Tax Compliance

Our experts work with you to implement regulatory requirements without creating unnecessary bureaucratic obstacles.

Overview of our expertise:

Non-financial reporting (CSR)

Non-financial reporting is a key element of responsible corporate governance. It refers to the formal publication of information that is not covered by accounting requirements. The focus here is on the environmental, sustainability and social impact of business activities, with the aim of informing stakeholders and potential investors about specific action in these areas. Rendering tax structures more transparent has been part of non-financial reporting for some time now and is considered an indicator of the fact that a comprehensive sustainability strategy is in place. What used to be a voluntary process is now heavily regulated at EU level. As the Corporate Sustainability Reporting Directive is implemented, the group of targeted persons is being expanded, while the scope and complexity of reporting obligations are increasing.

Tax ESG

Environment, social and governance factors are closely related to a company’s tax liability. In one sense, tax law is a regulatory tool for promoting sustainability and environmental protection. Taxation linked to environmentally significant activities is rooted in the idea of sustainability. In line with the increased transparency of international reporting standards, companies are disclosing more and more details of their tax payments. This intensifies the pressure to operate an effective compliance system, but also offers the opportunity to stand out from competitors. It is thus worth incorporating taxation when developing a corporate sustainability strategy.

Fair taxation / minimum taxation

Countries around the world are about to introduce a global minimum tax for large companies. This has been adopted at EU level in the form of a directive which must be transposed into national law by 31 December 2023. The basis here is the OECD’s BEPS project (base erosion and profit shifting). The draft of the German transposition law proposes a taxation level of (at least) 15% on the profits of companies that generate more than EUR 750 million in sales a year.

DAC6 and DAC7

Certain tax arrangements with cross-border implications are subject to disclosure requirements towards the tax authorities. The legal framework for the reporting obligation is DAC6 (the 6th amendment to the EU Directive on Administrative Cooperation). This obliges Member States to set up national reporting offices while also legislating for structures to handle the EU-wide exchange of information. DAC7 implements a system of reporting obligations for digital platform operators and requires the disclosure of data concerning any income generated via those platforms to the tax authorities. Relevant business activities that can be accessed online concern real property, the sale of goods and rental cars. The directive has already been implemented into German law and is effective as of 2023, a first report is due by 31 January 2024.

CBAM

The European Carbon Border Adjustment Mechanism (CBAM) is due to take effect from 1 January 2026 and imposes a CO2 tariff on the import of products from third countries. In addition to building materials such as steel, iron and cement, it also affects aluminium, electricity and hydrogen. The EU regulation is directly applicable. During the transition period, which begins on 1 October 2023, importing companies are obliged to submit quarterly reports on imports and the emissions released in the country of origin. In order to meet this requirement, the necessary data must be recorded promptly and requested from the supplier for this purpose.

Risk analysis

Risk analysis relating to incorrect data and incorrect tax returns focuses on tax risks inherent in process flows. In other words, it helps to identify high-risk practices. It forms the basis for setting up a tax risk management system and is a recurring component of a tax compliance management system (CMS).

Tax CMS / Implementation of tax compliance management systems (CMS)

There is no set blueprint for effectively establishing and developing a tax CMS. Companies are free to structure the system as they wish, limited only by the system’s suitability. When deciding on a particular measure, it is advisable to be guided by the level of tax security gained and whether the effort required to implement it is proportionate. A “functioning” tax CMS must be in place in order to provide protection against charges of tax criminality. Without a tax CMS, a tax offence is generally assumed if incorrect tax returns are discovered. As tax law is prone to errors due to the large number of transactions involved, suitable measures must be taken to avoid errors and to recognise unusual transactions. A tax CMS should be viewed and considered in conjunction with the general CMS.

Criminal tax law

Any accusation of a criminal tax offence usually leads to severe and stressful action by the authorities. Examples include a raid on the company’s premises or charges being brought. Allegations of criminal tax offences need to be handled with great care. Experience in dealing with criminal law scenarios and detailed tax law expertise are essential for providing a focused and successful defence under criminal tax law. The recent past has shown that the authorities are now much quicker to bring charges of criminal tax offences, and do so more frequently, e.g. in the context of critical tax audits. This makes it essential to implement preventive measures, especially as these are also required by case law.

Risk areas

Mass transactions and complicated business transactions within a company are particularly risky. This applies especially to VAT, but also to income taxes, excise duties, customs duties, consignment stock goods, transfer prices for internal group transactions, cross-border transactions (DTT transactions), energy taxes, hidden distribution of profits and issues relating to the formation of permanent establishments, as well as reporting obligations with regard to property transfer taxes, DAC6, and activities in connection with DAC7. Subsidies, CSRDD reporting and non-financial reporting obligations are increasingly affected by ESG.

IT security/cyber attacks

This topic is gaining in importance and must be taken into account throughout the company. There is a steady rise in attacks, particularly from Russia, China, North Korea and the Arab countries, but also from criminal organisations worldwide. An infiltrated system is no longer able to submit correct tax returns and may become inoperable. Precautionary measures should be taken to ward against such a risk. Not  just being a matter of technical and IT-specific issues, a functional defence system is also about structure, design and procedures.

Fraud risk compliance

Fraud risks are often closely related to IT security and increasingly involve sophisticated digital manipulation. Accounting and payment management are particularly at risk and often targeted, making appropriate defence strategies and security measures absolutely essential.

Voluntary disclosure/tax correction

The aim of a good tax compliance system is to avoid charges of tax criminality. The tax authorities have acknowledged since 2016 that this is possible if a reliable and professional tax compliance system has been/is being set up and is continuously developed. In that case, and only in that case, no subjective accusation of tax evasion will generally be made. Under these circumstances a tax correction (as per section 153 of the Fiscal Code (Abgabenordnung – AO)) would even be allowed during an ongoing tax audit, due to the existence of a tax compliance system. Otherwise, the tax authorities will assume intentional tax evasion, subject to refutation. A complex exercise to disprove the allegation will be necessary, which often ends in failure. Immunity from prosecution can then only be obtained through effective voluntary disclosure. The requirements applicable to effective voluntary disclosure are now very demanding and require extensive experience, especially as the limitation periods under criminal tax law have been greatly extended, well beyond 20 years in some cases. Suitable supporting documents are then usually no longer available, as the obligation to retain them ends after 10 years at the latest. This is a dilemma that can only be resolved with great professional skill and expertise.

Corruption

Combating corruption was one of the very first compliance issues and it remains among the most important. It also has significant implications for tax obligations. Since 2004, payments linked to corruption have not been tax deductible. As a result, bribery usually leads to a charge of tax evasion and is often associated with money laundering. As most criminal offences (especially of this nature) are detected through suspicion of money laundering or in the course of criminal investigations triggered by tax audits, tax compliance teams must pay particular attention to these matters and coordinate closely with those tasked with money laundering checks and the prevention of slush funds.

Forensic investigations/internal investigations

Breaches of tax regulations that have (in all probability) been recognised and already identified require careful handling. Without a full understanding of the facts, it is not possible to make an appropriate voluntary disclosure that leads to immunity from charges. As this almost always involves huge amounts of data, only a professional forensic investigation backed by relevant experience can provide the necessary insights. This often has to be carried out by means of thorough internal investigations in the form of interviews with the relevant staff members, together with examination of the associated correspondence and legal documents.