"DAC 7" Directive to be implemented
With an amendment to the Mutual Assistance Directive in March 2021 ("DAC 7" Directive), the EU intends to further develop cooperation between the tax authorities of the Member States in the area of direct taxation and to improve its efficiency. The German legislator transposed this directive into national law before the turn of the year. The "DAC 7" Implementation Act, which was promulgated in the Federal Law Gazette on 28 December 2022, obliges the operators:inside of digital platforms to report certain information about the transactions they have conducted on their platforms to the Federal Central Tax Office (BZSt) in a systematic manner on an annual basis. The information collected in this way will in future become part of an automatic exchange of information with the tax authorities of other EU countries. The platform operators, in turn, will have to collect the corresponding information from the respective providers, who will also be subject to increased obligations.
Tax audit to be modernised
As part of the legislative process to implement the "DAC 7" Directive, a selective modernisation of tax procedural law, especially in the area of external audits, was also sought (blog post from 14.9.2022). In total, the law contains eight significant procedural changes to the German Fiscal Code (AO):
- Limitation of the suspension of expiry for externally audited companies (section 171 (4) AO).
- Prompt legal certainty through the introduction of a binding partial closure notice (section 180, paragraph 1a AO)
- New regulation of the duty to cooperate (section 90 AO)
- Introduction of a new system of sanctions for requests for cooperation for all external audits (§ 200a AO)
- Determination of audit priorities (section 197 (3) and (4) AO)
- Earlier start of audits (section 197 (5) AO)
- Agreement on interim discussions (section 199, paragraph 2 AO)
- Enabling electronic negotiations and meetings (§§ 201, par. 1, 146, par. 2a and 2b AO)
Documentation requirements are tightened
While the legislative package as a whole brings both good and less pleasing innovations for audited companies, the amended duties to cooperate in foreign relations are exclusively of a tightening nature. These concern the documentation of transfer prices for business relationships with related parties and companies abroad. Up to now, such documentation has usually only had to be submitted in the context of tax audits - and then only if the tax audit expressly asks for it. In this case, companies currently have 60 days to submit the documentation. Only in the case of so-called extraordinary business transactions, which must be documented in a timely manner, will the submission deadline be reduced to 30 days.
In the future, the tax authorities can request such documentation at any time - for example, also within the scope of the assessment or in the case of enquiries by foreign tax authorities. In the case of tax audits, the obligation to submit documentation will always exist in the future, even without a separate request. In this case, the notification of the audit order triggers the obligation to submit the documents; from this point in time, the deadline, which is now uniformly only 30 days, also runs. The new regulations apply in all cases in which the audit order is issued after 31 December 2024. It does not matter which years are the subject of the audit. Companies should therefore prepare for these stricter requirements at an early stage.
Tax control systems are promoted
Under the heading "Testing of alternative audit methods", a starting point is also created for the first time for companies with an established and effective tax control system to be able to hope for facilitation of the external audit in the future. While such systems (also referred to as tax compliance management systems) have so far primarily served the purpose of protecting companies from criminal prosecution and fines in the event of incorrect declarations, they could in future restrict the type and scope of external audits. Such restrictions can be bindingly promised by the tax authorities for the next audit if the control system has been reviewed and assessed as effective and if the company undertakes to document and report any changes in the control system. Here, the practice of the coming years will show to what extent the tax authorities and companies will make use of this room for manoeuvre.