Act on the Implementation of the DAC 7 Directive and the Modernisation of Tax Procedural Law

We present the most important legislative changes introduced by the Act on the Implementation of the DAC 7 Directive and the Modernisation of Tax Procedure Law.

Implementation of the DAC 7-Directive

The first part of the law transforms the so-called DAC 7 Directive into national law. It introduces an obligation for operators of digital platforms to report information to the tax authorities on income generated by providers on these platforms. The reporting obligation will be supplemented by an automatic exchange of information on providers who are resident for tax purposes in other EU member states. In this way, the economic activities of providers on digital platforms are to become transparent for the tax authorities.

The legal definition of a platform in this context is any system based on digital technologies that enables users to contact each other via the internet using software and to conclude legal transactions (§ 3 of the German Platform Tax Transparency Act, Plattformen-Steuertransparenzgesetz (PStTG)). The legal transaction must be able to be concluded by means of the platform, i.e., the mere mediation of opportunities to conclude a business transaction is not covered. Furthermore, the law contains a catalogue of activities that do not involve a platform. These include the processing of payments in connection with a relevant activity, the listing of a relevant activity or advertising of a relevant activity by users, or the redirection or forwarding of users to a platform.

However, a platform operator is only required to report if he/she has a specific nexus to the domestic or EU market. This is the case if he/she has his/her registered office or management in Germany, is entered in the commercial or cooperative register under domestic law or maintains a permanent establishment in Germany.

Also legally defined are the terms “platform user” and “platform provider” (§ 4 PStTG). Among these are those who make use of the platform or who are registered on a platform and offer a relevant activity.

Only certain, so-called relevant activities are subject to the reporting obligation if they are provided in return for remuneration (§ 5 PStTG). These include the temporary transfer of usufruct and other rights to immovable property, the provision of personal services, the sale of goods and the temporary transfer of usufruct and other rights to means of transport.

Platform operators must register at the German Federal Central Tax Office (Bundeszentralamt für Steuern, BZSt) immediately after the promulgation of the law. Specific details are set out in § 12 PStTG. If an operator can prove that the platform is not used by providers subject to reporting requirements, it is possible to be exempted from this requirement. In advance, the BZSt may also provide information on the existence of the requirements under § 3 or § 5 PStTG on the basis of a precisely defined set of facts (§ 10 PStTG).

The reportable information (§ 14 PStTG) must be submitted annually to the BZSt by January 31 of the year following the calendar year in which the provider was registered as a reportable provider. The BZSt shall forward the information on domestic providers reported from Germany and abroad to the tax authorities.

The regulations will take effect from the calendar year 2023.

As part of the implementation of the DAC 7-Directive, amendments are also being made to the EU Administrative Assistance Act (EU-Amtshilfegesetz, EUAHiG). These amendments concern group requests, an extension of the automatic exchange of information to royalty income and the automated retrieval of account information. 

Modernisation of Tax Procedural Law

The second part of the law contains measures to modernise tax procedure law, in particular to speed up tax audits. They are to be started and completed earlier. This is to be achieved above all by improving cooperation between the tax authorities and businesses. On the part of the tax authorities, a more timely announcement of audit orders, the identification of audit focal points and the introduction of interim discussions are inserted, but on the part of the companies, significantly extended obligations to cooperate are also inserted.

Essentially, the following measures will be introduced:

The suspension of expiration of the tax assessment period following the tax audit ends no later than five years after the end of the calendar year in which the audit order was announced (§ 171 Abs. 4 of the German Fiscal Code (Abgabenordnung, AO)). An extension of the five-year period is only possible if the start of the tax audit is postponed at the request of the taxpayer or if the tax audit is interrupted or if the tax authority makes use of intergovernmental administrative assistance. 

Whenever possible, in cases that have received tax advice, an audit order is issued by the end of the calendar year following the calendar year in which the tax assessment notice issued on the basis of the tax return took effect (§ 197 Abs. 5 AO). Thus, the above-mentioned suspension of expiration period regularly begins with the end of the year after next following the tax assessment notice. The latter also applies in cases in which the audit order is only announced at a later date for reasons attributable to the tax authorities.

In the future, the audit order can be used to request the submission of documents that must be recorded or kept within a reasonable period of time. If this request is complied with, the intended focus of the tax audit will be communicated in return. However, this does not constitute a restriction of the tax audit to certain facts (§ 197 Abs. 3 und 4 AO).

It is possible to agree to conduct regular exchanges on the facts ascertained in the course of the tax audit and their possible tax implications as well as to determine the framework conditions for cooperation pursuant to § 200 AO (§ 199 Abs. 2 AO). If these general conditions are met, a qualified request for cooperation pursuant to § 200a AO shall not be issued.

Otherwise, but at the earliest after the period of six months since the announcement of the audit order, the qualified request for cooperation pursuant to § 200a AO is subject to sanctions in the event of violations. Thus, in the event of non-compliance or insufficient compliance, a cooperation delay fine of EUR 75 per day for a maximum of 150 days is to be imposed. In addition, the tax authority may, at its discretion, impose a surcharge of up to EUR 25,000 per day for a maximum of 150 days if there is a repeat offence or if there is reason to fear that the request for cooperation will not be fulfilled without the surcharge. Furthermore, the newly introduced five-year period is extended by the duration of the delay in cooperation, but at least by one year. In the case of an appeal, the tax assessment period does not expire before one year after the decision on the legal appeal has become final.

Taxable bases that have been conclusively audited can be separately determined by a binding partial final assessment (§ 180 Abs. 1a AO), which must be preceded by a written or electronic partial audit report (§ 202 Abs. 3 AO). The decisions made therein can only be challenged by contesting the partial final assessment notice.

Binding confirmations can already be issued before the conclusion of the tax audit, insofar as a partial final assessment notice has been issued (§ 204 Abs. 2 AO).

With regard to the use of internal tax control systems, in future audit facilitations can be approved for future tax audits if the current tax audit has confirmed the effectiveness of the internal tax control system in complying with tax regulations (Article 97 § 38 EGAO).

The obligation of notification and correction is extended to the effect that companies shall be required to independently make changes resulting from a tax audit which were implemented without being appealed in a tax assessment notice, an assessment notice pursuant to § 180 (1) sentence 1 no. 2 AO or a partial final assessment notice pursuant to § 180 (1a) AO and affect other bases of taxation (§ 153 Abs. 4 AO).

The obligations in the area of transfer pricing will be tightened. In the future, the tax authorities will be able to demand the submission of records pursuant to § 90 (3) AO (local file and master file) at any time - i.e. also outside of tax audits. In the case of tax audits, the transfer pricing documentation records are to be submitted without a separate request. The period for submission will be shortened and will in future generally be only 30 days after request or after notification of the audit order. When assessing the surcharge to be imposed in the event that records are not submitted or are submitted late or are unusable, the benefits accruing to the enterprise as a result of exceeding the deadline are to be taken into account. 

The options for relocating bookkeeping are expanded. Electronic bookkeeping documents can now be transferred not only to one EU member state, but to several member states, and not only to one third country, but to several third countries (§ 146 (2b) sentence 1 AO). Moreover, in the event of a request for relocation by the tax authorities, the documents no longer have to be relocated to Germany, but can be relocated directly to one or more EU member states. 

Some new regulations, such as the determination of audit priorities or the facilitation of the relocation of electronic bookkeeping and data access, will already come into force on January 1, 2023. The testing of alternative audit methods will also come into force on January 1, 2023, but since it is a trial regulation, it will be repealed again on January 1, 2030. Whether and to what extent such a regulation will also apply beyond that date has not yet been clarified.

The vast majority of the new regulations will in principle come into force as of January 1, 2025. However, the Introductory Act to the German Fiscal Code contains detailed application regulations (Article 97 § 37 EGAO) and shifts some measures forward in time again. For example, the new regulations on the agreement of framework conditions and regular exchange, on the qualified request for cooperation, on the partial final assessment notice, on the duty of notification for implications on other tax assessment bases and on the submission of records in the area of transfer pricing also apply to taxes and tax refunds arising before January 1, 2025, for which an audit order is announced after December 31, 2024. The new provisions on limitation of the suspension of expiration of the assessment period to five years and on the timely remission of the audit order will remain in force from January 1, 2025.