Foreign trade reports

The Bundesbank provides a total of 14 different reporting sheets (reporting forms) for reporting the reportable facts, which are aimed at different addressees or reflect different reporting purposes. For example, credit institutions and non-credit institutions have to use different reporting forms. A distinction is also made between payment reports, reports on the stock of receivables and liabilities and reports on the stock of assets. The reporting forms each have different requirements for reportable facts and reporting characteristics. These include additional information on the individual reporting items, such as the reporting code - a three-digit number that is to be assigned according to the purpose of the payment using a standardised catalogue - or the country of domicile of the payee in order to be able to classify the item on the part of the Bundesbank when preparing the balance of payments.

The following are generally subject to reporting

• Cross-border payments > EUR 12,500 that are not recorded within the Intrastat/Extrastat reports in connection with the cross-border movement of goods
• Cross-border receivables and liabilities from financial relationships and the movement of goods and services
• Holdings in and by foreign companies, branches and permanent establishments

Incorrect, incomplete or late declarations are violations of the AWV and can be assessed as administrative offences by the responsible customs authority. Fines of up to EUR 30,000 per offence are possible in accordance with the provisions on fines under Section 19 (6) of the Foreign Trade and Payments Act (AWG). Furthermore, liability for fines is not due to a specific breach of duty, but due to a general organisational fault (failure to exercise "proper supervision") in accordance with Section 130 OWiG in conjunction with Sections 9 and 30 OWiG. §§ Sections 9 and 30 OWiG against the company and the persons involved.

The provisions of the AWG on fines have not been extensively amended in recent years with regard to AWV reports. However, an increased review and monitoring of reporting obligations by the Deutsche Bundesbank and a stronger focus on industrial companies are recognisable. Among other things, this is due to the amendment of the AWV and the discontinuation of Z1 notifications as of September 2013, on the basis of which the payment notification for companies was carried out by the bank involved and not by the company itself. The preparation for such an audit by the Bundesbank, its organisation, the provision of data, system access and documents as well as the necessary explanation of processes, systems and business transactions mean corresponding effort for the employees of the company to be audited. In addition, reports submitted to the Bundesbank are regularly checked and, in cases of doubt, queried with the reporting party.

Increased attention must also be paid to AWV reports for the following reason: Following discussions with various associations, BaFin announced on 3 August 2018 that an intragroup cash management system does not require a licence under banking law if various compliance requirements are met. Part of the requirements are the creation of guidelines/specifications and the implementation of corresponding processes and systems to comply with legal provisions in payment transactions (in particular foreign trade law). This also results in the obligation to establish an appropriate reporting organisation and relevant foreign trade reporting processes.

Last but not least, companies are becoming increasingly cost-conscious, which poses current challenges when setting up reporting processes. In connection with the increasing centralisation of administrative tasks, the question arises as to whether the responsibility for submitting AWV reports is also transferred in the course of outsourcing accounting services or whether this remains with the respective company. On the other hand, the trend towards optimisation and even transformation of finance departments also has an impact on reporting processes. System adjustments require a revision or at least a review of existing processes, reports and settings. New technologies such as robotic process automation (RPA) and artificial intelligence (AI) are being analysed for their applicability within the reporting processes - for example, for the automated recognition of key reporting figures.

The most common sources of error can be roughly divided into the following categories:

• Ignorance and lack of clarity regarding the applicable regulations: The regulations of the AWV reporting system, which are concretised and supplemented by numerous information sheets and explanations from the Deutsche Bundesbank, are extensive and complex. In addition, the issues arising from modern distribution structures for the reporting system are not sufficiently taken into account. In the case of audits, the provisions of the Bundesbank are relevant, but the audited companies are often unaware of them, which can lead to numerous findings. Due to a lack of engagement with the regulatory provisions and a lack of training, the expertise required to submit correct, complete and timely reports is often lacking.
• No clearly defined responsibilities: Due to a lack of guidelines or process descriptions, there is a lack of clarity regarding the reporting sheets to be created and the departments involved and responsible for them. The resulting lack of delimitation of the issues to be reported leads to incorrect reports or duplicate reports.
• Process weaknesses and system-based sources of error: The fulfilment of regulatory requirements against the background of the large number of reportable transactions with different reporting characteristics is one of the greatest challenges in the area of foreign trade reporting. Efficiency and cost pressure, a constantly increasing volume of documents and, last but not least, the short reporting deadlines mean that manual activities for preparing the reports must be reduced to a minimum. However, it is often error-prone and outdated reports developed in-house that fail to recognise reportable transactions or output them with incorrect characteristics. A lack of plausibility checks and controls means that these are not recognised for years and, if discovered, numerous corrective reports with considerable volumes become necessary.

Those who have already identified, analysed and eliminated the listed sources of error before an upcoming audit are well advised to do so. It may also be worthwhile to make a voluntary disclosure if an offence is discovered. This is because, in accordance with the provisions of the AWG, prosecution as an administrative offence does not apply in cases of negligence if the violation was discovered by means of self-inspection and reported to the competent authority.

As this is a statutory requirement that is unavoidable, the focus should also be on how, i.e. with the help of which processes, methods and systems, the requirements can best be met, taking into account cost/benefit aspects. Potential for optimisation should therefore also be examined when setting up and further developing the reporting organisation and the relevant processes and systems - to avoid the risk of fines and to reduce reporting process costs and the time required.

Source: KPMG Corporate Treasury News, Issue 112, June 2021
Authors:  Nils Bothe, Partner, Finance and Treasury Management, KPMG AG; Anne-Kathrin Gillig, Senior Manager, KPMG Law; Timo Herold, Senior Manager, Risk & Compliance Services, KPMG AG; Christian Lohss, Manager, Risk & Compliance Services, KPMG AG