German Multinationals Fear Disclosure of Global Tax Reports

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By Kevin A. Bell

Multinational companies headquartered in Germany worry that when they report their global tax and profits for 2016, some countries will leak their country-by-country reports to the press.

German parents of multinational groups with annual consolidated group revenue of at least 750 million euros ($797 million) are required to file, with the German tax administration, country-by-country reports for financial years starting after Dec. 31, 2015.

German companies aren’t concerned about confidentiality breaches by the German tax authorities because “German confidentiality rules are very strict and the same applies for other EU member states,” Julian Boehmer of Linklaters LLP in Dusseldorf told Bloomberg BNA Jan. 18 in an e-mail. “German multinationals doubt that other non-EU states, especially the BRICS states and less developed states in Asia and Africa, will apply similar safeguards.”

Stephan Schnorberger of Baker & McKenzie in Dusseldorf agreed. “Even though the information is privileged under German tax secrecy laws, that does not really help abroad. In fact, German multinational companies have great confidentiality concerns regarding the country-by-country reports and the standards of confidentiality in foreign countries.”

Country-by-country reporting was the star measure of the Organization for Economic Cooperation and Development’s 15-action international project to fight base erosion and profit shifting by multinational companies. Its recommendations call for multinationals to annually report on taxes paid and profits earned in each country of operation, and for countries to automatically exchange that information, while ensuring confidentiality.

Competent Authority Agreement

Xaver Ditz of Flick Gocke Schaumburg in Bonn told Bloomberg BNA that German law provides for an automatic exchange of the country-by-country report with foreign competent tax authorities.

The German legislature in October incorporated the Multilateral Competent Authority Agreement on the Exchange of Country-by-Country Reports (MCAA) into German domestic law. The German tax administration may use the country-by-country report for assessing high-level transfer pricing, base erosion and profit shifting related risks, and economic and statistical analysis.

The government’s explanatory memorandum “highlights that an exchange of the country-by-country report is only intended with foreign competent authorities of countries, in which an entity of the multinational corporation is situated and if this entity is also included in the respective report,” Ditz said.

In general, the confidentiality requirements of the country-by-country report and the potential abuse of the underlying information are a great concern to German multinational companies, Ditz said. “It is unclear how a reporting company is able to express concerns against the exchange of the reports, for example, if the German tax secrecy standards are not applied by the foreign tax authority receiving the country-by-country report.”

Jobst Wilmanns of Deloitte in Frankfurt said the German tax administration is required to keep confidential any country-by-country reporting information that it receives from companies.

Boehmer said under German law inappropriate adjustments made by local tax administrations are to be conceded in any competent authority proceedings.

Country-by-Country Reporting Rules

Germany’s Dec. 20 final legislation adopting country-by-country reporting rules mirrors the German Federal Government’s July 13 draft legislation.

Schnorberger said the intent of the Dec. 20 legislation is that the German tax authorities are prohibited from using country-by-country reports as evidence for transfer price adjustments. “How the CbC reports will play out remains to be seen.”

“In our practical experience as well as in German tax literature, there is the growing concern that tax authorities will perform adjustments based on the country-by-country report only, which would not be in line with the arm’s length principle, and will ultimately result in double taxation,” Ditz said.

Ditz said the government’s explanatory memorandum to the legislation defines three objectives for the country-by-country report:

  •  The information should be used by the tax authorities to undertake a high-level transfer pricing risk assessment;
  •  The report itself is not suitable to prove the inappropriateness of transfer prices; and
  •  The information is not to be used to apply a global formulary apportionment of income.

Thus the country-by-country report may not be used as a substitute for a detailed transfer pricing analysis of individual related-party transactions and prices. A complete functional analysis and comparability analysis is required.

Foreign-Initiated Adjustments

Schnorberger said German multinationals are concerned about foreign-initiated adjustments. The MCAA contains a “somewhat half-hearted prohibition of transfer price adjustments based on country-by-country reports.” However, the agreement “does not seem to offer a legal right to taxpayers to force the tax administration to abstain from undue use of the country-by-country reports.”

Unless the domestic law of the respective country initiating a transfer pricing adjustment “offers protection, taxpayers seem to be left with mutual agreement procedure, an imperfect recourse,” Schnorberger said.

European Union Directive?

During work on the BEPS project, a big part of getting businesses to cooperate was OECD’s assurances that country-by-country reports would only go to tax authorities.

German practitioners are concerned that the European Union will enact pending legislation calling for public country-by-country reporting.

“In light of public CbC reporting as proposed by the European Commission, German taxpayers do have confidentiality concerns related to the exchange of CbC Reporting between the various tax administrations,” said Wilmanns.

Boehmer agreed. “German multinationals fear the adoption of the draft EU public country-by-country-reporting-directive.”

To contact the reporter on this story: Kevin A. Bell in Washington at

To contact the editor responsible for this story: Molly Moses at

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