Germany moves towards countrybycountry legislation
The German government has announced plans to incorporate Action 13 (guidance on transfer pricing documentation and country¬by¬country (CbC) reporting) of the OECD’s BEPS project into local legislation.
The wording of the new law is being drafted and may be published some time in autumn of this year.
It is the intention of the tax authorities that the law shall pass the parliament by the end of the year or early next year, so that the new regulation can come into force from 2016.
It is expected the legislation w ill follow the OECD’s recommendations.
In summary, the OECD guidance aims at introducing coherent transfer pricing documentation consisting of:
Master file – high¬level information on business operations of the multinational enterprise (MNE) globally and the transfer pricing policies applied;
Local file – detailed information on the local taxpayer and its controlled transactions;
CbC report – disclosing aggregated data per each jurisdiction (where a MNE operates) including revenues, profits, taxes (both paid and accrued), stated capital, accumulated earnings, number of employees, tangible assets as well as a list of entities in each tax jurisdiction with indication of their main business activities. The report is to be prepared annually by multinational enterprises (MNEs) having total consolidated revenue of minimum €750 million ($830 million) and is to be filed by the entity representing the MNE(generally the parent entity) in the jurisdiction of its tax residence w ithin 12 months after the last day of the fiscal year the CbC report covers. The tax authorities are obliged to share the report with the jurisdictions in which the MNE has business activity (provided that there is a tax treaty that enables exchange of tax information). The CbC report shall be used by the tax
authorities for the purposes of identifying the companies subject to tax audits; it cannot be a basis for transfer pricing adjustments.
The CbC report will give the tax authorities unprecedented access to global information regarding MNEs, w hich will enable them to recognise and concentrate on true risks.
Taxpayers should pay even more attention than before on reviewing and safeguarding key transactions.
The introduction of the new documentation requirement w ill also result in an increased compliance burden for taxpayers.
In particular gathering the necessary data on a global basis to prepare the CbC report may pose significant challenges for the MNEs. Given that the first CbC report is to be filed by the end of 2017 (for fiscal year 2016), MNEs should as soon as possible take actions to implement adequate IT systems and introduce relevant procedures, including assignment of appropriate resources that enable gathering as w ell as verifying and standardizing the required data.
