DAC 7 for tax transparency and modernization of external audits

According to the current legal status, the tax authorities should generally only require the submission of records for the performance of the external audit in accordance with Section 90 (3) sentence 5 AO. In justified individual cases, this is currently also possible in exceptional cases outside of external audits. According to the new Section 90 (4) AO, the tax authorities should now be able to request the submission of records in accordance with (3) at any time. In the event of an external audit, the records should in future also be submitted without a separate request within a period of 30 days after notification of the audit order, whereby the submission deadline can be extended in justified individual cases. This is a tightening of the regulations insofar as such a submission currently only has to be made following an explicit request by the tax audit. The second tightening results from the shortening of the general submission deadline from the previous 60 days to 30 days.

A further tightening concerns the scope of the records to be submitted: Currently, the request for records in accordance with Section 2 (6) GAufzV should designate 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. It should therefore not be possible to request "the transfer pricing documentation", but only the records relevant to the respective external audit. As the new Section 90 (4) AO refers to records in accordance with Section 90 (3) AO, the wording would make it necessary to submit both the master file and the local file in full in the event of an external audit without a separate request. As a result, this leads to a quasi prompt documentation obligation of all transfer pricing aspects for the taxpayer.

If these obligations are not met, the sanction mechanisms will also be tightened. According to the explanatory memorandum to the law, the new Section 162 (4) 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 cannot be utilised, the surcharge is generally to be determined after the external audit has been completed. However, if usable records are submitted late, the surcharge is to be determined after the deadline has been exceeded. In addition, it should now also be possible to determine this in instalments for full weeks and months.

The new regulation is to be applied for the first time for tax periods beginning after 31 December 2024. It also applies to taxes and tax refunds that arise before 1 January 2025 for which an audit order pursuant to Section 196 AO is announced after 31 December 2024.

Our TP experts at WTS can support you by implementing efficient documentation processes that meet your organisational requirements and by creating compliant transfer pricing documentation.

Global consistency can be ensured through our worldwide WTS Global network. In addition, the flexible use of suitable technology tools can free up internal resources.

The German Fiscal Code (AO) has been amended to speed up external audits. A new parent law, the "Platforms Tax Transparency Act" (PStTG), is intended to 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.

The report must be submitted exclusively digitally in XML format according to the specified data set. In an automated procedure, the report must be submitted to the BZSt via the DIP mass data interface (Digitaler Posteingang - Schnittstelle). Form-based registration with the BZSt is currently not possible.

A DAC 7 report consists of three main blocks:

1. Information on the platform operator (e.g. reporting country, TIN, platform, address, etc.)
2. Information on the traders who sell goods and/or services via the platform (e.g. country, TIN, VAT ID, name, address, etc.)

3. Information on the transactions that are processed via the platform between merchants and buyers (e.g. country, address, net amount, number, etc.)

A modular documentation approach based on the OECD requirements is proposed for the preparation of local files. This approach is based on standardised modules and templates, i.e. the modules company analysis, intra-group transactions and standardised transaction modules (per transaction). These modules are combined according to the needs of the individual entity. During post-processing, the templates are filled with company-specific information.

We are digitalising processes to prepare for the challenges ahead. Without an automated solution, it is almost impossible to fulfil all TP requirements in the foreseeable future. Every project is unique and there is no "one fits all" solution. WTS supports you in selecting the best technological solution - or a combination of solutions.

Our TP experts at WTS recommend a centralised approach for the preparation of local/master files. To this end, we prepare OECD-compliant local/master files centrally for the entire group in order to achieve the greatest possible consistency.

Based on a risk assessment, the local WTS member companies are flexibly involved by categorising the countries into risk levels to ensure that local requirements are taken into account. Upon request, the local WTS member companies review and adjust the OECD-compliant local/master files. With this approach, the right balance between a centralised view and local specifics can be achieved.