Tax security is a high priority for tax authorities. The most critical influences on investment and location decisions are uncertainties in corporate tax and the VAT system. It is crucial to ensure financial security, which is also the case with digital business models in Germany.
To have Tax Certainty, you need Compliance and Controversy. You have obligations to cooperate with the tax audit, and you need to record your work before and during this audit. Are there tax disputes? Then you can use dispute settlement instruments.
The recently applied administrative principles of the tax auditing practice in Germany are:
- Increased duty of cooperation, according to Section 90 (2) AO. The relevance of documents and data of foreign persons, such as e-mails, Messenger messages, and electronic media, is necessary. If necessary, you can contractually guarantee the internal group relationship.
- Increased obligation to cooperate in accordance with Section 90 (3) AO. You must provide evidence for data or documents as a basis for testing by using different methods.
- Suitability documentation. With the introduction of the « Best Method »-rule, you can leverage third-party comparison data for budget calculations and sensitivity analysis for valuation.
- Estimates, according to Section 162 (3) and (4) AO. Please refer to this Section if your documentation cannot be used, even if the content differs from the tax authorities’ view.
ATAD implementation law (Anti-Tax Avoidance Directive)
Little change has taken place in ATAD. If you wish to read about this law, the European Commission is consistent in releasing ATAD information.
Tax CMS: Accounting obligations and tax audits in Germany
« For tax evasion of the various forms of intent, conditional intent is already sufficient. » Legal Framework – Decision Implementing Section 143 AO.
If the taxpayer has set up an internal control system (ICS) to meet tax obligations, this may be an indication against intent or recklessness. However, this does not exclude an investigation of the concerned individual case.
Verbandssanktionengesets/Association Sanctions Act (VerSanG):
The basis of the association sanction is a so-called association law. This includes tax evasion. Association acts can be punished with hefty fines; the amount of the fine depends on the company’s size. If there are sufficient factual indications, public prosecutors are obliged to conduct an investigation (principle of legality). It is explicitly stated that (fiscal) CMS measures can have a mitigating effect as part of the sanction.
Transfer Pricing Life Cycle
Even errors down to the smallest details can cause issues. You can use the Transfer Pricing Life Cycle to determine where attention is necessary.
- Identification: Provide continuous identification of transfer pricing issues.
- Tax Assessment: Provide a tax analysis of the identified transfer pricing issues based on provided calculations.
- Contract and Action Instructions: Ensure documented formalization of transfer pricing models in written agreements and instructions.
- Methodology and Actual Implementation: Ensure uniform application of transfer pricing methods for comparable transactions.
- Data Delivery and Calculation: Provide a consistent calculation of transfer prices according to the defined methodology.
- Booking: Provide the accounting mapping of transfer prices in an understandable and uniform form. Monitoring: Provide regular monitoring of compliance with transfer pricing models throughout the year.
- Archiving: Provide audit-proof storage of the data in an understandable form.
- Process Monitoring and Escalation: Provide monitoring of processes and escalations.
- TP Documentation: Secure the documentation content for so-called local files.
- Tax audit: Ensure implementation of tax audit findings in subsequent years.
If you need further information, or if you have any questions, feel free to contact us. You can find the necessary information on this topic on the OECD (Organisation for Economic Cooperation and Development), the BMF (Federal Ministry of Finance of Germany), the European Commission, and KPMG Germany websites.
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