In brief from international taxation [February 2023]

Germany has tightened the rules on transfer pricing documentation. The United Kingdom is about to implement the OECD model rules on mandatory disclosure while the European Commission intends to introduce an infringement package for 2023. Read this and more in the latest international tax news.

Germany: Transfer Pricing Documentation Rules Tightened

Germany implementing the Council Directive (EU) 2021/514 on administrative cooperation in the field of taxation (DAC 7) into its domestic law resulted in significant changes in relation to the documentation of intercompany transfer pricing. By the new rules, the amended Section 90 of the General Tax Code allows the tax authorities to request transfer pricing documentation at any time, requiring taxpayers to submit the required documentation without a specific request from the tax authorities during a field tax audit.

Pursuant to the prior wording of the Tax Code, the taxpayer was required to submit the transfer pricing documentation upon request only, in most cases solely for the purposes of a field tax audit, while requests for submitting such documentation outside a field tax audit were very rare. Based on the amended law provisions, in the event of a field tax audit, the taxpayer must submit the required transfer pricing documentation without a special request by the tax authorities. Rules for submission deadlines have also been tightened and the new rule establishes 30 days for both, ordinary and extraordinary business transactions.

UK: Introduction of Mandatory Disclosure Rules

On March 2023, the UK will implement the OECD’s model mandatory disclosure rules whose objective is to prevent the avoidance of the common reporting standard and the use of certain opaque offshore structures. The new rules will require intermediaries and reportable taxpayers to disclose information on such types of arrangements and structures to HM Revenue & Customs (HMRC).

EU: European Commission Publishes January 2023 Infringements Package

In January 2023, the European Commission released its 2023 infringement package. The infringement procedure consists of a series of steps. The first step is a “Letter of Formal Notice” sent to the relevant member state, which has two months to clarify its position to the EC. If the EC is not satisfied with the response, it proceeds to step two, which is to send the member state a ”Reasoned Opinion”, i.e. a formal request to comply with the EU law. If the member state continues to not comply with the EU law, the EC can refer the case to the Court of Justice of the European Union.

The EC has decided to send a Letter of Formal Notice to Spain because it is of the opinion that the Spanish national implementing legislation does not provide key features of the new Council Directive (EU) 2017/1852 on tax dispute resolution mechanisms in the EU for cross-border tax disputes. It also decided to send Spain a Reasoned Opinion due to a failure to notify the introduction of the measures for the transposition into national law of Council Directive (EU) 2020/262 which lays down the general arrangements for excise duty.

The Commission has also decided to close several other infringement proceedings against various member states (such as Austria, Greece, France, or Germany).

OECD: Pillar Two Administrative Guidance Released

The new OECD rules are designed to ensure that MNE Groups are subject to a 15% global minimum tax on multinational corporations, known as Pillar Two. The publication of the administrative guidance, released on 2nd February 2023, follows the release of the Pillar Two model rules in December 2021 and a commentary in March 2022, as well as rules for safe harbors and penalty relief released in December 2022. The newly released administrative guidance will be incorporated into a revised version of the commentary that is expected later in 2023.

The administrative guidance covers over two dozen topics, addressing issues that members of the inclusive framework identified as most pressing. The guidance includes topics relating to the scope of companies that will be subject to the GloBE rules, the method for allocating global intangible low-taxed income (GILTI) among the subsidiaries of  US MNEs for purposes of determining their effective rates under the GloBE rules, transition rules that will apply in the years prior to the application of the global minimum tax, and guidance on the QDMTT that countries may choose to adopt.

OECD: Manual on Handling of Multilateral MAPs and APAs Released

Mutual Agreement Procedures (MAPs) and Advance Pricing Agreements (APAs) offer greater tax certainty to both taxpayers and tax administrations where different parts of the same transaction or arrangement involving a multinational enterprise are covered by multiple bilateral tax treaties. However, as most jurisdictions have limited experience in coordinating bilateral MAP and APA cases to offer multilateral certainty, the Manual (MoMA) is intended to guide multilateral MAP and APA processes from both legal and procedural perspectives. At the same time, it aims to suggest approaches without imposing a set of binding rules.

The MoMA allows tax administrations to explore whether implementation of these procedures is appropriate considering the circumstances of their own MAP and APA programmes and to consider whether the guidance therein may be incorporated into their domestic guidance. It outlines cooperation expected from taxpayers to allow tax administrations to consider MAP and APA cases multilaterally.

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