Germany

Market overview

It is no surprise that the transfer pricing advisory market in Germany continues to grow with TP remaining one of the main topics for both taxpayers and advisers. The German economy had a strong and stable year, and even the legislative environment saw few changes, a state that is not guaranteed in Germany. As the German federal election will take place in 2017, there was little change to the tax and transfer pricing legislation although it remains a discussion among politicians and taxpayers alike.

While the legislative market has been quiet, the tax authorities have tightened their screws, following the international trend of increasing aggressiveness. Advisers reported the authorities have focused heavily on transfer pricing audits in the past year, resulting in increased amounts of compliance work and reviewing structures. "The key development is the level of experience of the tax authorities and, from what we can see, the tax authorities are more educated and have more experience," said Deloitte's head of transfer pricing Jobst Willmanns. As a result of this, taxpayers have also become more aware and critical, which has kept advisers busy.

The OECD's BEPS project is yet to have a legislative impact in Germany. Although various action points are partly covered in the current income tax law, advisers said they expect to see new regulations in terms of transfer pricing soon.

"Transfer pricing is absolute highest on everybody's agenda. Again in terms of compliance, but also in terms of setting up new structures, reviewing structures in the light of BEPS. Basically an increasing amount of our business tax advice is now around transfer pricing," said Christoph Roeper, Deloitte's head of tax.

Based on a first draft published in June 2016, the Federal Ministry of Finance issued a draft law on July 13 2016 that would implement the multilateral competent authority agreement on exchange of country-by-country (CbC) reports, which Germany signed on to along with 30 other countries on January 27 2016. The draft also included the implementation of the EU automatic information exchange directive, which was adopted in December 2015, along with several other measures to avoid base erosion and profit shifting.

"The CbCR is more or less fixed to be implemented on a global basis. Clients are a bit confused but also have a clear view on that they now have to do something to manage their tax position and risk proactively. It's not quite clear if it will be implemented in 2016 or 2017, but it is clear that it will be implemented and therefore clients are looking for solutions to fit to the new BEPS documentation requirements," said Maik Thomas Heggmair head of transfer pricing at WTS Germany.

Although no date is set for the implementation, on February 26 2016, the German Federal Council announced its intentions to introduce several BEPS-related measures in 2016.

Before anything has been implemented however, taxpayers are already taking the recommendations into their own hands and have started preparing for what is to come. "As a consequence of the BEPS project multinationals as well as private clients look more and more for safe, compliant structures and are less focussed on tax optimisation, especially with aggressive tax planning," said Xaver Ditz, head of transfer pricing at Flick Gocke Schaumburg.

Although there is still some uncertainty of when these changes will be implemented, the future of transfer pricing is heavily dependent on the activities of the government. Advisers reported the coming year will be an interesting one with new rules coming into force as a reaction to OECD discussions, including transfer pricing documentation.


Tax authorities

Bundesministerium der Finanzen – Federal Ministry of Finance
Wilhelmstraße 97, 10117 Berlin
Postanschrift: 11016 Berlin
Tel: +49 3 018 682 0
Fax: +49 3 018 682 32 60
Website: www.bundesfinanzministerium.de

Bundeszentralamt für Steuern – Federal Central Tax Office
An der Kueppe 1, 53225 Bonn
Tel: +49 228 406 1240
Fax: +49 228 406 3200
Website: www.bzst.de


Tax rates at a glance

(As of April 2016)

Corporate tax rate 15% (a)
Capital gains 15% (a)
Branch tax 15% (a)
 
Witholding tax
Dividends 25% (a)(b)(c)(d)
Interest 0% (e)(f)
Royalties 15% (a)(b)(f)(g)(h)
 
Net operating losses (years)
Carryback 1 (i)
Carryforward unrestricted (j)

  1. A 5.5% solidarity surcharge is imposed.
  2. On application, these rates may be reduced by tax treaties.
  3. This withholding tax applies to dividends paid to residents and non-residents. Under the 2009 Annual Tax Act, for dividends paid to non-resident corporate entities, this rate may be reduced to 15% if the non-resident dividend recipient qualifies as an eligible recipient under the German anti-treaty shopping rules.
  4. These rates may be reduced under the EU Parent-Subsidiary Directive. Under the EU Parent-Subsidiary Directive, on application, a withholding tax rate of 0% applies to dividends distributed by a German subsidiary to an EU parent company if the recipient has owned 10% or more of the share capital of the subsidiary for a continuous period of 12 months at the time the dividend distribution takes place and if the German anti-treaty shopping rules do not apply.
  5. A 25% interest withholding tax is imposed on the following types of interest:
    • Interest paid by financial institutions. The rate is 15% if the loan is not recorded in a public debt register.
    • Interest from over-the-counter business. Over-the-counter business refers to bank transactions carried out over the bank counter, without the securities being on deposit at the bank.
    • Interest from certain types of profit-participating and convertible debt instruments.
    • The interest withholding tax is not imposed on intercompany loans. Non-residents may apply for a refund of the withholding tax if a treaty exemption applies. If a non-resident is required to file an income tax return in Germany, the withholding tax is credited against the assessed corporate income tax or refunded.
  6. These rates may be reduced by tax treaties or under the EU Interest-Royalty Directive. Under the EU Interest-Royalty Directive, on application, German withholding tax is not imposed on interest and royalties paid by a German resident company to an associated company located in another EU member state. To qualify as associated companies, a minimum 25% shareholding or a common parent is required, among other requirements.
  7. The withholding tax rate on royalties from patents, know-how and similar items is 15% for payments to nonresident corporations if such items are registered in Germany or used in a German permanent establishment.
  8. This withholding tax applies to payments to non-residents only.
  9. The loss carryback, which is optional, is available for corporate income tax purposes, but not for trade income tax purposes. The maximum carryback is €1 million ($1.1 million).
  10. The carryforward applies for both corporate income tax and trade tax purposes. Effective for tax years ending after December 31 2003, the maximum loss carryforward that may be used for corporate and trade tax purposes is restricted to €1 million for each tax year plus 60% of annual taxable income more than €1 million (so-called minimum taxation). The carryforward is subject to the change-of-ownership rule.

Source: EY 2016 Worldwide Corporate Tax Guide


Firm contact details

Deloitte
EY
Flick Gocke Schaumburg
NERA Economic Consulting
PwC
WTS