“The main purpose of this draft law is to make it more difficult for domestic taxpayers to evade taxes through companies domiciled offshore, and to use the heightened risk of being discovered as a deterrent,” according to the draft by the finance ministry.
Documents leaked in April from Mossack Fonseca, the Panama City law firm which specialised in the creation of so-called letterbox companies, highlighted the extent of tax evasion by the world's wealthiest individuals and companies through such offshore fronts.
According to the draft law, Berlin will require taxpayers and banks to provide more transparency on their links with such shell companies domiciled outside the European Union.
The requirement to declare assets would be reinforced, and failure to comply could lead to fines of up to €25,000 for individuals.
The ministry also plans to extend the statute of limitations time-frame during which tax evasion cases can be pursued.
The cabinet is expected to vote on the draft law in December, business daily Handelsblatt reported.
Germany, which chairs the G20 group of emerging and developed economies next year, has made combating tax evasion a key priority.