|Flick Gocke Schaumburg, Taxand Germany|
|NERA Economic Consulting|
|Freshfields Bruckhaus Deringer|
|LW Tax Lemaitre Wittkowski|
|Oppenhoff & Partner|
|Warth & Klein Grant Thornton|
Transfer pricing remains a major issue for taxpayers and advisers in Germany. The impact of BEPS measures continues to reverberate and is likely to do so for a long time to come. The implementation of country-by-country reporting (CbCR), public CbCR and the EU automatic information exchange are just a few instances of this.
As a result, the demand for TP advice continues to rise as the tax authorities are more alert and taxpayers are becoming more aware of their obligations. It is no wonder that this has kept TP specialists busy.
The German economy is still stable and the market has not been surprised by any sudden legislative changes. Instead, the picture is one of continuity, with the market adjusting to the new standards and the authorities taking a more vigilant stance.
"The most important development in the market are the BEPS-induced changes and their implementation in German law," KPMG's head of transfer pricing Achim Roeder said. "[Action Point 13] is creating significant demand for one-time activity to adapt taxpayers' documentation content and processes to the new rules."
"We are expecting changes and additional guidance for a number of areas, most notably documentation and debt pricing. Although we would expect evolutionary rather than revolutionary developments," Roeder said.
Much like in neighbouring countries, the German tax authorities have become much more pro-active in their focus on TP audits and have expanded the number of auditors to do so. This has led to a sustained increase in compliance work and a decline in aggressive tax planning and optimisation. These trends are set to continue for at least the next few years.
There is a broad consensus that the German federal elections in September 2017 will not produce a defeat for Angela Merkel and the Christian Democratic Union (CDU) and the Christian Social Union (CSU). Even though Martin Schulz and the Social Democratic Party (SPD) experienced a surge in the polls earlier this year, the results of the regional elections suggest that the so-called 'Schulz effect' has not produced meaningful gains for the SPD.
If the Free Democrats (FDP) succeed the SPD as coalition partners to the Christian Democrats, the bargaining chip could be tax cuts. Chancellor Merkel has pledged a tax break which will save German taxpayers €15 billion ($17.3 billion) a year. But the FDP has pledged €30 billion in tax cuts over a four year period. However, the main spotlight in this election is on questions around refugees and migration, while the trade surplus and eurozone reform are the leading economic questions.
There are good reasons why TP practitioners don't think the next government will substantially change tax and TP policy to the point where the growth of auditing slows down. This is even if the federal elections produce a shock result.
"I don't see a lot of changes coming out of the election even if the SPD won," NERA Consulting's partner Alexander Voegele said. "For example, Bavaria and Baden-Württemberg are traditionally conservative regions, with the CSU in the former and the CDU and the Greens in the latter. This is also where there are a large number of field auditors: 40-50 in Bavaria and maybe 100 in Baden-Württemberg."
Given the federal structure of the German tax system, events in Berlin may matter less than what happens in the tax administration itself, which is based in Bonn, and this remains the case even if the composition of the federal government changes drastically. This means Germany is likely to stay on the same track for the foreseeable future.
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
Bundeszentralamt für Steuern – Federal Central Tax Office
An der Kueppe 1, 53225 Bonn
Tel: +49 228 406 1240
Fax: +49 228 406 3200
(As of July 2017)
|Corporate tax rate||15% (a)|
|Capital gains||15% (a)|
|Branch tax||15% (a)|
Net operating losses (years)
Source: EY 2016 Worldwide Corporate Tax Guide