On 26 March 2010, the German Bundesrat ratified the Act Regarding the Implementation of EC Tax-Law Guidelines Including Further Tax Regulations (Gesetz zur Umsetzung steuerrechtlicher EU-Vorgaben sowie weiterer steuerrechtlicher Regelungen).

The act is based on several decisions of the European Court of Justice published in 2009 which dealt with topics such as deductibility of donations in kind and the declining depreciation for wear and tear of real estate located abroad. Other bases for the act are the implementation of Art. 263 of the VAT directive as well as the coalition agreement of Germany’s governing parties. The main provisions of the act are described below.

VAT

• The reporting requirements for cross-border B2B supplies of goods and services which are taxable in the state of receipt have been amended. Such transactions must be reported using an EC Sales List (Zusammenfassende Meldung or ZM). The ZM must be filed in addition to preliminary and annual VAT returns.

The filing deadline has now been reduced so that starting on 1 July 2010, the ZM must be filed on a monthly rather than a quarterly basis and electronic filing must be accomplished by the 25th of the succeeding month.
Businesses which provide VAT-free, intra-community supplies of goods or services to a “minor degree” are exempt from the shortened filing period and may therefore still file on a quarterly basis. “Minor degree” is defined as supplies of goods or services not exceeding EUR 100,000 per year. On 1 January 2012 the threshold will be further decreased to EUR 50,000.

• With effect from 1 January 2010, any entrepreneur in the sense of German VAT law who applies for a German VAT identification number will be granted such a number. This is a change from the previous rule which excluded the granting of VAT ID numbers to small businesses unless it was required for intra-community sales or purchases. As a result of a change in EU law and its implementation into German law, not only the supply of goods but also the provision of intra-community services is taxable in the place of receipt.

Transfer Pricing:

• German transfer pricing regulations regarding the transfer of business functions abroad tend to negatively affect Germany’s role as a business location. Under these regulations, the transfer price of a business function is defined as the sum of the transfer prices of the individual assets transferred together with an additional value for the function as a whole including a determination of profit expectations:

In order to prevent a negative impact on Germany as a research and development location, the new regulation provides that no such additional amount need be determined if the main object of the business transfer is an important intangible asset. However, the intangible asset must be described precisely in order for this rule to apply. If the preconditions are fulfilled, the transfer price for the function is then simply the sum of the individual assets’ transfer prices.

The amendment entered into force with retroactive effect from the 2008 tax assessment period, which was when the original regulation regarding the transfer of business functions abroad entered into force.