Background
In cross-border cases, the German tax authorities and foreign fiscal authorities can initiate an exchange of information on request, spontaneously or automatically, for the purpose of taxation procedures. Furthermore, it is possible to execute coordinated, bilateral and multilateral tax audits in the form of simultaneous audits or joint audits. Agreements according to international law (e.g. double taxation agreements) and legal acts of the European Union could serve as a legal basis for such measures. The “Law on the Implementation of Mutual Administrative Assistance in Tax Matters between the Member States of the European Union” constitutes the domestic legal basis for granting administration assistance according to EU-law. On 23/11/2015, the Federal Ministry of Finance published a guidance note to the highest revenue authorities of the German federal states and the German Federal Central Tax Office (Bundeszentralamt für Steuern) regarding intergovernmental administrative assistance through exchange of information in tax matters. This has recently been amended by the leaflet/circular about coordinated tax audits with foreign tax administrations and territories dated 6/1/2017. The German Federal Central Tax Office is responsible for the incoming and outgoing requests for administrative assistance. The fiscal court in Cologne has recently made a decision on the legality of a bilateral audit and a request for disclosure by posting an auditor.
Situation
The first case concerns the verification of transfer prices in a group. A German-based GmbH (limited liability company) was a subsidiary of its parent company headquartered in the Netherlands which held further shares in other foreign companies. The German GmbH bought the required goods through its parent company which, in turn, bought its goods from its subsidiary in Hong Kong. In the course of an implemented audit at the German GmbH, the auditor requested financial statements from the sister company in Hong Kong in order to examine the transfer prices. The German GmbH claimed that it had no access to them. The German tax authorities proposed to the tax authorities in the Netherlands to perform a simultaneous audit at the GmbH and its parent company. The German GmbH filed an application for a temporary injunction.
The second case concerns a Swedish group company, which possessed relevant trademark rights of the group and was merged with a German group company in the legal form of a German GmbH. The German tax authorities intended to combine a tax audit with the investigation of exit taxation values with prior consent of the Swedish tax authorities resp. proposed to post a German tax officer to Sweden. The indicated exit taxation values in Sweden were suspected to have been several million Euros below the indicated values for tax purposes in Germany. Here too, an application for temporary injunction was made to prevent the disclosure of information.
Decisions
The fiscal court rejected the application of the GmbH in the first case as unfounded in its resolution of 23/5/2017. The intended information exchange regarding transfer prices and profit allocation within the group was expected to be essential for the determination of the taxes. All determination possibilities pursuant to the tax code had been exhausted. In its resolution of 20/10/2017, the fiscal court decided accordingly and rejected the application in the second case, too. As there was the possibility that substantially deviating valuation approaches were declared for Sweden and Germany, it was necessary, reasonable and appropriate for the German tax authorities to duly determine taxes in Germany by making use of cross-border information requests as well as by posting an auditor.
Conclusion
An application for a temporary injunction against a request for information can only be successful when the tax authorities have not exhausted all determination options as stipulated by the tax code. International matters should be documented extensively in order to avoid time consuming and costly disputes with the tax authorities. Bilateral and multilateral tax audits could also be advantageous for the taxpayer as double taxation can be avoided.