This survey provides an overview of the current status of (income and including transfer pricing) tax audit experiences and perceived trends for multinational groups with German investments. During June and July 2010, 234 respondents from at least 18 countries answered 35 questions on their experiences with German income tax audits.
Most respondents were publicly quoted groups with annual sales of more than EUR 1 billion globally and EUR 50 million to EUR 500 million in Germany; most were headquartered in the U.S., the U.K. and Japan. The German operations were mainly in the form of corporations. Most of the German operations are classified as “large” and, thus, subject to continuous and comprehensive German tax audits.
Key findings
The survey reveals that inbound investors generally have many open tax years and they undergo lengthy German tax audits, which results in considerable tax uncertainty. On average, the German operations were audited through 2004. Ongoing tax audits on average covered years through 2006.
Transfer pricing, by far, is the most important issue in past and current tax audits as the following chart shows, and the survey suggests that the significance of transfer pricing will continue to grow. Transfer pricing adjustments mainly seem to arise from a failure to comply with the arm’s length principle.
Top three issues in tax audits:
German tax audits tend to be costly for both inbound and outbound investors. On average, the last completed income tax audit resulted in (normalized) additional taxes of 49% of the relevant group’s average German income tax expense per year. However, the cash impact of tax audits can be more severe. Respondents who ranked tax group issues among their top three issues on average paid 97% of the annual average income tax (rather than 49%).
The clear majority of surveyed companies (84%) responded to their last German tax audit by adopting measures to prepare for future audits.
Seventy nine percent of all German tax audits were perceived to be conducted in a professional or friendly manner. Despite the reportedly negative reputation of German tax audits, the survey demonstrates that they are perceived as equally burdensome as French or U.S. tax audits, slightly less burdensome than Italian audits and far more burdensome than Dutch or U.K. audits.
Please find below the link to download a short summary of the survey results for your review. If you would like a copy of the full survey or if you have questions on German tax audits or related topics, please contact the authors of this article at gtln@deloitte.de or your regular Deloitte contact.
