International Tax Newsletter - Summer 2011 - GERMANY: Electronic Transmission Of Tax Accounting Introduced For 2012 Onward

August 01, 2011

For fiscal years beginning after 2011, taxpayers will have to file the content of their balance sheet and profit and loss statement for tax purposes via an electronic form called the "E-Balance Sheet." This may be a commercial balance sheet combined with a tax reconciliation statement or directly a tax balance sheet. In cases of omission of the "E-Balance Sheet," the tax authority is entitled to impose a penalty, the amount depending on the individual case.

The electronic mailing is based on the machine language XBRL (eXtensible Business Reporting Language). This instrument will enable the tax authorities to automatically determine the taxable income but also to run complex cross-checks in case of a tax audit. The general regulations for filing such annual tax returns are currently being specified by the German Federal Ministry of Finance.

The consequences are enormous. Especially for inbound foreign investors who nearly always draw up accounts under both local GAAP and international reporting standards, this means an additional burden. In addition to this, many international investors have specific intra-company bookkeeping policy/guidelines and reporting requirements that may have to be adjusted. This will particularly affect corporate groups with German subsidiary companies using non-commercial but specific software.

Although the adjustment of bookkeeping systems will tie up resources in the beginning, opportunities will emerge for the taxpayer. The taxpayer can use the adjustment to implement a self-assessment approach to tax planning. The tax accounting may, for instance, provide an efficient basis to calculate deferred taxes. Moreover, required changes in the bookkeeping system may be used as an opportunity to modernize an old fashioned chart of accounts – for example, intra-company information can be sent via XBRL to provide the parent company with very detailed management information.

Companies are well advised to deal with any required changes well ahead of time, to have the new system up and running from 1 January 2012!

International Tax Newsletter - Summer 2011


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