BEPS also applies to medium-sized businesses

Stricter Tax and documentation requirements for foreign transactions

“Amazon, Facebook, Google and Starbucks pay little taxes …” or “Luxembourg attracts international corporations” – headlines like these have 62 states and the OECD called into action. The result was “base erosion and profit shifting” BEPS shortly. Even the German SME sector is feeling the effects.

With the BEPS project, which will be loosely translated as “erosion of the tax base and profit shifting” to unpopular tax planning are revealed and combated with countermeasures. According to policy The focus is primarily international corporations. But the consequences have to bear all the international companies. Even companies that do not write BEPS must deal in the future with the increased documentation requirements and the expanded transfer pricing guidelines, which will be a significant challenge, particularly for the SME sector.

Whether BEPS however actually the American corporations will take remains to be seen: The US has been found not clearly against the BEPS phenomenon, and it is also not expected to give up the competitive advantage for its international corporations. Why should they? When profits are distributed to the parent company in the US and taxed, is only a matter of time.

Part of the action points that includes BEPS will come into force in 2016, further international agreements for the other points still need to be taken. The aim is to implement all essential points to the end of 2017 at the latest. Not all 15 action points of BEPS will touch the middle class, mainly him relate to the following:

Taxation of the digital economy

This amendment is a logical consequence of the increasing digitization of the economy. The OECD has decided to set no independent taxation rules for digital permanent establishment, which would have led to a significant complication. Rather, the OECD aims to develop inter alia a VAT Directive, in order to counteract the different tax treatment and thereby avoid double taxation or unintentional non-taxation. It should be placed on the destination principle, to determine the place of taxation. Accordingly, the right of taxation is responsible for the country in which final consumption of the service or the intangible assets.

Updating the permanent establishment concept

Not every business activity in the foreign state should far lead to a permanent establishment, since this meant a significant increase in administrative burden for a company. Now the States considers that such a depot is a permanent establishment which brings a taxation in the foreign country with it. Companies need to register for tax purposes in future foreign state and file tax returns. However, the concept of representative permanent establishment will undergo a change. In future, companies which carry out their sales by sales agents and Kommissionärsmodelle, have a foreign permanent establishment with its own taxation. The design for the avoidance of construction and assembly production sites is difficult. In future, the splitting of contracts in the Group retains no longer before that abroad a tax permanent establishment can be prevented.

Transfer Pricing Guidelines of BEPS

Even today, in audits of international companies, the transfer prices is a central point of discussion. The tax authorities questioned regularly to the agreed transfer pricing. You do not want to believe that the company has set the correct tax transfer price, but the most economically advantageous.

Changes are particularly noticeable at the transfer prices for intangibles. In future, the profits are to be allocated to the country where the added value has been generated. It is not directed to the external value, but on the value of intercompany corresponding function and the risk. In other words: Just because the product can be sold in Germany at a higher price, Germany is no higher share of value added is about.

Documentation for transfer pricing investigations

Even today, the TPD is a time consuming affair. In the future, it must be made more transparent and structured. For a three-tier standard scheme has been developed. The Masterfile has general information about the value, include an overview of the business activities and the presentation of the transfer pricing policy. In LocalFile country-specific explanations of the internal transactions are mapping. For large corporations from a turnover of EUR 750 million In addition, a Country-by-country report must be created that includes various economic and tax key data from the respective country.

The new documentation requirements specify that the tax authorities can look at the entire group more deeply. Overall, the administrative burden will increase, because you have to work together more extensive with the tax authorities of the individual states. From a tax perspective, the redefinition of the concept of permanent establishment will bring tangible changes and an expansion of the tax consequences. Was here in the past, the permanent establishment abroad and therefore the taxation be avoided there, companies will now fall in the stress field of double taxation. This point will lead to discussions with the participating financial administrations. A protection against double taxation can still be reached only in the context of a lengthy mutual agreement or arbitration proceedings, not in the context of tax audits.