Z-Group had been subject to a joint transfer pricing audit by the tax administrations of Belgium, France, Italy, Spain, Austria and Germany in order to examine the appropriateness of the franchise fee charged between the group companies.
Z Group filed a complaint where it disputed the German tax administration’s entitlement to cooperate in a coordinated cross-border external tax audit and, in this context, to exchange information with the other tax administrations.
Judgement of the Tax Court
The Court dismissed the complaint filed by Z Group.
“118 The defendant does not violate the principle of subsidiarity by agreeing on or conducting a coordinated examination as planned in the present case with Belgium, France, Italy, Spain and Austria. With reference to the findings of the domestic tax audit, the defendant understandably points out that the audit serves to further clarify the facts, which is not possible in this way in Germany, in order to examine the appropriateness of the franchise fee charged between the group companies. Against this background, a coordinated tax audit between Germany and the other states appears to be a suitable and necessary possibility to clarify the facts by way of administrative assistance with regard to the franchise model and the prices applied within the group of companies of the applicants and to assess the possibility of an arm’s length comparison of the remunerations paid.
119 Furthermore, the requirement to exhaust domestic investigation possibilities may be limited in the event of a simultaneous tax audit, in particular since it is also part of the tasks of a tax audit to verify the submission of a taxpayer, to examine factual assertions and to request or inspect documents in this regard in order to carry out a corresponding verification (cf. FG Köln, decisions of 23 May 2017, 2 V 2498/16, EFG 2017, 1322; of 20 October 2017, 2 V 1055/17, EFG 2018, 351).
120 The prerequisites for an external audit in accordance with the provisions of the Fiscal Code are also and precisely in line with this. Pursuant to section 193(1) AO, an external audit is permissible in the case of taxpayers who maintain a commercial or agricultural and forestry business, who are self-employed or who are taxpayers within the meaning of section 147a AO. In the case of taxpayers other than those referred to in section 193(1) AO, an external audit is permissible under the conditions specified in section 193(2) AO. The external audit serves to determine the tax circumstances of a taxpayer (section 194(1) AO). The tax circumstances of other persons may be audited insofar as the taxpayer was or is obliged to pay taxes or to withhold and pay taxes for the account of these persons (section 194, paragraph 1, sentence 4, first half-sentence AO).
121 As follows from the statutory wording in § 193(1) AO, an external audit is permissible, inter alia, in the case of taxpayers who maintain a commercial business, without any further preconditions (cf. BFH rulings of 7 February 2002 IV R 9/01, BStBl. II 2002, 269; of 2 October 1991 X R 89/89, BStBl. II 1992, 220; ruling of 27 July 2001 XI B 133/00, BFH/NV 2001, 1534). For the order of a routine audit of taxpayers covered by section 193(1) AO, it is generally sufficient if the legal basis, i.e. the legal provision governing the audit order, is stated as the reason (cf. BFH ruling of 10 February 1983 IV R 104/79, BStBl. II 1983, 286). The regulation in § 193 (1) AO is based on the idea that the tax circumstances of the named group of persons are in principle subject to examination. In particular, there is no need for a special reason for an audit. This means, above all, that the taxpayer’s tax conduct need not have given reason for suspicion (cf. Schallmoser in Hübschmann/Hepp/Spitaler, § 193 AO marginal no. 42).
122 With regard to the ordering of an external audit, however, limits arise according to the meaning and purpose of the provision insofar as it is at the discretion of the tax authority whether and with whom an external audit is actually carried out. Thus, an external audit is inadmissible if the audit findings cannot be used for tax purposes from any conceivable point of view, for example because the tax assessment period has already expired (cf. BFH ruling of 10 April 2003 IV R 30/01, BFH/NV 2003, 1234) or if the lack of possibilities for use is undoubtedly established for other reasons. Likewise inadmissible are external audits which are investigations “out of the blue”, i.e. if there are no indications of a possible tax liability (cf. Intemann in Pahlke/König, § 193 AO marginal no. 35; on this also BFH judgements of 26 July 2007 VI R 68/04, BStBl. II 2009, 338; of 17 November 1992 VIII R 25/89, BStBl. II 1993, 146 in each case on the justification of audit orders under § 193, paragraph 2, no. 2 AO). On the other hand, an external audit is not already unlawful because the tax claims to be audited may be statute-barred (cf. BFH decision of 3 March 2006 IV B 39/04, BFH/NV 2006, 1250; Intemann in Pahlke/König, § 193 AO marginal no. 26).
123 According to these standards, an external audit of the applicants as well as the sister companies of the Z group resident in the other states involved would in principle be permissible without any further preconditions, since these companies maintain a commercial enterprise.
124 e) Furthermore, there are no legal reservations with regard to the fact that the defendant has so far – due to the present application for a temporary injunction – participated purely “passively” in the coordinated audit. There are no indications that the defendant has already participated in the exchange of information and disclosed information available to him or the German tax authorities. The mere passive receipt of information does not constitute a violation of the protection of tax secrecy within the meaning of § 30 AO. Tax secrecy can only be violated by the active disclosure of protected information or, at most, the failure to take the necessary protective measures in breach of duty, but not by the mere receipt of information.
125 f) The defendant also exercised the discretion to which he was entitled in the intended forwarding of the request for information without error.
126 It follows from the wording of the law in § 117 (1) and (2) AO that the use of or cooperation with the intergovernmental request for information is left to the discretion of the defendant. Accordingly, the fiscal courts can only review the discretionary decision of the fiscal authority pursuant to § 102 FGO with regard to exceeding the discretionary powers, abuse of discretion and misuse of discretion.
127 In the case at issue, the reasoning of the defendant that, in view of the complex factual issues in connection with the franchise model within the Z group, participation in the coordinated audit proposed by the Belgian tax administration appears to be the most appropriate means of further clarifying and coordinating the facts does not reveal any error of discretion.”