1. What is the most significant change to your region/jurisdiction’s tax legislation or regulations in the past 12 months?
Based on my experience, pillar two is the most significant regulatory change, both in German tax legislation and in tax law worldwide. In Germany, the introduction of pillar two legislation also led to an amendment of the Controlled Foreign Companies Tax Act (so-called CFC taxation), reducing the applicable minimum tax rate from 25% to 15%.
With that, effective tax rate calculations have to be reconsidered and new (pillar two) compliance duties will have to be obeyed in the future.
2. What has been the most significant impact of that change?
Most significantly, pillar two affects the way international tax services will need to be delivered in the future, including effective tax data management, international collaboration of tax teams, and the management of multiple foreign tax topics, including various tax regimes, as well as dealing with tax accounting questions and covering current and deferred tax topics. Likewise, the implementation of relevant and standardised tax processes in multiple jurisdictions, as well as the introduction of tax technology solutions for tax data collection, are key challenges that need to be carefully obeyed with respect to pillar two.
3. How do you anticipate that change impacting your work and the market moving forwards?
Firstly, an in-depth understanding and detailed expert knowledge about the new pillar two legislative rule set is key for any international tax expert. Secondly, international tax practitioners need to upskill in digital tax administration and tax data management, as well as tax process governance. A shift away from Excel to a database-driven solution could reduce the amount of manual data work. In lieu of this increasingly highly complex regulatory tax framework, tax practitioners need to be enabled to free up time in order to add strategic value to and mitigate tax risk from the tax function.
4. How has this changed the way you offer tax advice?
Key elements of our tax services are assisting our clients in transforming and shaping their tax functions of the future. Tax functions will need to upgrade their technology capabilities to support new calculations and tax compliance burdens. Since tax functions typically do not hold the purse strings, it will be even more important in the future to capitalise on, and leverage, major finance transformation projects.
A seamless integration between (tax) systems from content to filing to audit defence is becoming increasingly important. With that, we strongly support and encourage both our teams and clients to develop technology and data science skills. Partnering with, for example, IT and/or finance functions in order to break away from the traditional concept of the tax team and establish cross-functional teams with diverse skill sets and perspectives are current best practices.
5. What potential other legislative/regulatory changes are on the horizon that you think will have a big impact on your region/jurisdiction?
Global supply chains are currently exposed to multi-factor risk. In addition to geopolitical tensions, climate change, and ESG considerations, the introduction of multiple tariffs significantly affects international business models.
Tax practitioners will need to manage the regulatory complexity of local territories and navigate uncertainties regarding returns from global investments. International transfer pricing modelling, integrated withholding tax planning, and effective tax rate monitoring will support global organisations in transforming their business models and achieving resilience regarding value chains.
6. What are the potential outcomes that might occur if those changes are implemented?
The unstable economic environment paired with the global disruption of supply chains ultimately requires the right combination of specialised tax technical knowledge, efficient data management, and sufficient process and technology skills. Getting access to good-quality, standardised global data is by far the biggest challenge for tax practitioners to identify opportunities to help manage costs and cash flows, and improve after-tax results, whilst retaining responsibility for managing tax compliance and tax reporting work at all times.
7. Do you think that change will have a positive effect on both your practice and the wider regional/jurisdictional market?
Tax is not always top of mind in technology decisions, and quite often tax practitioners have to make the cases for investment. Given the complexity and rapidly moving economic transformational processes, the adaption of tax technology will be decisive in levelling up the strategic value of the tax practice, including enhanced efficiency, streamlining of processes, predictive modelling, and, last but not least, better client service and improved client interaction.
8. Are there any regulatory/legislative changes you believe should be implemented in your region/jurisdiction?
Reforming German tax law involves addressing various economic, social, and technological challenges. These are some key areas where legislative changes could be considered to enhance the effectiveness, fairness, and efficiency of the tax system:
Reducing the combined business tax rate of circa 25–32% – corporate income tax (15%) plus municipal trade tax (circa 8–17%) – to enhance competitiveness in Europe and attract foreign investment;
Provide tax incentives for investment in Germany and R&D tax credits;
Conduct a detailed review of existing exemptions and reduced rates in VAT law, looking for opportunities to simplify the VAT system and broaden the tax base;
Enhance the digital infrastructure for tax administration to improve efficiency and reduce compliance costs.
9. How do you believe those changes would help improve the tax landscape in your market?
Overall, a reduction of the combined business tax rate would improve Germany’s competitive tax position in Europe. On average, European countries levied a corporate income tax rate of circa 21–22% in 2024.
Offering tax incentives or deductions/tax credits for R&D could encourage innovation and investment in new technologies and practices, propelling economic growth in Germany. Offering tailored support and tax concessions for small and medium-sized enterprises could additionally stimulate innovation and employment, vital for Germany’s economic resilience. Lastly, designing tax policies that target emerging sectors (such as technology and digital services) could encourage growth and adaptation in the rapidly changing economy.
10. How are issues surrounding the taxation of the digital economy affecting your work?
The taxation of the digital economy has become an increasingly important topic in Germany, reflecting broader global conversations about how traditional tax frameworks apply to digital business models.
Since digital businesses could generate significant revenues in jurisdictions without corresponding physical operations, profit allocation and definition of tax base are key elements of our tax work. The concept of ‘significant economic presence’ is being considered in the context of determining where digital services should be taxed. Amongst others, this includes factors such as user engagement and data utilisation. Germany emphasises international cooperation to tackle the complexities of taxing the digital economy, advocating for multilateral solutions rather than unilateral actions to mitigate associated tax risks.
Tax issues are complicated by Germany’s strong data protection laws, which must be reconciled with tax data requirements. The balance between ensuring privacy and gathering the necessary information for effective tax compliance is an ongoing issue.
11. How would you describe the tax authorities’ approach in your region/jurisdiction?
The German tax system is known for its complexity, with numerous regulations, exemptions, and deductions that can be challenging for taxpayers to navigate. With that, Germany has a decentralised tax system, where tax authorities operate at both the federal and state levels. The Federal Central Tax Office (Bundeszentralamt für Steuern) oversees international tax aspects, in particular, while local tax offices handle tax administration for individuals and businesses.
With that, German tax authorities prioritise compliance and expect taxpayers to fulfil their obligations accurately and on time. They employ a range of measures to enforce tax laws, including audits, assessments, and penalties for non-compliance, whilst increasingly adopting digital technologies to streamline processes and enhance transparency.
The German tax authorities are actively involved in international tax matters, including initiatives aimed at combating tax evasion and promoting tax compliance on a global scale. This includes participating in OECD initiatives and collaborating with other countries on tax matters.
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