On July 13, 2016, the German Federal Ministry of Finance issued a press release saying that the German Federal Cabinet has adopted draft legislation adding new anti-avoidance measures and implementing OECD and EU standards on automatic exchange of information and transfer pricing documentation.
The EU issued Directive 2015/2376, amending Directive 2011/16 (the EU Mutual Assistance Directive), with regard to mandatory automatic exchange of tax information. Directive 2011/16 provides for the mandatory spontaneous exchange of information between member states in specific cases. Directive 2015/2376 amends the previous directive by including definitions of an advance cross-border ruling and advance pricing arrangement. See BEPS Action 5. Member states will exchange information irrespective of whether the taxpayer abides by the terms of the advance cross-border ruling or advance pricing arrangement, and the information should be accessible to all member states. Directive 2015/2376 says that the definition of an “advance pricing arrangement” includes meeting certain conditions, such as “… determines in advance of cross-border transactions between associated enterprises, an appropriate set of criteria for the determination of the transfer pricing for those transactions…”
Directive 2016/881 further supplements Directive 2011/16 regarding country-by-country (CbC) reports. The mandatory automatic exchange of CbC reports between member states should include basic information that would be accessible to those states in which one or more entities of the multinational group are either resident for tax purposes or subject to tax with respect to the business carried out through a PE of the group. Directive 2016/881 says that by implementing this directive, member states should use the Action 13 report to ensure consistency of application across the states.
The German law will require the following:
- Multinational companies will provide information on transactions with affiliates to determine that their transfer prices comply with the arm's length principle and to provide the necessary information for carrying out a transfer pricing audit.
- Tax authorities will receive certain information to perform a risk assessment on transfer pricing by large multinational companies.
- The automatic exchange of information on cross-border transactions between EU member states and the European Commission. A preliminary agreement will be reached on transfer prices between international affiliates.
- Other provisions of German tax law should be amended in order to adapt them to current developments.
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