New guidance issued on electronic archiving of accounting and tax information and electronic data access by the tax authorities

The Federal Ministry of Finance has issued new rules for the electronic archiving of accounting and tax data, and principles regarding electronic tax audits.

Background

The German tax authorities are entitled to verify data in the taxpayer’s accounting system during a tax audit, and audited taxpayers are required to grant the tax authorities direct or indirect access to their data that is relevant for taxation. The Federal Ministry of Finance issued guidelines on November 14, 2014 that governs the electronic archiving of accounting and tax data and replaces previous guidelines from 2001 and 1995 (known as “GDPdU,” and “GoBS,” respectively). The new guidelines apply for fiscal years commencing after December 31, 2014.

General requirements

The regulations on electronic archiving and data access apply to all data that needs to be recorded and stored under a specific tax or nontax rule. Unfortunately, the new guidelines do not provide specific details as to what data must be archived to comply with all relevant rules.

According to the new guidelines, the tax inspector must be able to trace and verify every business transaction by starting with the transaction document, following the relevant accounting entry to the financial statements and ending at the tax return (record to return), and vice versa (return to record). Every transaction must be recorded thoroughly, completely and in a timely manner.

The new guidelines do not change the legal requirement that a taxpayer must request permission from the German tax authorities to transfer electronic bookkeeping outside of Germany, nor do they change the requirement that any paper-based bookkeeping (especially official receipts required under section 14 of the Value Added Tax Act) must be kept and stored in Germany (for exceptions, see below).

Electronic storage and scanning of paper documents

The new guidelines specify that documents that were received electronically must be stored electronically. Paper-based storage without electronic storage is not permitted. An exception applies only for electronically generated commercial documents (e.g. incoming and outgoing invoices, contracts, delivery receipts, shipping documents) that were sent to the recipient in paper format—these may be stored in paper format. However, if an invoice also was sent in electronic format, it must be archived electronically. In some cases, even an email can fall under the rules and be required to be archived (unless it serves only as a conveyance for an attachment, e.g. an outgoing invoice).

Paper documents can be scanned and subsequently destroyed unless other rules (whether or not tax related) require storage of the paper documents, e.g. financial statements or opening balances (in any case, the taxpayer should verify that the originals are not needed for further purposes; for example, shipping documents may need to be kept for customs purposes). The taxpayer must ensure that the electronic version of the document is identical to the paper version (this requirement can, in some cases, be as specific as the colors within the document if, e.g. red font indicates a negative number; the scan should be two-sided to make sure it is identical). The taxpayer must keep a manual with detailed descriptions of the scanning workflow and the persons authorized and responsible for the scanning (e.g. who is entitled to scan what, at what date, whether the scanned copy mirrors the original regarding content and appearance, whether the quality of the scan is checked and is consistent with protocol).

No particular folder system is required for the storage of documents, but an expert third party must be able to examine the documents within a reasonable period of time. If data, records and documents or materials received or incurred electronically are subject to storage (e.g. an invoice received by e-mail or scanned paper documents), they must be stored in this form for the duration of the retention period. Electronic invoices (in the “ZUGFeRD” format) must be kept in the provided PDF/A-3 format, with the embedded invoice data in XML format. The integrity of the original document must not be impaired, whether it is through indexation, barcodes or colorful accents.

If there is a change of accounting or ERP systems (or if relevant data/documents have been outsourced), the hardware and software of the original system, as well as the data that has been stored in it, must be retained for the duration of the retention period (although a company can apply for a hardship case in certain circumstances). Based on the guidelines, there is only one exception: if the company is able to transfer its old data to the new system (in such a way that the integrity of the documents with respect to content and appearance is not compromised), the old system does not have to be retained. Additionally, the company must guarantee that the data can be evaluated in an identical way. These requirements will, in practice, make it effectively impossible to dispose of an old system.

Data access

The tax authorities are authorized to access electronic data directly (“Z1 access”), indirectly (“Z2 access”) or through the transfer of extracted data to them (“Z3 access”). To ensure proper compliance for electronic and other data, every system and procedure must be accompanied by comprehensible procedural documentation. If requested by the tax auditor, this documentation must be made accessible.

The authorities do not intend to grant general approval for certain software/hardware regarding compliance with the guideline requirements, and claim that the different designs of various combinations of data processing systems do not allow this. A system compliance certificate may be issued by independent third-party companies, but such a certificate will not be binding on the tax authorities, i.e. they still could claim noncompliance based on the facts and circumstances.

The new guidelines are valid for all assessment periods commencing after December 31, 2014.