On December 16, 2022, the German Bundesrat approved the law implementing Council Directive (EU) 2021/514 of March 22, 2021, amending Directive 2011/16/EU on administrative cooperation in the field of taxation and modernizing tax procedural law (the so-called "DAC 7 Implementation Act"), which had previously been passed by the German Bundestag on November 10, 2022 (German language). In addition to the implementation of the DAC 7 Directive to create tax transparency in the digital platform economy, a second focus of the Act from a procedural law perspective is the modernization of external audits, which are also of particular importance from a transfer pricing perspective.*
The German Fiscal Code (AO) was modified to expedite external audits.
A new parent law, the "Platforms Tax Transparency Act" (PStTG), should regulate the reporting obligation and automated exchange of information for platform operators.
The automatic exchange of information with authorities in other EU countries is to be improved.
According to the current legal status, tax authorities should only require the submission of records for conducting an external audit, pursuant to Section 90 (3) sentence 5 of the German Fiscal Code (AO). Requiring the submission of records outside external audits is currently only possible in justified individual cases. According to the new Sec. 90 (4) AO, the tax authority shall now be able to demand the submission of records pursuant to (3) at any time and irrespective of whether an external audit is conducted or not. In the case of an external audit, the records have to be submitted without a separate request within a period of 30 days after notification of the audit order, whereby the submission period may be extended in justified individual cases. This is a tightening of the regulations insofar as such a submission is currently only required after an explicit request by the tax authoridy. The second tightening results from the reduction of the general submission period from previously 60 days to now 30 days.
Another tightening concerns the scope of the records that have to be submitted: Currently, the request for records pursuant to Sec. 2 (6) GAufzV should indicate both the business areas and the business relationships as well as sufficiently determine the type and scope of the requested records in terms of content. Thus, it should not be possible to request "the transfer pricing documentation", but only the records relevant for the respective external audit. Since the new Section 90 (4) AO refers to records pursuant to Section 90 (3) AO, it would be necessary according to the wording to submit both a full Master File and the Local File without a separate request in the event of an external audit. As a result, this practically leads to a contemporary documentation obligation of all transfer pricing aspects for the taxpayer.
If these obligations are not fulfilled, the sanction mechanisms will also be tightened. The new Section 162 (4) of the German Fiscal Code (AO) introduces a differentiation with regard to the point in time at which any surcharges are to be determined: If no records are submitted or if the submitted records are unusable, the surcharge is to be determined after the conclusion of the external audit. In the case of late submission of usable records, however, the surcharge is to be determined as soon as the deadline has been exceeded. In addition, it should now also be possible to set the surcharge for full weeks and months in partial amounts.
The new regulation is to be applied for the first time to taxation periods beginning after December 31, 2024. It also applies to taxes and tax refunds arising before January 1, 2025, for which an audit order pursuant to Section 196 AO is announced after December 31, 2024.
Our TP experts at WTS can support you by implementing efficient documentation processes that meet your organizational requirements and by preparing compliant transfer pricing documentation.
Global consistency can be ensured through our worldwide network WTS Global. In addition, internal resources can be relieved through the flexible use of appropriate technology tools.
For the preparation of the Local Files, a modular documentation approach based on the OECD requirements is recommended. This approach is based on standardized modules and templates, i.e. Company Analysis, Controlled Transactions and standardized Transaction modules (per transaction). These modules are merged according to the needs of the individual entity. In the course of the subsequent editing, the templates are filled with company-specific information.
We digitize processes to be prepared for the challenges ahead. Without an automated solution, it is almost impossible to fulfill all TP requirements in the foreseeable future. Each project is unique and the "one fits all" solutions do not exist. WTS assists in selecting the best technological solution - or a combination of solutions.
Our TP experts at WTS recommend a centralized approach for the preparation of Local/Master Files. For this purpose, we prepare OECD-compliant Local/Master Files centrally for the entire group in order to achieve the best possible consistency.
Based on a risk evaluation, the local WTS member companies are integrated in a flexible way by dividing the countries into risk levels to ensure that local requirements are considered. On request, local WTS member companies review and adjust the OECD-compliant Local/Master Files. Using this approach, the right balance between a centralized view and local specifics can be achieved.
* View (German language): Bartelt/ Nientimp: BMF: Referentenentwurf eines Gesetzes zur Umsetzung der "DAC 7"- Richtlinie und zur Modernisierung des Steuerverfahrensrechts mit Schwerpunkt Außenprüfung. In: DStR-Aktuell, Heft 29/ 2022, S. 142- 144; Bartelt/ Nientimp: Regierungsentwurf eines Gesetzes zur "DAC 7"-Umsetzung und zur Modernisierung des Steuerverfahrensrechts. In: GmbH-Rundschau, Jg. 113 (2022), R276-R278; van der Ham/Mank: Deutliche Verschärfung der Mitwirkungspflichten -Gesetz zur Modernisierung des Steuerverfahrensrechts vom 11.11.2022, IStR, 2022, 891
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