Last week we focused on Value Added Tax (VAT) and the complexities and requirements. In today’s second post of this series we’ll be discussing Electronic Financial Statements and the Legal Requirements in Germany. (If you missed the first post, read more here).
Electronic Financial Statements
German corporations are required to submit financial statements to the German Tax Authority electronically in an XBRL format, subject to a predefined taxonomy and prepared under German tax accounting rules. This enables the tax authorities to perform enhanced data analysis to identify errors, omissions, or misstatements in financial statements and the tax returns that are based on them.
In addition, German corporations have to publish their financial statements on a government-operated website for public inspections. They must also prepare these financial statements under German GAAP, which uses a different presentation format, as well as different valuation and expense/income recognition methods. Canto uses Intacct’s built-in reporting capabilities to track the differences between German and US GAAP, and to generate this required reporting.
Legal Requirements in Germany
According to German law, all German entities are required to keep accounting records and related documentation physically in Germany. The purpose is to enable the German Tax Authority to have immediate access and seize data if tax fraud is ever suspected. With the data stored abroad, it would be much more difficult and time consuming to get access to the required information. This is a concern that any government could have; for example, the US Government asked Microsoft to make data available that was stored in Ireland. A lawsuit was issued and Microsoft won the lawsuit. The US Court of Appeals ruled that "Microsoft is not required to comply with a warrant for the users’ email if the data is not stored within the US."
This is the exact scenario that the German Tax Authority is trying to avoid! When the necessary data is available in country, these types of issues are avoided.
It is, however, possible to obtain the German Tax Authority’s approval to process and store electronic accounting records outside of Germany. To receive the Germany Tax Authority approval, Canto needed to present the case and demonstrate that the data would be accessible in Germany as well as provide proof that Intacct met requirements for an accounting system in Germany. The German Tax Authority needed proof that the data could not be manipulated and that the transactions are accurate and that an audit trail exists, and most important, that they can access the data immediately.
Canto needed to demonstrate that their accounting records were in good standing and that they did not have any previous tax issues. The German Tax Authority is extremely stringent and tax auditors consistently review materials and records onsite. For these onsite audits, the German Tax Authority requires an electronic version of the accounting related data to load in their own system. They look at all GL entries and transactions to see if they are incorrect or high risk. They require the data in a CSV file format, accompanied by an XML file that describes the field structure, which is all reasonably easy to generate in Intacct, but requires considerations with the initial Intacct implementation. One key, international best practice, is that all transactions must be in an un-aggregated format.
Stay tuned next week for the final post in this blog series.
Meet Hans at Advantage
Canto is a forward thinking company that sought a SaaS solution to meet their global needs! You can meet Hans at our upcoming Intacct Advantage 2016 conference where you can be sure to gain knowledge and expertise from this Intacct expert.