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Tax Pricing Agenda 2021: Tax Innovation

25 Jan 2021
Aktuelles, BEPS, Current news, Europe, German SMEs, Germany, Steuerplanung, Tax Planning, Tax Pricing Agenda
ATAD, Europe, European Commission, Germany, KPMG, OECD, tax, Tax CMS, Tax Pricing Agenda, Transfer Pricing Life Cycle, VerSanG

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.

 

Verwaltungsgrundsätze 2020

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.

  1. Identification: Provide continuous identification of transfer pricing issues.
  2. Tax Assessment: Provide a tax analysis of the identified transfer pricing issues based on provided calculations.
  3. Contract and Action Instructions: Ensure documented formalization of transfer pricing models in written agreements and instructions.
  4. Methodology and Actual Implementation: Ensure uniform application of transfer pricing methods for comparable transactions.
  5. Data Delivery and Calculation: Provide a consistent calculation of transfer prices according to the defined methodology.
  6. 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.
  7. Archiving: Provide audit-proof storage of the data in an understandable form.
  8. Process Monitoring and Escalation: Provide monitoring of processes and escalations.
  9. TP Documentation: Secure the documentation content for so-called local files.
  10. 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.

Related GCA articles:

Transfer Pricing Agenda 2021: Tax Efficiency

Transfer Pricing Agenda 2021: Tax Certainty

Transfer Pricing Guidance on Financial Transactions by OECD

Base Erosion and Profit Shifting

Transfer Pricing Focus of International Tax Authorities

Country by Country Reporting

 

Sources:

Organisation for Economic Cooperation and Development – Federal Ministry of Finance (Germany) – European Commission – KPMG Germany

German SMEs: Is the German recipe for success fit for the future?

13 Nov 2017
Big Data, Big Data, German SMEs

German SMEs are regarded as the core and engine of the German economy.

fotolia/Minerva Studio

There are estimated to be 3 million German SMEs and they generate an annual turnover of € 1.74 trillion. They account for 60% of all jobs and, with 80% of all training places, ensure that the next generation of apprentices is provided with specialist training.

SMEs are generally defined as companies with up to 500 employees and a turnover of up to 500 million. Most of these companies have almost 100 years of history and a niche specialisation. Their products, processes and services account for 40% of Germany’s export performance. With an earnings ratio of 13.9% these family-owned companies easily outperform the Dax companies at 10.2%.

Long-term planning and responsibility for the next generation

The biggest difference from the big Dax companies is, however, that the managing director is also the owner. This means that the entrepreneurial activity is characterised by long-term planning and responsibility for the next generation. As a quick dividend is not the commercial objective, SMEs take on lower financial risks.

Perhaps this is one of the reasons why German family-owned companies have proven to be so crisis-proof in recent years.

In recent years, foreign politicians have asked themselves more often whether this successful German model could perhaps also be imported. The extent to which SMEs are a German phenomenon and rooted in German history becomes clear when you realise that a few years ago there was not even a specific word for SMEs in France.

Fit for the challenges of the future?

But despite all the successes, German companies have to ask themselves whether they are fit for the challenges of the future. In the study “The digitisation of German SMEs” from August 2017, for example, the consultants at McKenzie reported that only one in two SMEs sees digitisation as an opportunity.

Reasons for the pessimism include a lack of adventurousness, a lack of willingness to innovate and a lack of financial resources for the implementation of digitisation projects. But even the recruitment of qualified IT specialists is not working for some SMEs.

Only a few industries are already developing new business models for digitisation

At the Digital Summit in June 2017, German Chancellor Angela Merkel called on SMEs to use Big Data’s opportunities wisely. Otherwise, there is a risk that providers of large platforms such as Google and Amazon “will clamber up the value creation chain”. However, according to a survey by Bitkom Research, only a few industries are using Big Data at all. Only a few industries, such as the automotive industry, insurance, chemicals and pharmaceuticals, are already developing new business models for digitisation. Data protection and IT security are also the topics of choice for three out of four.

The low affinity with the digital world is undoubtedly also related to the ageing of SMEs, which are being hit hard by demographic change: according to a study by KfW Economic Research, 36% of SME proprietors are over 55 years old, while those under the age of 40 account for only 12%. And these older entrepreneurs are less willing to invest than the younger generation.

The age structure of family entrepreneurs may also be one of the reasons why German SMEs are improving existing products to perfection, but not creating a truly radical innovation, which is a criticism recently expressed by OECD expert Andreas Woergoetter.

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