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.*
Contents of the DAC 7 Implentation Act
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.
What is the DAC 7 Implementation Act about and what does it mean?
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.
