On 16 December 2022, the Bundesrat adopted the DAC7 Transposition Act, full title: Act to transpose Council Directive (EU) 2021/514 of 22 March 2021 amending Directive 2011/16/EU on administrative cooperation in the field of taxation and to modernise the law of tax procedure (Gesetz zur Umsetzung der Richtlinie (EU) 2021/514 des Rates vom 22. März 2021 zur Änderung der Richtlinie 2011/16/EU über die Zusammenarbeit der Verwaltungsbehörden im Bereich der Besteuerung und zur Modernisierung des Steuerverfahrensrechts), which had previously been passed by the Bundestag on 10 November 2022*. As well as transposing the DAC7 Directive concerning tax transparency in the digital platform economy, a second focus of the Act is on procedural modernisation of the external audit, which is of particular importance with regard to intercompany transfer pricing.**
As the law currently stands, section 90(3) sentence 5 of the German Tax Code (Abgabenordnung, AO) provides that, as a rule, revenue authorities should require the submission of records only for the purpose of conducting an external audit. Exceptionally, in duly justified individual cases, they may also do so in contexts other than external audits. Under the new section 90(4) AO, however, revenue authorities can now demand the submission of records in accordance with subsection (3) at any time. In addition, taxpayers subject to external audit will in future be required to submit records automatically within 30 days of notification of the audit order, although this period can be extended in justified cases. This represents a tightening of the rules - at present these records only need to be submitted if expressly requested by the auditors. In another tightening of the rules, the general submission deadline, previously 60 days, has now been reduced to 30 days.
The rules relating to the scope of the records that auditees must submit have also been made more stringent: Currently, a request for records pursuant to section 2(6) of the German Attribution of Profit Records Regulation (Gewinnabgrenzungsaufzeichnungs-Verordnung, GAufzV) must adequately identify the business units and business relations subject to audit and the nature and scope of the records requested. This means that the revenue authority cannot simply ask for a taxpayer’s transfer pricing documentation – it must request only those records which are relevant for the external audit it is conducting. As the new section 90(4) AO relates to records pursuant to section 90(3), according to the wording of the provision, a taxpayer undergoing an external audit would need to submit both the master file and the local file in full. The result is that the taxpayer is required to document every aspect of their transfer pricing virtually contemporaneously.
The penalty mechanisms applicable in the event that these obligations are not satisfied have also been sharpened. According to the explanatory memorandum to the Act, the new section 162(4) AO makes a distinction as regards the date on which any penalties are imposed: If no records are submitted, or if the records which are submitted are of no use, the penalty will be imposed following completion of the external audit. In cases where usable records are submitted late, however, the penalty will be imposed as soon as the submission deadline is exceeded. In addition, it will be possible to impose penalties for full weeks and months in instalments.
The new rules will apply for tax periods commencing after 31 December 2024. They will also apply to tax liabilities and tax rebates which arise before 1 January 2025, in respect of which notification of an audit order pursuant to section 196 AO is issued after 31 December 2024.
* Bundestag Printed Paper (Bundestag-DruckS) 605/22 of 25 November 22.
** See Bartelt/Nientimp: BMF: Referentenentwurf eines Gesetzes zur Umsetzung der „DAC 7“- Richtlinie und zur Modernisierung des Steuerverfahrensrechts mit Schwerpunkt Außenprüfung (Federal Ministry of Finance: ministerial draft law to transpose the DAC7 Directive and modernise the law of tax procedure with an emphasis on external audit). In: DStR-Aktuell, volume 29/2022, p. 142-144; Bartelt/Nientimp: Regierungsentwurf eines Gesetzes zur „DAC 7“-Umsetzung und zur Modernisierung des Steuerverfahrensrechts (Government draft law transposing DAC7 and modernising the law of tax procedure). In: GmbH-Rundschau, vol. 113 (2022), R276-R278; van der Ham/Mank: Deutliche Verschärfung der Mitwirkungspflichten - Gesetz zur Modernisierung des Steuerverfahrensrechts vom 11.11.2022 (Obligations to cooperate with revenue authorities significantly tightened - act of 11 November 2022 modernising the law of tax procedure), IStR, 2022, 891
