connection and its use mean? How is the data secured and, above all, by whom?
Looking to the future, there are also open questions about the scope of the German Transparency Register and its structure:
Should a data transfer from foreign transparency registers or even from foreign electronic real estate registers be made possible as well?
Rationale of the abolition of the German GwG-Mitteilungsfiktion / notification fiction and the mandatory registration obligation of ultimate economic beneficiaries within the German Transparency Register was initially the cross-linking with European transparency registers.
It would only be a logical consequence, if a data transfer from European transparency register to the German Transparency Register would be possible as well.
Is it tendency in the German legislation to introduce a public asset register listing company shares, real estate properties and other assets of the ultimate economic beneficiary?
If so, can the ultimate economic beneficiaries then protect themselves against the retrieval of their data by e.g. an information block in the sense of a disclosure ban? Because only a few ultimate economic beneficiaries will agree to ‘turn themselves into glass’ by providing their private data in order to meet the public's need and demand for transparency.