Expected Impacts of the new BEPS Programme for Transfer Pricing on German Multinational Enterprises, the Economy and Legislation

Driven by advancing globalisation and an accompanying expansion of multinational enterprises (MNEs), more and more businesses shift their profits to low-tax countries. MNEs exploit loopholes in taxation systems of existing regulations set by the Organisation for Economic Co-operation and Development (OECD), aiming at an effective avoidance of high tax burdens in their home countries. In order to address the global problem of base erosion and profit shifting (BEPS) the OECD developed an action plan that regulates global taxation in order to achieve a harmonised tax policy. More precisely, the programme requires taxation of profits in the country of value creation. Additionally, it contains the disclosure of value chain processes within the companies’ three-tiered transfer price documentation (TPD). The aim of the report at hand is to identify the impacts on German MNEs, the economy as well as legislation through analysing secondary data on an emprirical basis and applying the theory on a case study about a ficticious German MNE. Due to the changes in regulations, German MNEs might expect a growing workload for the preparation of TPDs in line with increasing compliance costs. Although the expected outcomes of the changes with regard to the German companies’ tax burden remain to be seen, the following consequences can be assumed: While the options for profit shifts through intercompany transactions are expected to shrink, German MNEs might, however, enjoy lower tax duties in the future, as they paid higher tax duties in relation to their domestic economic output in the past. Simultaneously, BEPS is expected to cause fundamental changes to the international transactions of German MNEs, the tax incomes of the state, and existing legislation. If MNEs would be able to reduce their tax burdens, the economy would suffer from a loss in tax revenues. Furthermore, the newly created transparency through data exchanges between tax authorities might trigger financial desires of foreign countries to increase tax revenues. Despite various advantages for the German policy such as closed taxation loopholes, a fairer competition, or taxation in accordance to value creation, legislation might be required to support German MNEs in avoiding transactions which might be considered illegal. Consequently, in order to harmonise German legislation and BEPS requirements, many existing laws need to be adjusted