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:
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.
EY’s Global Tax Alert provides recent developments for BEPS by Australia, Austria, Belgium, EU, Germany, Iceland, India, Niger, and Romania.
- 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.