Content
- Which E-Mails have to be presented in a tax field audit?
- Sending e-invoices is coming soon. Take action now!
- Input VAT risk for German subsidiaries that act as function- and risk-free billing centres without staff
- EU plans fundamental Reform of European Corporate Tax Law
- VAT effects after EU Transfer Pricing Adjustments
- ECJ Judgment on Portuguese tax will have Implications for German Real Estate Transfer Tax
Which E-Mails have to be presented in a tax field audit?
Following a Federal Fiscal Court (BFH) ruling in April 2025, it appears certain that email communications will be increasingly requested in future tax audits involving transfer pricing issues. Many multinational companies are not truly prepared for this, and confidential information continues to be exchanged via email—both internally and with external advisors such as attorneys, tax advisors, or auditors.
Unless a company has internal “email retention policies” synchronized with tax retention periods, it will be nearly impossible to respond to and comply with a tax auditor’s request for such information within the short deadlines set. In such cases, there is the risk of estimations of the tax base by the tax authorities.
Limits on the Authorities to Request Information
According to the Federal Fiscal Court (BFH), there is no legal basis for requesting a “comprehensive log” (an overview of metadata for all email correspondence, including details on sender, recipient, date, subject, attachments, and a field for documenting the exercise of the right to initial qualification). However, a request made during an external tax audit for the “en bloc” submission of all emails is permissible if it is directed with reference to a specific intra-group contractual relationship.
The taxpayer’s so-called “right of initial classification”
The taxpayer retains the so-called “right of initial classification” and may, in effect, “filter out” emails that are irrelevant for tax purposes, purely internal to the company, or of a private nature. We recommend organizing and selecting the data in such a way that the tax authority can review it or gain authorized access without affecting protected areas.
Only “Factual Circumstances” Are Subject to Disclosure
The tax authority’s request for email content may relate exclusively to “factual circumstances.” Email content relating to a (tax) legal assessment and evaluation of the facts—regardless of whether this was performed by the taxpayer themselves or by a third party (e.g., an external advisor)—is not subject to disclosure.
In our view, emails that contain content comprising both factual statements and (tax) legal assessments (e.g., analyses and expert opinions on transfer pricing issues) (“hybrid documents”), are not subject to the disclosure requirement, as the obligation to cooperate applies exclusively to tax-relevant facts and not to legal assessments or conclusions, for which there is already no legal obligation to retain them.
The tax authorities generally take a different view (e.g., in the VWG 2020 (para. 13): “The obligation to submit documents also applies to expert opinions and statements on transfer pricing—insofar as they are deemed significant for the determination of transfer prices or for the calculation of income in connection with transfer pricing”). It therefore makes a great deal of sense to separate factual descriptions on the one hand from legal analyses and assessments on the other into different emails.
Which Emails Are Particularly “Interesting” in the Area of Transfer Pricing
Email correspondence related to DEMPE functions; emails that reveal “control-over-risk” activities, particularly in the area of group financing; potential instances of functional relocation or disengagement; and issues surrounding management activities.
Our recommendations:
- Do not provide all emails to the tax authorities, if requested
- Send separate emails on factual statements and on (tax) legal assessments and don’t send hybrid documents
- If you can, separate emails that may have an impact on transfer pricing in different folders. If not, review all emails using AI or search tools to extract the emails you need to disclose, once requested.
Sending e-invoices is coming soon. Take action now!
While all German businesses have been required to receive e-invoices since January 1, 2025, the requirement to be able to receive and also process your outgoing invoices as e-invoices is also approaching. This will apply starting January 1, 2027, to all businesses with prior-year revenue exceeding €800,000, and to all others starting January 1, 2028. Exceptions will then apply only to tax-exempt goods and services, B2C invoices (end consumers), invoices for small amounts (<€250), travel tickets, and services provided by small businesses. In addition, a digital reporting system is scheduled to be introduced starting in 2028, meaning that the tax office will receive digital notification whenever an e-invoice is sent or received and can verify it immediately.
When it comes to receiving e-invoices, we were able to easily provide our accounting clients with a suitable DATEV program for processing incoming invoices. We are generally not involved in the creation and sending of invoices, and clients must ensure on their own that their invoicing software meets the requirements. Since the transition cannot be completed in a single day and many service providers are likely to be fully booked toward the end of the year, we recommend that you address this issue now during the summer and make the switch as soon as possible.
As a reminder: Word, Excel, image, and PDF files are not e-invoices. E-Invoices are only machine-readable invoices that comply with the EN 16931 standard, such as X-Rechnung or ZUGFeRD 2.X. Ask your software provider for your billing system whether their system complies with this standard and whether it has been set up for you.
To save time and money, there should ideally be no more media breaks—that is, an e-invoice should be processed entirely electronically from receipt through verification and approval, posting and payment, all the way to archiving and analysis, rather than, for example, being retyped. You can also check whether there is an interface between your invoicing program and our DATEV software. This can save valuable time. Currently, 74 software vendors are planning to integrate with the DATEV e-invoicing platform.
Input VAT risk for German subsidiaries that act as function- and risk-free billing centres without staff
Germany is a great place to sell goods and services at relatively high prices. Since German clients prefer to deal with German companies, insist on German terms & conditions and German courts to be competent in case of disputes many foreign companies use German subsidiaries to sell their products or services in Germany and in the European Union.
As the tax rates on income are often lower in their home countries they tend to try to shift as many profits to their home countries as possible. In extreme cases this may result in no German staff, almost all functions are performed by other group companies abroad, all risks of the German company are backed by the parent company, and all IP rights lie with the parent company. The aim is clearly to reduce the functions and risks and therefore the part of the profits to be paid in Germany. However, this may trigger a serious VAT problem that those firms are often not aware of.
The problem
In recent tax field audits auditors rejected to accept input taxes. Input taxes are the VAT shown on invoices from your suppliers and paid to them. This input tax (normally 19% of the amount of sale or service) will be refunded to entrepreneurs by the tax office if certain conditions are met, as only end consumers should bear VAT. If that input tax is no longer refunded this may have a huge impact.
The tax authorities refer to Section 15(1), first sentence, No. 1 of the German Value-Added Tax Act (UStG) as legal basis, which requires a business operator to deduct the tax due under the law for supplies or other services performed by another business operator “for its own business.” This is normally the case if supplies are in connection with the sale of VAT-free gods or services.
However, if the GmbH merely closes contracts with the clients, issues invoices and collects funds, while all material operational functions, assets, and risks remain entirely with the foreign parent company, the tax field auditor may argue that the GmbH does not provide any economic services of its own but merely performs an administrative processing function for the foreign parent company.
Particularly dangerous is the wording in the function and risk analysis stating that the GmbH is assigned only “invoicing and collection.” Although a transfer pricing documentation is not binding for VAT purposes, it is strong factual evidence. The more it describes the GmbH as a function- and risk-free billing centre, the more likely the tax authorities are to challenge the input tax deduction on the grounds that the services purchased were not used for the GmbH’s own business activities.
While the final decision if the view of the tax authorities will be accepted by fiscal courts has not been made so far it is important to perform a risk assessment and take steps to minimize the VAT risk.
Risk assessment:
Risk is low to medium if the following points can be verified:
The German entity is the clear contractual partner vis-à-vis the customers, provides the goods or services in its own name, is liable under the customer contract, issues invoices in its own name, deposits payments into its own bank account, and accurately reports its output sales for VAT purposes. The foreign parent company provides clearly documented intra-group services to the German entity, such as software licenses, hosting, support, development, technical support, or management services. These services are compensated at arm’s-length rates and are factored into the German entity’s pricing as cost elements. In this case, for VAT purposes, the German entity is not merely a collection agent, but a “limited-risk reseller” or a contractual principal with outsourced service provision.
Medium to high risk given the documentation described above
The fact that only the “invoicing and collections” function is assigned to the German entity is the key risk driver. If a tax auditor reads this statement in isolation, it is more consistent with an agent, commission agent, or paying agent role than with the company’s own software or service offerings. This creates a potential challenge to the German entity ‘s input tax deduction on services received, particularly regarding general administrative expenses and, where applicable, reverse-charge input tax on services provided by the parent company.
The risk is high if any of the following characteristics are also present:
Customers effectively perceive the parent company as the provider; the website, Terms of Service, privacy policy, SLA, or support communications name the parent company as the actual provider. The German entity bears no contractual responsibility toward customers. There is no robust intercompany agreement that grants the German entity rights to use the IP and access to support/service resources. The German entity ‘s prices are not calculated to include the foreign services. Or the foreign parent company not only bears economic risks internally but is also the party actually obligated externally.
Recommendations:
- Customer Contracts and Terms and Conditions: The German entity should be clearly identified as the service provider, contracting party, invoicing entity, and party against whom claims may be made. If the foreign parent company is merely a technical agent, this should be clearly stated.
- Intercompany Agreements: There should be a robust agreement between the foreign parent company and the German entity regarding software usage rights, technical service provision, support, management, data access, compensation, and liability/recourse mechanisms. Without such agreements, the German entity can quickly come across as nothing more than a billing shell.
- Transfer pricing documentation: The functional and risk analysis should not merely list “invoicing and collection” if the German entity is externally responsible for providing its own software and services. A more appropriate approach would be a consistent description of the German entity as a contractual service provider, limited-risk reseller, or principal in its external relationships, with operational service delivery fully outsourced. The transfer pricing risk allocation in internal relations must not be formulated in such a way that the German entity is denied any entrepreneurial activity of its own.
- Cost Element Documentation: The costs of the foreign parent company and the local costs of the German entity should be factored into the German entity’s pricing or, at the very least, be traceable as overhead costs associated with its output sales. This is precisely where the Federal Fiscal Court (BFH) case law comes into play.
- Sales Tax Matrix: For German, EU, and third-country customers, it should be documented which output sales are taxable, non-taxable, eligible for the reverse charge mechanism, or do not affect input tax credits. For tax-exempt sales, an input tax allocation may be required.
- Substance over form: It doesn’t matter if your written agreements are perfect but the actual doing shows some else. Please make sure to implement and follow the rules as described in the written agreements.
EU plans fundamental Reform of European Corporate Tax Law
On June 24, 2026, the European Commission published its proposal for a new omnibus package (EU Tax Omnibus) aimed at simplifying European corporate tax law. It consists of two separate legislative proposals and concerns, among other things, the Parent-Subsidiary Directive, the Interest and Royalties Directive, the Merger Directive, and the Anti-Tax Avoidance Directive (ATAD).
Omnibus Package on Corporate Taxation
- The centerpiece is the elimination of withholding taxes on intra-group, cross-border dividend, interest, and royalty payments within the EU—with the aim of facilitating the free movement of capital in the single market.
- The scope of application of the Parent-Subsidiary Directive is to be expanded to include occupational and institutional pension schemes.
- An EU-wide minimum standard for the tax treatment of investments in tangible assets related to research and development is to be introduced, with an immediate and full deduction as business expenses in all EU member states.
- Debt financing by independent third parties, as well as market-based financing structures, are to be excluded from the scope of application, provided there is no significant risk of profit shifting.
- The Merger Directive should be extended to cover all forms of restructuring permitted under company law—not only mergers, but also demergers, spin-offs, and asset transfers should be possible on a tax-neutral basis.
- The interest deduction limitation is to be further harmonized. The 30% cap on EBITDA will remain the standard; divergent national regulations are to be eliminated. The exemption threshold for net interest expenses is set at 5 million EUR and is to be indexed in the future. Member States that currently provide for an exemption threshold—such as Germany—would be required to adjust their rules.
Revision of the DAC Directive
- The nine individual directives in place to date will be consolidated into a single legal act—a significant step toward simplifying the regulatory framework for the exchange of tax information, which is intended to provide greater legal clarity for businesses and government agencies.
- Approximately 3,000 multinational corporate groups that are already subject to Pillar Two minimum taxation are to be exempted from certain DAC6 reporting requirements for cross-border arrangements.
- To simplify compliance, the revised version introduces a uniform reporting requirement that covers both country-by-country reporting and the centralized filing of Top up Tax Information Returns under the minimum tax regime.
- With regard to the tax identification of taxpayers, a new EU-wide verification tool is intended to ensure greater reliability and efficiency—with the aim of improving data quality and making more effective use of the exchanged data.
Both proposals will now be considered by the European Parliament and the Council of the EU.
VAT effects after EU Transfer Pricing Adjustments
The following refers to an ECJ Judgment dated May 14, 2026; C‑603/2 (Stellantis Portugal S.A.).
The case:
Stellantis Portugal—formerly General Motors Portugal—was the national sales company. It purchased vehicles from in-group OEMs and resold them to independent dealers. In cases involving warranties, recalls, or roadside assistance, the dealers performed repairs and billed the Portuguese sales company. These repair costs, as well as other distribution costs such as personnel, electricity, and marketing expenses, were factored into the transfer pricing calculation. At the end of the period, transfer prices were adjusted via credit or debit notes to ensure a predetermined margin.
The Portuguese tax authorities sought to treat these adjustments as compensation for repair services provided by the distribution company to the OEMs and to assess additional value-added tax.
The decision:
The ECJ viewed the relevant 2004 agreement as merely a provision for setting and adjusting transfer prices for vehicle deliveries, but not as an obligation on the part of the distribution company to provide repair services to the OEMs in exchange for payment.
Furthermore, repair costs were only one parameter within a broader margin adjustment. The adjustment also took other operating costs into account and could result in either credit notes or debit notes. Consequently, there was no certain, quantifiable, and direct link between any repair services and the payment.
Nor was the CJEU convinced by the argument that the distribution company had acted “on behalf of” the OEMs, as there was insufficient evidence to support this claim.
Limitations of the applicability of the decision:
The ruling does not mean that transfer pricing adjustments are always exempt from value-added tax. The European Court of Justice explicitly states “unless”: If there is a legal relationship between the group companies that is specifically aimed at the provision of certain services in exchange for consideration, the adjustment may constitute consideration subject to value-added tax.
In the Arcomet Towercranes judgement (C-726/23) the payment was contractually structured more as compensation for specifically described intra-group services; therefore, the transfer pricing adjustment could be treated as consideration for a taxable service for VAT purposes.
Second Possible VAT Implication: Change in the Tax Base
If the adjustment does not constitute consideration for a service, it may nevertheless be relevant for VAT purposes—namely, as a subsequent change to the purchase price of the vehicles supplied. In that case, it must be determined whether and how the adjustment affects the tax base of the original supplies. The European Court of Justice leaves this assessment to the national authorities or courts.
Practical Take-aways
For clients or corporate group structures, transfer pricing adjustments should be clearly classified into three categories in the future:
- Pure margin/price adjustments for goods deliveries
Generally not a standalone service; however, may result in a change to the tax base of the original delivery.
- Compensation for specifically described intra-group services
Other services that are potentially subject to sales tax, particularly where there is a clear service agreement, performance obligations, and a compensation mechanism.
- Mixed or cost-allocation cases
Case-by-case assessment: The decisive factors are the contract, actual performance, calculation method, documentation, and the ability to allocate costs to specific services.
Documentation Requirements
Consistent documentation between transfer pricing and sales tax will be particularly important in the future:
- Intercompany agreements should clearly distinguish between price adjustments and service fees.
- Credit and debit memos should clearly specify whether they relate to a change in the price of goods, payment for services, or any other adjustment payment.
- The calculation should make it clear whether the payment can be directly attributed to specific services or serves only to manage target margins.
- In cross-border cases, reverse charge, invoice details, summary reports, and input tax credits must also be taken into account.
ECJ Judgment on Portugese tax will have Implications for German Real Estate Transfer Tax
In its judgment of 4 June 2026 in Case C-837/24, NOVA IBEROMOLDES, the European Court of Justice held that the Portuguese real estate transfer tax, may not be levied where a transfer of shares takes place as part of a corporate restructuring transaction protected by the EU Capital Duty Directive. In our eyes, the judgment is directly relevant to German real estate transfer tax because the German supplementary taxation rules for share transfers operate in a comparable manner.
Directive 2008/7/EC generally prohibits indirect taxes on certain contributions of capital and restructuring operations. Where a movement of shares occurs, for example, as part of a contribution, merger or comparable restructuring, the transaction may generally not be burdened with an indirect transaction tax. The supplementary taxation provisions in section 1(2a) to (3a) of the German Real Estate Transfer Tax Act would therefore be contrary to EU law to the extent that they tax movements of shares forming part of a corporate restructuring protected under Articles 3 or 4 of the Directive.
Ordinary direct acquisitions of real estate generally remain subject to German real estate transfer tax. Share transfers that do not form part of a protected restructuring may also continue to be taxed. The judgment therefore does not render German real estate transfer tax generally inapplicable; its principal relevance concerns restructurings involving real estate-owning companies.
Recommendation:
keep affected real estate transfer tax assessments open and challenge them. The German legislature will be required to revise the supplementary taxation provisions of the Real Estate Transfer Tax Act and bring them into line with the Capital Duty Directive. It remains to be seen how the German tax authorities, the Federal Fiscal Court and the legislature will respond to the ECJ judgment.