It has been over ten years since the Great East Japan Earthquake hit Fukushima. Thanks to worldwide support and Fukushima’s rebuilding and cleanup projects in Japan, the prefecture is slowly but surely making an economic recovery. The road to full recovery is not yet finished. However, what if you want to invest or start a business in Fukushima? Is it better to wait another ten years, or are there exciting opportunities for foreign companies? Let’s look at the Japanese prefecture that is mainly known for the earthquake and nuclear disaster.
Restoring the image of Fukushima
In February 2021, the Fukushima Ambassadors of Reconstruction (ふくしま復興大使) published a video explaining the rebuilding of Fukushima and conveying their gratitude to the received support and aid. They are well aware Fukushima is still recovering; however, they want the whole world to know that living and working in Fukushima is not equivalent to nuclear danger. For the prefecture to fully recover and for (foreign) businesses to fully employ, local and national governments need to continue and alter their support.
Fukushima is a prefecture with around 2,8 million inhabitants, with a GDP of 7,399,860 million Yen in 2014¹. From a business perspective, the main challenges are the aftermath of the nuclear disaster and finding the region’s industries and economy’s strengths. However, there are many opportunities if your business or organization is part of the following sectors and industries:
- Ceramic engineering and soil
- Food and agriculture
- Electronic machinery
- Call centers
- Data centers
- Research and development (R&D)
- Advanced technology
- Medical and welfare
- Renewable energy
¹Based on the Prefectural Citizens‘ Economic Accounts of 2014 by the Cabinet Office
Incentives, subsidies and tax
Suppose you want to do business in Fukushima Prefecture or Fukushima City. In that case, the Fukushima government provides a subsidy of up to 50% of the designated land acquisition cost to support enterprise establishment. There is a subsidy system for foreign companies as well, for the costs of renting facilities, payment of utilities, management consulting fees, and personnel expenses. Furthermore, the Japanese and prefectural governments offer other subsidy systems and preferential tax systems, such as exempting corporate tax for five years.
You can receive a subsidy worth 50% of the land acquisition cost when you acquire 1.5 ha or more of an industrial park, invest 150 million yen or more in fixed assets, and start operating within three years of acquiring the land (30% for under 1.5). In addition, when you acquire privately-owned land and construct new bases in industrial regions, 5% of the acquisition cost is subsidized. In the case of R&D companies in medical care, medical welfare and/or renewable energy, this will be 10% instead of 5%.
Another subsidy for the promotion of employment is available when a company received a subsidy for land acquisition or was established in the mayor’s area and continuously employs new local employees for more than a year.
Suppose you employ more than five new local employees within a year or more since the start of operating. In that case, a three-year subsidy of 500,000 yen per employer is available if your company has received land acquisition grants. Once again, if your organization is medical and welfare-related and/or focuses on renewable energy R&D, you can enjoy a five-year subsidy instead of a three-year one. Furthermore, 50% of office rents are subsidized for three years as well.
Fukushima Special Zone Taxation for the Promotion of Industry Revival Investment
The manufacturing-related industry can benefit from Preferential Tax Treatment. This Treatment contains the following:
- Newly established businesses receive essential exempting of corporate tax for five years
- Businesses receive special depreciation or tax credit for investments in machinery, devices, and building.
- For the employment of disaster victims, you receive a tax credit of 10% for salaries payment.
- If your company is active in development and research, you will receive instant depreciation and a tax credit of depreciable assets.
- There are local tax exemptions in Fukushima Prefecture, such as enterprise tax, real estate acquisition tax, and fixed asset tax.
There is still much work to be done before Fukushima Prefecture is its old self. If you and your business want to assist Japanese communities and organizations hit by natural disasters, you can do so on the Japanese Red Cross Society website.
If you are looking for a professional to help you find your Fukushima business opportunities, do not hesitate to talk to us. We can either help you with this or help you find someone who can!
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Das Global Connect Admin Team wünscht Ihnen einen schönen internationalen Frauentag!
Der Weg zur Gleichstellung der Geschlechter ist noch lange nicht vorbei. Wir haben jedoch einige interessante Einblicke in die Entwicklungen in den Niederlanden:
Just as the year before, 2021 is another year with many changes. The European Commission has published new documents on the New Transatlantic Agenda. We are entering a new era with the US re-joining the Paris Agreement and President Joe Biden supporting the World Health Organization (WHO). With the enrollment of European green energy projects and the COVID-19 vaccines, together with global cooperation, the future seems brighter. However, there is still a lot to do before the European Union and the United States can sit back and relax.
Challenge 1: COVID-19 pandemic
Perhaps the biggest challenge for both the US and the Netherlands is the COVID-19 pandemic. Luckily the USA has re-joined the WHO. At the same time, the WHO is making sure vaccines are distributed to the developed world. This distribution is in everyone’s interest because the economy cannot go back to normal until the pandemic is completely vanquished and the world economy is restored.
Challenge 2: Digitalization
Forced by the pandemic, the speed of digitalization has significantly increased. Hopefully, the next time emergencies happen, the world is better prepared and able to act more efficiently with strategic autonomy. Protectionism is not the answer; we need to invest in our strengths and those of other countries. The EU aspires to be the world leader in energy, defense, key technologies and raw materials. The US is an exciting partner for the EU, and vice versa.
Challenge 3: Free Trade Agreements
„America First“ became „Build Back Better.“ The US economy has to be sufficiently competitive, and there are still actions needed to combat trade issues, but establishing FTAs can support this. Former-president Donald Trump blocked the application for new WHO memberships, which created uncertainty for businesses. If there is one thing businesses do not enjoy, it is uncertainty. President Biden has lifted the application block, which helps rebuild the partnership between the US and the WHO.
Challenge 4: US-China Trade War
China continues to both assist and challenge the world. The US and China have opposite technology and societal systems. In the past years, trade wars occurred between the two nations, affecting the EU. It seems the EU has to choose one of the two eventually, which adds fuel to the fire. The US and the EU have familiar societal systems and dialogue on technology. However, China is the EU’s leading supplier of goods. What will happen in the future is something only time can tell.
Challenge 5: Climate change
Organizations need to align a common strategy to make the best out of online platforms and big tech. With a solid plan, the approach to critical technologist protection, global change program implementation, and continuing the EU-US technology trade council goes sufficiently smoother. A big topic right now is climate change, with the US immediately re-joining the Paris Agreement at the start of President Biden’s inauguration. To reach the 2030 and 2050 climate goals, an ETS system (Emissions Trading System) is necessary. In 2005 the EU established the first large greenhouse to combat climate change by reducing greenhouse gas emissions. The EU ETS is the first global greenhouse gas emission trading-scheme and still the largest. If two immense economic powers (hint: the US and the EU) were to share the same system, we can effectively combat global warming, bringing hope to future generations. Another future investment is hydrogen: the EU is busy setting up hydrogen projects. We have not reached our climate goals. However, with the US back in the Paris Agreement, the future seems promising.
Are you wondering how to establish or expand your business to China or the US? As an experienced global administration office, Global Connect Admin can assist you with all matters of financial management, company administration, accounting and bookkeeping, and much more. Feel free to talk to us.
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Ihr Global Connect Admin-Team wünscht Ihnen ein frohes chinesisches Neujahr!
Wir hoffen, dass das Jahr des Ochsen Ihnen Gesundheit und Wohlstand bringt.
Hoffentlich ist dies das Jahr, in dem das Coronavirus unter Kontrolle ist.
2020 war ein hartes Jahr für alle; Hoffen wir jedoch, dass 2021 Wärme und Bestimmtheit bringt.
Wie die Chinesen sagen: 牛气 冲天 Stark wie ein Stier!
2020 was a year full of challenges and finding new means of fiscal innovations. The global economies suffered due to the COVID-19 pandemic. However, China ended up the first G20-country to be recovering. This recovery has to do with Beijing’s policy responses and epidemic control strategy, which is quite remarkable since China was the pandemic’s epicenter. Economics expect that China’s economy will be as strong as it was pre-pandemic.
From 16 to 18 December 2020, the Central Economic Work Conference was held in Beijing, with the CPC Central Committee and the Central Military Commission members. President Xi Jinping summarized the economic work in 2020, analyzing the current economy. In his speech, he explained the specific arrangements and planning of the economic work in 2021. On 6 January 2021, the People’s Bank of China (PBOC) published an online financial outlook statement. The PBOC adheres to the general principle of pursuing progress while ensuring stability. Furthermore, the bank offers adequate financial support in new developments. Some of the key takeaways are:
Financial support mechanisms
Support for technology innovation, private companies, and enterprises from medium- to micro-sized is on its way. This support includes an extension of PBOC inclusive loan repayment policies and loan support programs, with guidance from financial institutions.
Innovation of technology
Meanwhile, the Chinese government wishes to strengthen national strategic scientific and technological capabilities. This is exciting news for scientific research institutions and universities since they will be involved in this new nationwide system.
Implementation of a prudent monetary policy
PBOC calls the policy flexible, precise, reasonable, and moderate. This policy is beneficial for the market-oriented reform of the renminbi’s (RMB) exchange rate. China continues to advance the RBM’s internationalization, promoting and developing local and foreign currencies in onshore and offshore markets.
Control of the industrial supply chain
According to the Chinese government, the industrial and supply chain’s security and stability are the foundation for new developments. Major industry problems, from fundamental issues to complex weak points, need to be solved to strengthen the economy.
Leverage of financial technology
PBOC carries out digital currency pilot programs to encourage credit reporting in digital finance and economic governance, to combat and monitor money laundering.
The Chinese government needs to promote employment and shared prosperity, improve social security, optimize income distribution structure, and expand middle-income groups. For this to happen, the government needs to invest in education, forming a strong domestic market, rationally guiding consumptions, savings, and healthcare. China continues to invest in the digital economy and new infrastructure to strengthen unified planning and macro guidance. Therefore it is necessary to overall plan industrial layouts and to avoid repeated destruction of emerging industries.
Reforming and opening-up of the financial sector and the economic socialist market system
China wishes to improve diversified channels for bond default disposal and implement a prudential management scheme for real estate finance and a high-level socialist market economic system. This involves participation in global financial governance, expanding the two-way opening-up in the financial sector and the capital market, and keeping the foreign exchange reserve scale stable. China is also considering joining the Comprehensive and Progressive Trans-Pacific Partnership Agreement, keeping in mind the importance of using internationally accepted rules to maintain national security.
Improvement of the macro-prudential policy framework
For a faster improvement, China brings major financial activities, institutions, markets and infrastructures under macro-prudential management, improving financial holding companies‘ supervision system.
Combatting monopoly and unfair competition is an inherent requirement for improving the socialist market economy system. The Chinese State supports the innovation and development of platform enterprises as well as public and non-public economies. While enhancing international competitiveness, it is necessary to regulate under the Chinese law and improve digital rules, such as data collection and consumer rights.
Prevention and diffusion of financial risks
The PBOC takes measures to enhance prudential supervision of financial activities of internet platform companies. This strengthens an anti-trust push, prevents the disorderly expansion of capital, and improves inclusive financial services.
Advance of green finance
One of the global hot topics is carbon neutrality. Just as the European Commission, China has familiar carbon neutrality goals in mind: achieving carbon neutrality by 2060. China channels more financial resources toward green development for the green future, promoting a carbon emission trading market and continuing international green finance cooperation.
With or without COVID-19 in mind, doing business with China can be challenging. However, with adequate preparations, you can get off to a great start in a country known for global trade and healthy economies. Are you curious about your opportunities? Feel free to talk to us; we are happy to help you on your way or find someone who can assist you.
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Seeing the forest for the trees during the COVID-19 pandemic is a significant challenge. What rights do you have in the Netherlands as a (non-)Dutch business owner? Access to specific support packages depend on your living and working situation. If you live in France, for example, but pay taxes in the Netherlands, you can use schemes of the Dutch Tax Authorities, such as „special deferment of payment“ and „reduction of the provisional assessment.“ What kind of help is out there for foreign employees in the Netherlands? What can you do if your Dutch company is located in France? Which financial aid packages apply to you? We have listed relevant financial aids for you.
The WW (Unemployment Insurance Act)
In case you have employees whom you have employed for an indefinite period, you must record their employment contracts in writing to apply for the low unemployment insurance premium. You must indicate that you have done this in the tax return, even if it is still incomplete. For employees who started working before 31 December 2019, you had the option to arrange this until 1 July 2020. Many companies and institutions, such as hospitals, are now dealing with the WW’s premium differentiation. The Dutch cabinet had therefore decided to give employers more time, mainly due to the coronavirus impact.
An immediate record of the employment contract in writing is necessary for employees who entered your company after 31 December 2019. This contract does not necessarily have to be on paper; you can save the employment contract digitally if you have signed and scanned the written agreement or if you set up a digital contract with a qualified electronic signature from you and your employee. Further options are to send the employment contract by e-mail, to which the employee replies that they agree. Another option is to save the employment contract in your HR-system.
Due to the coronavirus, many sectors, such as healthcare, have to deal with much extra overtime. As a temporary scheme, no employer, regardless of the industry, has to pay the high unemployment insurance premium retroactively in 2021. Usually, this was required if employees with a permanent employment contract of <35 hours worked overtime for 30%.
Widening of the free space
Under the work-related expenses scheme, you have the option of spending part of your taxable wages on untaxed allowances, benefits in kind, and provisions for your employees. The free space on your taxable salary, up to and including 400,000 euros, is 3% in 2021. The year before, this was only 1.3%. For amounts of the wage bill above 400,000 euros, the free space remains 1.18% in 2021.
This space offers you an opportunity extension to provide extra support for your employees during the pandemic with the financial scope. You can kill two birds with one stone by purchasing a gift voucher or gift package for your employees. By doing that, you help both your employees and the sectors affected by the crisis.
Reduction of the average wage
If you are dealing with a decrease in turnover due to the corona crisis, you may set the customary wage lower for your payroll tax returns for 2021 and 2020. To do this, you do not need permission from the Dutch tax authorities. However, it would be best if you meet the following conditions: pay attention to the current account debt or dividend, the wages of the holder of substantial interest, and turnover influencing due to special matters (e.g., a strike, merger, or division). You determine the customary wage of 2021 by dividing the „2021 turnover excluding VAT“ by the „2019 turnover excluding VAT.“ Multiply this amount by the customary of 2019. You can read the 2020 and 2021 calculation overview on the Dutch tax authority website.
Each country has its corona measures, which affect employees who live or work across the border. There are various options for frontier workers; the Netherlands works efficiently with Belgium and Germany. The following applies to the withholding and remittance of payroll tax:
- No changes take place for the home frontier worker
- You can continue to deduct Dutch payroll taxes from your salary
However, what does this situation look like if you are an employer who employed French workers? What if they are forced to stay at home while retaining their salary? To ensure that entrepreneurs who live or work across the border are not left out, the Dutch government has used the Tozo loans. Entrepreneurs can apply for this benefit, for example, from 1 March 2021, with retroactive effect from the previous month (1 February 2021). From 1 October 2020 to 1 April 2021, the third Tozo support package, Tozo 3, is active. Tozo 4 is operational from 1 April 2021 to 1 July 2021. Examples of the Tozo scheme are:
- Do you live in France, but do you have your company in the Netherlands? You can receive a Tozo loan for your working capital of up to 10,157 euros. You can submit your Tozo loan application to the municipality of Maastricht. However, for your livelihood, you have to rely on social assistance in France.
- Do you live in the Netherlands, but do you have a company in France? If you meet the conditions, you can receive a Tozo benefit for your living expenses. However, this cannot be done in your working capital; you must arrange this in France.
If, as a Dutch company, you employ a French employee during the pandemic, you can make use of the relaxation of administrative obligations for payroll taxes. You may not determine the French employee’s identity at this time through a physical ID. Usually, the employee falls under the anonymous rate of 52%. However, you do not have to do this until the 30th or June 2021. You must still apply the employee’s identity correctly as soon as possible. Due to the prescribed working from home and maintaining a distance of 1.5 meters, it can be challenging to comply with all administrative obligations for payroll taxes. In this case, the tax authorities will not impose any consequences.
NOW (Temporary Emergency Bridging Measure to maintain Employment)
The NOW organization scheme replaces the WTV (Shortening of Working Time). The NOW is a substantial contribution towards wage costs, for which you receive an advance from the UWV (Institute for Employee Insurance). This allowance goes from 80% to 85% of the wage bill. The wage bill exemption remains 10%. If your company has a Dutch business address, you can use NOW. If your company has a French business address, but you and your employees are covered by the Dutch social insurance, you can apply for NOW as well. The application period for NOW 3.2, under modified conditions, is from 15 February 2021 to 14 March 2021. NOW 3.3. will most likely take place from 17 May 2021 to 13 June 2021.
TVL (Allowance Fixed Expenses)
SMEs and self-employers have the option of obtaining a partial allowance for fixed expenses. If you have a structural turnover loss of >30% and meet the conditions, you can request an allowance of up to 90,000 euros from the TVL through the RVO (Netherlands Enterprise Agency). This TVL scheme applies from 1 October 2020 to 30 June 2021.
Fixed travel allowance
If your employees receive a fixed travel allowance, you do not need to adjust this allowance, even if they work entirely or mainly at home due to the pandemic. Until 1 April 2021, the existing fixed travel allowances can still be reimbursed tax-free by the employer, even if these are no longer (fully) implemented. You must meet this condition as an employer: the fixed travel allowances were granted by you before 13 March 2020. If you want to read more information, the Dutch tax authorities have made an FAQ overview about payroll taxes and travel expenses during the corona crisis.
From 1 June 2020, the Dutch government implemented the rule that everyone on public transport must wear a mask. Until 1 April 2021, you may reimburse or provide masks‘ costs tax-free to your employees as a targeted exemption.
WHOA (Homologation Private Agreement in Bankruptcy Act)
If you are at risk of bankruptcy due to high debts while still running a viable business, you can agree on a debt settlement with the WHOA without all creditors‘ consent. Companies without good survival chances also benefit from this agreement because they can quit without bankruptcy. Besides, you keep control of your company during the WHOA-process. With the WHOA-Roadmap, you can follow the step-by-step path from preparation to an agreement:
- You consult with creditors.
- You make agreements.
- These agreements are recorded in a draft agreement.
- You submit the draft agreement to your creditors and shareholders.
- You organize a vote for creditors and shareholders.
- One week after the vote, you draw up a report on the outcome.
- You submit the composition to the court.
- The court 9homologation) confirms the compulsory) agreement on the proposed debt settlement.
The content and structure of the agreement must, however, comply with the regulations. For example, you must divide your creditors into classes or a hierarchy. The WHOA gives you the freedom to set this up yourself. If you fail to approach one or more creditors, these creditors retain their right to full payment of your outstanding debts. A majority within a class must agree to the proposal. The aim of the agreement must be that your company will be financially healthy again after restructuring. If your company has no survival chances, a better result should be achieved through this agreement compared to bankruptcy. Besides, the agreement must be feasible and well-thought-out, under the legal regulations on the agreement’s decision-making and content. Finally, the agreement must be reasonable; the plan is not intended to put creditors and shareholders in a disadvantageous position and suddenly change your staff’s terms of employment.
Do you have offices, units, or shares in France or the EU? Then you can benefit from a general agreement procedure, thanks to the recognition of the EU member states. The registration and publication of these approval procedures are in the public Insolvency Register. From 1 April 2021, these will most likely be entered in the Trade Register as well.
Whether or not corona still exists, the Dutch government and tax authorities request you to prepare everything in a timely matter. If you request a deferment of payment, you do not have to pay immediately. Send your declaration in good time, even during the crisis, because the UWV needs data to use specific support schemes as useful as possible. If you are entitled to emergency funds, you can rely on these by having your papers in order. As you can see in this article, if you meet the conditions, you have many options for obtaining Dutch government support. The Netherlands mainly cooperates effectively with Germany and Belgium, but there is support available for French workers and companies as well. We especially recommend keeping an eye out on the current information, data, programs, forms, and disruptions via the Dutch government websites. In addition, we are always ready to talk to you and support you.
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Tax security and certainty are the backbones of the world of taxes. The goal of the OECD/G20 BEPS project is to create a consensus-based international tax rule to address base erosion and profit shifting, thereby protecting tax bases. At the same time, this also ensures the provision of more certainty and predictability to the taxpayer.
The development of BEPS 2.0
On the 14th of October 2020, the OECD, with support of the G20, published the Tax Challenges Arising from Digitalisation report on the BEPS 2.0 Pillar One¹ Blueprint. The deadline for (draft) submissions for the report focusing on Pillar Two² was the 14th of December 2020, with virtual public consultation meetings on the 14th and 15th of January 2021. Reports with a consensus solution and elaboration of technical aspects are expected to be published during this year, with implementation – using MLI – for the relevant agreement by the end of 2021.
¹In Pillar One the profits are redistributed among market countries.
²Pillar Two introduces the global minimum tax rates.
Pillar One aligns tax rights with the involvement of the local market. There is a need for a multination consensus for this to happen; otherwise, the unilateral digital tax measures could increase significantly.
Pillar One is a series of proposals to rethink tax allocation rules in a changing economy. The intent is to attain some of the remaining profits of multinational corporations taxed in the jurisdiction resulting in revenue. Think of residual profit generated by capital, risk management functions, and/or intellectual property. Automated Digital Services (ADS) and Consumer-Facing Businesses (CFB) apply as well. This makes the scope wide enough so that the encompassing companies can benefit from significant and long-lasting interactions with customers and market users. This process links tax rights related to these companies‘ income sources, which do not need to depend on physical presence in the jurisdiction.
The new tax law awards high profits based on a formula, which does not necessarily take the business position. Amount A includes winnings earned through online activities of an automated digital nature of goods or services sold to consumers, including the associated IP licenses. Specific inclusions and exclusions are suggested from this. In addition, Amount A has been allocated based on local revenues, determined through procurement rules, with elimination measures for double taxation.
Amount B is the standard business compensation for ‚baseline‘ routine marketing and distribution activities. Alternative methods for this Amount can be applied if supported by evidence.
What companies should be aware of
The changes regarding taxation have a multinational set-up. They are also technically complex; the effects and uncertainties will be drastic for many companies. The size of the covered companies is not yet final. However, this is by no means limited to highly digitized business models.
Implementation of the BEPS 2.0 measures is likely to occur soon, although many details are still unclear. The rules do not only apply to classic digital companies. In addition, these rules will shift the installation location in favor of the market states. The technical implementation is demanding; the demands on availability and integrity of data are high. New risks of double taxation are emerging, which can probably only be mitigated by international communication processes.
It is important to stay on top of the news and keep your business as stable as possible. Useful and necessary information on BEPS can be found on the websites of OECD and KPMG. Seeking professional assistance is always helpful to avoid potential issues. We are always here to hear your needs.
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To perform tax work efficiently, one must be aware of developments in the tax world, as well as the external factors that come into play. According to the OECD, COVID-19 significantly affects the tax world. However, what is the situation during and after the pandemic? How do you efficiently work on the BEPS-analysis, design a TP-model, make the correct situation analysis, and implement an appropriate implementation strategy?
On the 18th of December 2020, the OECD published their guidance on the transfer pricing implications of the COVID-19 pandemic. The guidance states the need for the analysis of industries and the competitive situation. However, the current situation cannot be compared to the financial crisis of 2008. Therefore, you should pay attention to the differentiated benchmarking, based on the outcome tests and the allocation of extraordinary costs, according to the distribution of functions and risks. ‘Force majeure’ is an exception. State aid is granted according to general TP principles. Besides, always stay alert to changes and assume that you have to make adjustments once the pandemic is over.
BEPS-analysis (Base Erosion and Profit Shifting)
Base Erosion and Profit Shifting (BEPS) refers to tax planning strategies of multinational corporations that exploit gaps and discrepancies of tax rules to avoid tax. The BEPS-package provides governments with 15 actions with (inter)national instruments to tackle tax evasion. The tools give businesses greater certainty by reducing disputes over the application of international tax rules and standardizing compliance requirements.
Recognizing the characteristics and risks of tax evasion, as well as safeguarding the assets and other value drivers, is useful for companies. A DEMPE-analysis (Development, Enhancement, Maintenance, Protection & Exploitation) is convenient for intangible assets.
TP-model (Transfer Pricing Model)
The aftermath of COVID-19 has caused changes in TP-models for multinationals. Multinational corporations must evaluate specific steps in their transfer pricing policies for protection and support during the pandemic.
In addition, a suitability analysis – e.g., benchmarking, TNMM and/or profit distribution – can help you with the design of a TP-model. A transaction structure, such as the extraction of permits, can play a significant role in the TP-model format.
The requirements fora n efficient TP-model are:
- Be holistic. Take all tax aspects into account and make use of the operational management concept.
- Be flexible. Respond flexibly to operational developments and take economic cycles into account.
- Be alert. Active management of profit distribution by function and risk distribution is possible, so make sure you keep an eye on this. In addition, ensure sufficient availability and integrity of data.
- Be compatible. Always work according to the correct specifications, work globally and consistently and ensure that you sufficiently document and declare.
Tax situation analysis
When analyzing the tax situation, pay attention to the following:
- The BP history
- The tax attributes, in particular, loss compensation
- The tax rulings
- The tax incentives
- The extra tax aspects
Consider the following points in the implementation strategy:
- The advance uni- or bilateral price agreements
- The rollbacks
- Joint audits of tax audits
Crisis-related adjustments to the TP-model concerning compliance and tax efficiency may be necessary. In principle, the situation regarding COVID-19 does not allow for unique TP routes; however, there are planning options. BEPS sets new requirements for the TP-model but also offers the possibility to check the efficiency of this model. The Base Erosion and Profit Shifting often suggest the analysis of margin-based TP-models with central strategy carriers. International mutual agreement procedures can be part of the tax strategy.
If you have any inquiries, feel free to talk to us, so we can work together to see how you can move forward with your company. You can find information about tax matters on the websites of the OECD and KPMG as well.
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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.
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.
- Identification: Provide continuous identification of transfer pricing issues.
- Tax Assessment: Provide a tax analysis of the identified transfer pricing issues based on provided calculations.
- Contract and Action Instructions: Ensure documented formalization of transfer pricing models in written agreements and instructions.
- Methodology and Actual Implementation: Ensure uniform application of transfer pricing methods for comparable transactions.
- Data Delivery and Calculation: Provide a consistent calculation of transfer prices according to the defined methodology.
- 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.
- Archiving: Provide audit-proof storage of the data in an understandable form.
- Process Monitoring and Escalation: Provide monitoring of processes and escalations.
- TP Documentation: Secure the documentation content for so-called local files.
- 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.
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