date | theme

14. September 2021 | AWV Reports on PayPal Payments: This must be considered

23. September 2021 | EU directive DAC 6: reporting obligation against international tax arrangements

01. November 2021 | Tax deduction obligation according to § 50a EStG: Changes bring procedural tightening!

31. December 2021 | Country-by-country reporting as a result of the BEPS project (this article)

Country-by-country reporting was already mandatory by the OECD in 2016. The directive is based on disclosure requirements for internationally active companies, which is intended to ensure a better overview and greater transparency for jurisdictions. In particular, the exchange with other countries should help to assess the activities of the corporations and to gain an understanding of corporate activities that are harmful to the tax subject.

In 2016, the OECD together with the G20 countries adopted the BEPS Directive, which was intended to put an end to the international tax arrangements of large corporations and their subsidiaries. More transparency and certain information and disclosure obligations of the participating states are in the foreground, so that corporations have to report more accurately on their tax payments and communication between the states is improved to secure the tax revenue.

The BEPS project is mainly concerned with limiting international profit shifts and profit reductions. Action Point (AP) 13, namely Transfer Pricing Documentation and Country-by-Country Reporting, of the OECD Action Plan stipulates in particular documentation obligations relevant to transfer pricing. The APs 8-10 are to be supported, which is exactly such transfer pricing topics.

Until now, countries have hardly an overview of the impact that tax avoidance strategies have on their revenues as well as on the domestic and global economy. Increased transparency should improve this.

In 2016, Germany introduced and implemented the law implementing the amendments to the EU Administrative Assistance Directive. However, analyses by the Federal Central Office for Taxation (BZSt) were made from this only beginning in 2021. For this purpose, undertakings must comply with a one-year deadline for submission after the end of the marketing year. In addition, it should be mentioned that the companies were given some years to adapt to the new regulations, so that in 2021 the evaluations of the data submitted from 2018 onwards began.

Among other things, an innovation made by country-by-country reporting is the country-by-country report according to § 138a AO. This gives the financial administrations for the first time insights into the tax activities of large international corporations. Because the aim of all this effort is a quick and seamless examination of critical test fields of international corporations. This often also has to do with the transfer pricing issue, as this significantly influences taxation substrates.

Logically, not all internationally active companies are obliged to report, but exclusively international companies that operate at least one foreign establishment according to § 12 AO or a company with headquarters or management abroad. In addition, the Group must have realised at least a turnover of EUR 750 million in the previous marketing year.

Recently amended by JStG 2020, the CbCR no longer applies only to the entities included in the consolidated financial statements, but also to all entities not included in the consolidated financial statements due to materiality limits and materiality limits; The reporting must also be prepared for them.

For affected companies, the reporting obligation is above all to be observed. Since the 2016 financial years, Germany has had a one-year reporting obligation in the form of an XML data set, which must be transmitted to the Federal Central Office for Taxation (BZSt). Interestingly, this information is subsequently shared with other jurisdictions in which the company concerned has units and a data exchange agreement exists with them.

In order to provide the best possible assistance to reporting companies, the OECD has issued the so-called “Guidance on the Implementation of CbC Reporting”. It contains information about the data to be submitted and additional documents that report on frequent sources of error. It also encourages companies to present and submit their own data sources. This should help to understand the origin of the information.

Meanwhile, the participating parties, which has already grown to over 90 countries, are particularly keen to know the risk of the economic activities of foreign companies in the country. They also want to analyse the strategic tax decisions of companies in their country in more detail. In addition, the relationship with other countries in which companies have economic activities is also important.

In particular, tax topics that frequently occur in double taxation agreements (DTAs) are relevant for country-by-country reporting. Because the cooperating countries absolutely want to prevent so-called white income. In this case, one State exempts one company from taxation, whereas the other does not provide for any tax burden on that basis. This allows companies to shift tax bases more frequently in order to pay no or hardly any taxes on high sales in the future.

In addition, the double deduction of operating expenses should be avoided and profit shifts should be stopped. The overarching objective of all these measures is to tax the profits generated in the country where the economic activity for them took place. Just as this is the goal of the newly planned minimum taxation or the global digital tax.

By the way, the financial authorities are also increasingly looking at reporting, because false statements or little matching data are also relevant here at the latest since the Wirecard scandal. The authorities are now paying particular attention to internationally similar functions of locations as well as operating sites or subsidiaries in connection with turnover and profit as well as employee numbers. In addition, the reporting obligations should be worked very thoroughly, otherwise there will be longer procedures and the relationship with the financial authorities could suffer.

In addition, special attention must be paid to a high data quality during reporting and the exact specifications for the transmission scheme must be observed. Otherwise, there may be transmission problems and unwanted complications.