It appears the Section 49 provision, imposing withholding taxes on IP registered in Germany, will soon be abolished.
At the meeting of the U.S. Council for International Business and OECD, a representative from the Ministry of Finance stated that this change should happen shortly.
The context behind this welcome change appears to be from other countries analogizing the current position as having hallmarks of a digital service tax. Additionally, the absence of the withholding tax should, technically and/or procedurally, should ease a transition into the Pillar 1 and 2 plans.
The German ministry has advised that they will not delay the optional 6-month reporting obligation, thus the reporting dates revert to the end of July 2020 for 30-day reporting, and 31 August for historical arrangements.
It is interesting to note that Germany has retreated from their prior 30-day delay, citing system setup obstacles. Additionally, this last-minute retreat of position did not affect the delay of FATCA and CRS reporting. The exchange of DAC6 with other Member States by Germany will be delayed due to the positions taken to delay such reporting.
Everyone is awaiting further background on this position, which would align with Finland’s refusal to also adopt the 6-month deferral period.
The German Ministry of Finance recently changed their rules re: maintenance of books and records for tax (including customs) purposes. The GoBD compliance provisions are especially important in acquiring businesses with German locations, digital technology, changing systems, moving/dissolving German entities and reviewing current documentation rules for multinationals operating in Germany. Upon audit, German tax authorities will ensure this compliance is verified.
These rules are similar to other EU rules for maintaining records in the country, and should always be a diligence item for M&A, ERP system conversions, etc.
The German Federal Minister of Finance has published a draft law, implementing the EU anti-tax avoidance directive. However, the legislation is very far-reaching! Although the provisions are still draft, there are 2020 effective dates.
- Eliminates current TP hierarchy for methods
- Looks at conduct, vs. contracts
- Codifies function and risk analysis
- Best method rule
- Legal definition of “intangibles”
- DEMPE implementation
- Intangible price-adjustment clause
- Addresses transfer of functions valuation
- Deductibility of German interest expense
- Expands related party definition
- Reduces turnover amount to prepare a TP Master File
- Codifies APA processes
Deloitte’s TP Alert provides additional details:
Click to access dttl-tax-global-transfer-pricing-alert-19-037-20-december-2019.pdf
Commencing in 2020, a new R&D incentive will be in place for German R&D activities. This incentive was passed to stimulate its goal of raising R&D expenditures to 3.5% of GDP by 2025.
This incentive is worthy to review, especially as there is certainty re: certification of activities qualifying as R&D upfront, vs. a potential audit dispute years later.
Click to access 2019G_005410-19Gbl_German%20Federal%20Council%20approves%20Research%20Allowance%20Act.pdf
EY’s Global Tax Alert provides recent developments for BEPS by Australia, Austria, Belgium, EU, Germany, Iceland, India, Niger, and Romania.
Click to access 2016G_01449-161Gbl_The%20Latest%20on%20BEPS%20-%206%20June%202016.pdf
- Australia: Local File is OECD +, going beyond OECD’s recommendations, including transactional detail. This development is proving that global consistency is a rapidly fading ideal, as countries legislate what they think benefits them the most. Unfortunately, this adds to the cost, time and complexity of preparing global reports.
- Austria: Transfer pricing documentation draft regulations follows the OECD.
- Economic and Financial Affairs Council of the European Union (ECOFIN): EU Member States Finance Ministers, envision adopting the Anti-Tax Avoidance Directive on 17 June 2016, subject to amendments. Legal agreement was also reached on adoption of the Directive on the exchange of non-public country-by-country tax information. Conclusions were also adopted on the European Commission communication on an external tax strategy and tax treaty abuse measures.
- Germany: Transfer pricing technical draft introducing transfer pricing documentation standards as recommended by the OECD. Master File and Local File documentation requirements introduced.
- India: A 6% Equalization Levy (EL) to apply on gross payments for certain digital services received by a nonresident.
- Niger: Thin capitalisation rules introduced.
- Romania: To become a BEPS Associate and participate in the OECD’s framework.
As the above developments note, BEPS guidelines and intent remains very strong in the global community, with many changes already made and many more to come.