If the taxpayer has an actual starting point in Germany, the German tax administration can in principle levy the tax on the entire world income of the taxpayer. However, state powers of action are limited to its own territory. Independent investigations are therefore not possible abroad. Therefore, the German tax authority can hardly get knowledge of foreign income. In addition, it is difficult to understand tax issues, such as license payments abroad. If a taxpayer operates abroad, he therefore has special obligations to cooperate. We explain these as follows.

1. reason for special duty of cooperation of the taxable person

According to generally recognized international law, no state outside its borders may exercise sovereign powers on foreign territory. This includes all sovereign action and thus not only coercive acts. This makes it particularly difficult to clarify international issues. For this reason, in addition to possibilities for interstate administrative assistance in dealing with foreign matters, there are higher obligations for the taxpayer to cooperate.

The increased duty of cooperation does not replace the investigative principle and the primary investigative obligations of the financial administration. Nevertheless, the duty of the taxpayer to cooperate is not reduced by the fact that the tax administration is open to intergovernmental assistance. Rather, administrative assistance and cooperation obligations coexist.

2nd obligation to cooperate

2.1. Information obligations

§ 90 paragraph 2, 3 AO contains special obligations to cooperate in foreign matters. It is irrelevant whether the taxpayer is limited or unlimited taxable in Germany. The facts must be tax-relevant and thus concern tax-increasing (e.g. revenue) or tax-reducing factors (e.g. operating expenses, advertising costs, exceptional charges, negative income). However, the absence of tax-related facts cannot be proven.

An element of the extended duty of participation is the extended duty of information. All the specific facts shall be presented. However, it does not include the submission of expert opinions or opinions of tax advisors. In addition, the facts can only be explained and not assessed. Extended duty of cooperation does not cover the clarification of the legal situation abroad. Rather, it remains part of the duty of the tax administration to clarify which relevant foreign law is to be applied and which questions of doubt may arise.

2.2 Obligation to obtain evidence

Obligations to procure evidence exist only to the extent that the procurement is legally and effectively possible. No more can be demanded from the parties than is enforceable under the law. In addition, the corresponding information must be obtainable on the basis of the possibility of influence or because of special economic or actual power.

It is unclear whether fulfilling foreign criminal laws excludes the legal possibility. Jurisdiction also assumes an obligation to procure evidence if the party would thereby render himself liable to prosecution. However, it can be unreasonable against the background of the specific criminal conflict if there is a material and concrete risk of prosecution, which the participant cannot easily escape.

The scope of the obligation to obtain evidence goes beyond mere designation. Rather, it also includes the obligation to produce existing evidence. Foreign witnesses must therefore be presented at the meeting. However, the obligation does not include an obligation to bring an action for information or the use of other procedural means.

If the party does not obtain the evidence, this shall be taken into account in the assessment of the evidence. Therefore, it can be assumed that the situation is detrimental to the taxable person. However, it remains with a probability estimate.

2.3 Obligation to provide evidence

Furthermore, the participant must organize himself in a forward-looking manner to fulfill the legal and factual possibilities of a submission of evidence. Thus, the obligation to provide evidence is based on the obligation to procure and has to exploit the actual and legal possibilities. Preservation of evidence already begins with the design of the concrete circumstances, so that a securing of contractual proof claims must be considered even when establishing business relationships. If the taxpayer omits legally enforceable and customary contractual information clauses, this can be seen as a thwarting of future proof possibilities.

The scope of the contractual provision should include various documents according to the administrative principles. This includes, for example, calculation documents of a foreign service company when applying the cost surcharge method, proof of the contributions made by the cooperating companies when participating in a cost allocation agreement or proof of the revenue generated by the licensee with the transferred intangible assets.

2.4 Duty to cooperate through documentation

The documentation obligations of § 90 paragraph 3 AO are based on a judgment of the Bundesfinanzhof. This had decided that the taxpayer was outside §§ 140 ff. and §§ 238 ff. HGB is not obliged to document its business cases. The corresponding documentation obligation for international transfer prices cannot be derived from § 90 paragraph 2 AO. Consequently, the legislature introduced § 90 (3) AO, so that there is now the documentation obligation for international transfer prices.

2.5. Use cases of increased duty of participation

In practice, for example, there is an extended duty to cooperate in the following cases: In the case of deduction of operating expenses for recipients of payments abroad (§160 AO), in the case of expenses for transfers of rights (§ 4j EStG) or in the case of maintenance payments to relatives resident abroad. The guideline here is that the more the taxpayer engages in unusual arrangements or transactions, the higher the requirements of the duty to cooperate.

3. Recording requirements

3.1. Basically to keep and preserve books in Germany

§ 146 paragraph 2 AO contains a further regulatory obligation for the accounting. Accordingly, the books must be kept and kept within the scope of the O.O. The scope of the AO covers the territory under the jurisdiction of the Federal Republic of Germany, so that the books are to be kept and preserved in Germany. However, it is possible that the data processing for domestic accounting is carried out abroad. The purpose of the special regulatory obligation is that access to the data is possible at any time and the data can be secured and made visible at any time and evaluated by machine.

Within Germany, the taxpayer can freely choose the place of bookkeeping and storage and is not bound to the place of his company.

3.2 Exception for accounting requirements abroad

If, on the other hand, foreign law prescribes the keeping of books abroad, the books must not be kept in Germany in accordance with § 146 (2) sentence 2 AO. This avoids that the taxpayer would have to violate mandatory foreign law in order to be able to fulfill his domestic obligations.

3.3. Special features for EU Member States

Special features exist in accounting and recording in EU Member States. Originally, § 146 paragraph 2 AO also applied here. However, a European regulation then stipulated that all data localization requirements that violate the requirements of the regulation should be repealed by 30.05.2021. Therefore, § 146 paragraph 2a AO now contains a regulation on the permissible transfer of electronic bookkeeping within the EU. This does not require an application from the taxpayer or an authorisation from the tax administration. Therefore, the taxable person may keep and keep electronic books and other necessary electronic records or parts thereof in another EU Member State. This facilitates electronic bookkeeping in other EU countries compared to relocation to third countries. Therefore, the centralization of electronic books and records of all EU Member States, for example at the location of the company management in an EU country, is also permitted. Nevertheless, according to § 146 paragraph 2a sentence 2 AO, it must be ensured that the data access is possible to the full extent.

Obligation to cooperate by notification of employment

4.1. Reportable events

The taxpayer must notify his employment in accordance with § 138 (1) AO. According to § 138 paragraph 2 AO, this also applies to employment abroad. The purpose of the notification is to alert the tax authorities in good time to relevant issues, in particular to basic companies in tax haven countries. Whether the cross-border situation in a possible tax haven currently triggers a national tax liability is not relevant for the reporting obligation.

The obligation to notify relates to the establishment and acquisition of establishments and permanent establishments abroad, the acquisition, cessation or modification of a participation in foreign partnerships, the acquisition of participation in a foreign corporation,

However, the acquisition of a shareholding in a foreign corporation must be notified only if