Harmful Tax Practices – 2017 Peer Review Reports on the Exchange of Information on Tax Rulings

Germany

Germany has met all aspects of the terms of reference (ToR) for the calendar year 2017 (year in review) and no recommendations are made.

Germany can legally issue five types of rulings within the scope of the transparency framework.

In practice, Germany has issued 30 past rulings;1 for the period 1 April 2016 - 31 December 2016, Germany issued seven future rulings; and for the year in review, Germany issued ten future rulings within the scope of the transparency framework.

Peer input was received from one jurisdiction in respect of the exchanges of information on rulings received from Germany. The input was positive, noting that information was complete, in the correct format and received in a timely manner.

1. Of which 12 were only identified during the year of review, including one that fell into more than one category under the BEPS Action 5 report.

Introduction

436.  This peer review covers Germany’s implementation of the BEPS Action 5 transparency framework for the year 2017. The report has four parts, each relating to a key part of the ToR. Each part is discussed in turn. A summary of recommendations is included at the end of this report.

A. The information gathering process

437.  Germany can legally issue the following four types of rulings within the scope of the transparency framework: (i) rulings related to preferential regimes;1 (ii) cross-border unilateral advance pricing agreements (APAs) and any other cross-border unilateral tax rulings (such as an advance tax ruling) covering transfer pricing or the application of transfer pricing principles; (iii) rulings providing for a downward adjustments of taxable profits; (iv) permanent establishment rulings; and (v) related party conduit rulings. In Germany, rulings within the scope of the transparency framework can be issued by the local tax officers within the tax administrations at state level or for certain rulings by certain authorities within the Federal Central Tax Office at federal level (“FCTO”).

Past rulings (ToR I.4.1.1, I.4.1.2, I.4.2.1, I.4.2.2)

438.  For Germany, past rulings are any tax rulings within scope that are issued either: (i) on or after 1 January 2014 but before 1 April 2016; or (ii) on or after 1 January 2010 but before 1 January 2014, provided they were still in effect as at 1 January 2014.

439.  In the prior year peer review report, it was determined that the German tax administration’s undertakings to identify past rulings and all potential exchange jurisdictions were sufficient to meet the minimum standard. However, Germany notes that it identified 122 additional past rulings since the prior year peer report due to a misunderstanding of the “still in effect at 1 January 2014” requirement. The shortcoming was detected during the exchange process of APAs according to the EU timelines in November 2017. The past rulings were forwarded to the Competent Authority and exchanged within the same month. Germany addressed the issue by providing further training to the tax officers responsible to identify the rulings. As Germany completed the process of identifying and exchanging the past rulings within the year of review and took measures to remedy the issue it is determined that Germany’s implementation in this regard continues to meet the minimum standard.

Future rulings (ToR I.4.1.1, I.4.1.2, I.4.2.1)

440.  For Germany, future rulings are any tax rulings within scope that are issued on or after 1 April 2016.

441.  In the prior year peer review report, it was determined that Germany’s implementation of a new system to identify future rulings and all potential exchange jurisdictions was sufficient to meet the minimum standard. Germany’s implementation in this regard remains unchanged, and therefore continues to meet the minimum standard.

Review and supervision mechanism (ToR I.4.3)

442.  In the prior year peer review report, it was determined that the German tax administration’s review and supervision mechanism was sufficient to meet the minimum standard. As a consequence of the delayed identification of 12 additional past rulings the German tax administration all officers involved in the identification process received another training, in which the approach and the common understanding of the definition of “past ruling” was communicated again. It is therefore not expected to be a recurring issue and therefore Germany continues to meet the minimum standard.

Conclusion on section A

443.  Germany has met all of the ToR for the information gathering process and no recommendations are made.

B. The exchange of information

Legal basis for spontaneous exchange of information (ToR II.5.1, II.5.2)

444.  Germany has the necessary domestic legal basis to exchange information spontaneously. Germany notes that there are no legal or practical impediments that prevent the spontaneous exchange of information on rulings as contemplated in the Action 5 minimum standard.

445.  Germany is a party to international agreements permitting spontaneous exchange of information, including (i) the Multilateral Convention on Mutual Administrative Assistance in Tax Matters: Amended by the 2010 Protocol (OECD/Council of Europe, 2011) (“the Convention”), (ii) the Directive 2011/16/EU with all other European Union Member States and (iii) double tax agreements in force with 95 jurisdictions.3

Completion and exchange of templates (ToR II.5.3, II.5.4, II.5.5, II.5.6, II.5.7)

446.  In the prior year peer review report, Germany experienced minor delays in the exchange of information on past rulings, but did not receive any recommendations as the exchange process was completed within a relatively short period of the deadline. The German tax administration incorporated most of the suggested internal guidance to complete the summary section of the template in Annex C of the 2015 Action 5 Report (OECD, 2015), which is quality checked by the FCTO.

447.  Germany identified 12 additional past rulings in the year of review and forwarded and exchanged information on those past rulings within the same month the rulings were discovered. Therefore no recommendations are made in this regard as it is not considered to be a recurring issue.

448.  For the year in review, the timeliness of exchanges is as follows:

 

Past rulings in the scope of the transparency framework	Number of exchanges transmitted by 31 December 2017	Delayed exchanges
		Number of exchanges not transmitted by 31 December 2017	Reasons for the delays	Any other comments
	19	0	N/A	The 19 exchanges include the seven exchanges which were not transmitted before 31 December 2016; the other 12 exchanges refer to the past rulings which were only identified in the course of 2017 and partly relate to exchanges with new Inclusive Framework members.
Future rulings in the scope of the transparency framework	Number of exchanges transmitted within three months of the information becoming available to the Competent Authority or immediately after legal impediments have been lifted	Delayed exchanges
		Number of exchanges transmitted later than three months of the information on rulings becoming available to the Competent Authority	Reasons for the delays	Any other comments
	9	1	The delayed exchanged was transmitted in May 2017 after four months and occurred due to uncertainties within the FCTO regarding the handling of the identification and exchange requirements.	Germany revised its processes in May 2017 to ensure a timely exchange in the future.
Total	28	1

 

Follow up requests received for exchange of the ruling	Number	Average time to provide response	Number of requests not answered
0	N/A	N/A

Conclusion on section B

449.  Germany has the necessary legal basis for spontaneous exchange of information, a process for completing the templates in a timely way and has completed all exchanges but one on time, and the cause of this issue has been resolved. Germany has met all of the ToR for the exchange of information process and no recommendations are made.

C. Statistics (ToR IV)

450.  The statistics for the year in review are as follows:

 

Category of ruling	Number of exchanges	Jurisdictions exchanged with
Rulings related to preferential regimes	0	N/A
Cross-border unilateral advance pricing agreements (APAs) and any other cross-border unilateral tax rulings (such as an advance tax ruling) covering transfer pricing or the application of transfer pricing principles	81	Belgium, Ireland, Luxembourg, Netherlands, Romania, Switzerland, United States
Cross-border rulings providing for a unilateral downward adjustment to the taxpayer’s taxable profits that is not directly reflected in the taxpayer’s financial / commercial accounts	Included in de minimis	N/A
Permanent establishment rulings	19	Austria, Canada, Finland, France, India, Korea, Liechtenstein, Luxembourg, Netherlands, Poland, United States
Related party conduit rulings	0	N/A
De minimis rule	2	N/A
IP regimes: total exchanges on taxpayers benefitting from the third category of IP assets, new entrants benefitting from grandfathered IP regimes; and taxpayers making use of the option to treat the nexus ratio as a rebuttable presumption	N/A	N/A
Total	29

1. One of these rulings is also a PE ruling; it is only counted once in these statistics.

D. Matters related to intellectual property regimes (ToR I.4.1.3)

451.  Germany does not offer an intellectual property regime for which transparency requirements under the Action 5 Report (OECD, 2015) were imposed.

Summary of recommendations on implementation of the transparency framework

 

Aspect of implementation of the transparency framework that should be improved	Recommendation for improvement
Germany identified 12 additional past rulings during the year of review and therefore after the timeline of 31 December 2016 due to a misunderstanding of the "still in effect at 1 January 2014" requirement.	No recommendation is made because Germany addressed the problem and completed the exchanges of information on all past rulings within the month the rulings were identified and this is not a recurring issue.

References

OECD (2017), BEPS Action 5 on Harmful Tax Practices – Terms of Reference and Methodology for the Conduct of the Peer Reviews of the Action 5 Transparency Framework, OECD/G20 Base Erosion and Profit Shifting Project, OECD, Paris. www.oecd.org/tax/beps/beps-action-5-harmful-tax-practices-peer-review-transparencyframework.pdf.

OECD (2015), Countering Harmful Tax Practices More Effectively, Taking into Account Transparency and Substance, Action 5 - 2015 Final Report, OECD/G20 Base Erosion and Profit Shifting Project, OECD Publishing, Paris. https://doi.org/10.1787/9789264241190-en.

OECD/Council of Europe (2011), The Multilateral Convention on Mutual Administrative Assistance in Tax Matters: Amended by the 2010 Protocol, OECD Publishing, Paris. http://dx.doi.org/10.1787/9789264115606-en.

Notes

← 1.  The preferential regime relates to the Tonnage tax regime.

← 2.  One ruling counted as an APA as well as a ruling on PE.

← 3.  Parties to the Convention are available here: www.oecd.org/tax/exchange-of-tax-information/convention-on-mutual-administrative-assistance-in-tax-matters.htm. Germany also has bilateral agreements in force with Albania, Algeria, Argentina, Armenia, Australia, Austria, Bangladesh, Belarus, Belgium, Bolivia, Bosnia and Herzegovina, Bulgaria, Canada, China (People’s Republic of), Costa Rica, Côte d’Ivoire, Croatia, Cyprus, Czech Republic, Denmark, Ecuador, Egypt, Estonia, Finland, Former Yugoslav Republic of Macedonia, France, Georgia, Ghana, Greece, Hungary, Iceland, India, Indonesia, Iran, Ireland, Israel, Italy, Jamaica, Japan, Jersey, Kazakhstan, Kenia, Korea, Kosovo, Kuwait, Kyrgyzstan, Latvia, Liberia, Liechtenstein, Lithuania, Luxemburg, Malaysia, Malta, Morocco, Mauritius, Mexico, Moldavia, Mongolia, Montenegro, Namibia, Netherlands, New Zealand, Norway, Pakistan, Philippines, Poland, Portugal, Romania, Russia, Serbia, Singapore, Slovak Republic, Slovenia, South Africa, Spain, Sri Lanka, Sweden, Switzerland, Syria, Tajikistan, Thailand, Trinidad and Tobago, Tunisia, Turkey, Turkmenistan, Ukraine, United Arab Emirates, United Kingdom, United States, Uruguay, Uzbekistan, Venezuela, Viet Nam, Zambia, Zimbabwe.

Note by Turkey: The information in this document with reference to “Cyprus” relates to the southern part of the Island. There is no single authority representing both Turkish and Greek Cypriot people on the Island. Turkey recognises the Turkish Republic of Northern Cyprus (TRNC). Until a lasting and equitable solution is found within the context of the United Nations, Turkey shall preserve its position concerning the “Cyprus issue”.

Note by all the European Union Member States of the OECD and the European Union. The Republic of Cyprus is recognised by all members of the United Nations with the exception of Turkey. The information in this document relates to the area under the effective control of the Government of the Republic of Cyprus.