Germany- Anti- Tax Avoidance Directives

Germany- Anti- Tax Avoidance Directives

Germany has introduced some significant changes in its Anti-Tax Avoidance Directives. The EU had enacted the Anti-Tax Avoidance Directives (ATAD) in 2016 intending to impose legally binding measures on all member states to combat tax avoidance by 2018- 2019. Since then, the Government has delayed the integration of these directives in national laws and is now finally considering its implementation in early 2021. The rationale behind this delay was introducing several other national measures beyond these directives' scope that would mainly be concerned with the federal tax climate.

The German Federal Ministry of Finance believes that the regulations regarding interest limitations align with the ATAD Rules. However, implementation of the ATAD aims to have far-reaching changes in connection with transfer pricing. Section 89a has been newly introduced in the Fiscal Code, which entails introducing a different legal basis to increase certainty in cross- border transactional issues and curb international disputes. Further, it has also introduced specifications regarding procedural requirements.

Section 90(3) of the Fiscal Code further imposes certain documentation obligations that involve preparing a master file in case of turnover exceeding EUR 50 million in the previous year. Such documentation can also be submitted via electronic medium to the local tax authority after the end of that financial year for that financial year.

Changes were also made to the External Tax Relations Act as follows;

The Act emphasizes functional risks and analysis of the same. The arm's length principle that applies to pricing has also been redefined to be performed so that it considers the underlying circumstances at the time of transaction. The arm's length principle application has been modified to include median values if the value is outside the appropriate interquartile range of consideration.

Intangible assets have also been redefined as per the OECD with the introduction of national laws implementing development, enhancement, maintenance, protection and exploitation of intangibles.