Keeping and storing accounting documents abroad

In 2009 Germany introduced the legal framework which allows German business entities to install its electronic bookkeeping abroad. This allows German companies and German subsidiaries of foreign business entities to outsource IT infrastructure, accounting and payroll processes abroad. Foreign service providers have to follow German legal requirements and accounting standards.

This regime only applies to electronic books and records. Paper documents such as annual financial accounts, opening balance sheets and in- and outgoing invoices have to be kept in Germany. This restricts the possibilities to transfer the entire bookkeeping abroad.

The following requirements apply:

• The taxpayer has to inform German tax authorities where it intends to conduct electronic bookkeeping. If a service provider is assigned to do the bookkeeping his name and address has to be reported.
• The taxpayer has to fulfil special obligations in regard to participation in tax audits and documenting business transactions.
• Tax authorities must have full access to all electronic books and records.
  Taxation shall not be negatively affected by the transfer of electronic books and records abroad.

German tax authorities may grant permission to transfer electronic bookkeeping abroad. The application has to be made in writing. The following information is required:

• Detailed enumeration and description of electronic books and records to be transferred abroad
• Description of the bookkeeping process
• Description of facts which allows the tax authorities to verify above mentioned requirements
• Foreign Service providers who carry out the bookkeeping for German business entities have to follow German accounting standards. Provisions of German commercial and tax law have to be considered. They have to follow the special regulations of the Principles of proper keeping and storing of electronicly produced books, datas and accountancy documents and data access. (Grundsätze zur ordnungsmäßigen Führung und Aufbewahrung von Büchern, Aufzeichnungen und Unterlagen in elektronischer Form sowie zum Datenzugriff (GoBD)).

German tax authorities have the right to audit data produced by means of data processing systems (EDP systems). There are three forms of data access:

• Audit of stored data by using the taxpayer’s EDP system (access form: Z 1)
• Computer evaluation by instructing staff of the tax payer using EDP system (access from: Z 2)
• A data medium such as a CD with tax relevant data, documents and records (access form: Z 3)

In practice access form Z 3 is used widely by tax inspectors when auditing smaller companies.

If the company and/or its service provider is not complying with the requirements under this regime fines in a range between € 2,500 and € 250,000 may be imposed and furthermore tax authorities have the right assessing taxes based on estimates.

Author: Peter Scheller, Tax Advisers – Master of International Taxation

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