A joint declaration was issued on August 10, 2021 by Germany and the United States on the purpose of arbitrary exchange of information on country-wise reports by 2020. The updated interim solution, aimed at reducing additional compliance costs incurred by taxpayers as a result of so-called “secondary filing”, has not yet been finally agreed upon as a permanent solution to an automated communication.
The conclusion of the agreement between the Governments of Germany and the United States on August 14, 2020, paved the way for a permanent settlement of the automatic exchange of CBC reports. Since the details were open due to the concluded agreement and these are still unresolved, the two tax administrations involved applied the already proven interim solution for 2020 as well.
Additional legal basis is required to avoid secondary filing
(cf. § 138a AO) In order to minimize compliance efforts for groups of companies that have to produce them, the CbC report should only be sent to the centrally responsible tax authority. Federal financial management generally distributes CBC reports to the relevant financial administrations. However, this requires a legal basis between the states concerned. Germany and many other countries offer local filing obligations on behalf of the taxpayer because the transaction was not carried out by a federal authority (so-called secondary filing). This fallback mechanism is especially useful if there is no exchange agreement (multilateral or bilateral tax agreement or agreement on automatic transfer of tax information) between the country where the final parent company is located and Germany.
The United States and Germany agree on 2020
As the agreement between Germany and the United States for the automatic exchange of CbC reports requires more selective negotiations, the Fallback mechanism applies to companies in the United States that are obliged to carry out CbC reporting and operate with subsidiaries in the United States. Or permanent companies. To avoid this, the responsible German and US officials agreed to continue the arbitrary exchange of CBC reports for fiscal years beginning January 1, 2020. BMF issued a joint statement on August 10, 2021 (BMF, August 10, 2021 letter, IV B 6 – S 1315/19/10050: 006). Spontaneous information exchange is also planned for the fiscal years beginning in 2016, 2017, 2018 and 2019.
CbC report on tax audits
The CBC report sees itself as a tool for transaction pricing risks or high assessment of BEPS-related risks and is part of a tripartite documented approach standardized under Action Plan 13 of the Basic Erosion and Profit Transformation Plan. OECD.
As a result, tax auditing enables more targeted utilization of resources, leading to a comprehensive assessment of problem areas. The rating of CBC reports can be found in most tax audits. The professional development of CBC reporting will focus on tax compliance and tax controversy and will be part of the tax audit preparation.
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