Title: 1 9 9 6
Author: Stephanie Talbot

What’s Going on in Germany?! 
By Peter H. Dehnen, D&P Dehnen GmbH, Duesseldorf, Germany

German government supports Turkish EU-membership – The German government has repeatedly expressed its support for the initiation of EU-membership negotiations with Turkey. Despite several unresolved issues, including human rights, economic stability and the fact that Turkey has still not officially recognized the Republic of Cyprus – a member state of the EU since May 2004 – Chancellor Schroeder has welcomed the European Council’s resolution to commence membership negotiations with Turkey on 3 October 2005, emphasizing the strong economic connections between the two countries.
Plans for comprehensive anti-discrimination-law – Although the principle of non-discrimination is contained in Art. 3 of the German constitution, the “basic law” – the practical protection of equal treatment in private and commercial law – is still fragmented. According to plans of the Social Democratic and Green parties coalition government, this is about to change. The proposal of a new anti-discrimination law from 15 December 2004 goes far beyond the requirements of the EU-Directives it is meant to implement, since it covers not only discrimination on grounds of sex, race or ethnic origin but also applies to religious beliefs, conscience, age, disability and sexual orientation. Politicians and lawyers alike are speculating on the legal and social impacts which such legislation could have.
Welcome changes to labour market? – Despite of, or maybe due to, the still tense situation in the German labour market, part-time work and temporary employment have reached a national peak. At the end of 2004, 26% more workers were temporarily employed than at the same time twelve months earlier. Part-time jobs have reached a ratio of 27% of total employment. At the same time, the number of people calling in sick has dropped to its lowest figure since 1970.
A transparent taxpayer? – Imminent changes in informational competences throughout Europe and especially in Germany grant tax authorities access to formerly secret data. In addition to the only partially successful EC Interest Directive regulating the intra-EU exchange of banking data, German tax law will allow not only revenue offices, but also social and financial supervisory authorities, to request secret banking information. The new law enters into force in April 2005, just after the expiry date of the amnesty period for tax evaders put in place by Federal Minister of Finance Hans Eichel.
EC Directive on common taxation of interest and royalties transformed – Council Directive 2003/49/EC of 3 June 2003 on a common system of taxation applicable to interest and royalty payments made between associated companies of different Member States has been enacted into national law. The new law enables companies to apply for exemption from tax payable on transnational interest or royalty payments. For payments to fall under the exemption, the creditor of interest or royalties must be a company or place of business within the EU related to the German debtor company. The provisions are retroactively applicable to payments made after 31 December 2003. Companies potentially eligible for exemption should immediately check whether the new law applies to them.
Finnish, but (possibly) not the end – Following the ECJ’s Judgment in the “Manninen”-Case (In which the Court held that Finnish tax law allowing for counting off corporate tax paid against income tax payable constitutes a violation of EC-law since it only applies to corporate tax on dividends paid by Finnish companies), a lively discussion has started in Germany as to whether the EC-law regime requires tax proceedings which have been finally and incontestably resolved to be re-opened. The background of the discussion is a German tax law in place up until 2001, which was very similar to the Finnish law found to be in breach of EC-law.
Reactions to change in thin capitalization rules – In 2004 a change to the corporate tax regime was put in place aimed to implement a judgment of the ECJ (Case C-324/00, “Lankhorst-Hohorst”). The law now applies to national shareholders as well as (formerly only) foreign ones. The relevant section of the German Corporate Tax Code, requiring qualifying shareholders (owning 25% or more of the total shares of a company) to keep a dept-equity ratio of no more than 1.5/1, effectively leads to a minimum equity portion of as much as 40%. Interest paid to shareholders by the company for loans that exceed the allowed ratio will be unmistakably categorized as constructive dividends for tax purposes and will not be deductible for the company as business expenses. Although there has been a clarifying circular by the Federal Ministry of Finance, many commentators deem the rule to be still contrary to EC and German constitutional law, as national share-holding companies may in certain cases benefit from tax credit not available to foreign companies or natural persons.
Documentation of transfer prices – An uproar was caused by the introduction of documentation duties concerning the “arm’s length” principle in relation to cross-border services rendered by a German company to its foreign subsidiary, forcing price adjustments (at least for taxation purposes) to comparable market prices. The reasons given for the 2003 Act, which imposed extensive duties and was followed by a regulation and circulars by the Federal Ministry of Finance, were those of imperative requirements of fiscal supervision, generally accepted by the ECJ as defences for potential restrictions to intra-community trade. The absolute necessity of the documentation duties has, however, been doubted by commentators. Furthermore, one possible negative consequence of insufficient documentation, an estimation of additional tax amounts, does not apply to national transactions and could therefore be regarded as discriminatory and therefore contrary to the EC principle of freedom of establishment.
Deadline for compulsory peer review – Following the globalization and internationalization of standards of accounting, the German associations of chartered accountants (IDW – Institute of Chartered Accountants and WPK – Chambers of Chartered Accountants) have introduced a peer review system in accordance with the IFAC’s “Quality Control for Audit Work”. The transitional period for the first compulsory peer review, which allows smaller firms to adjust their structure to the new standards, will end on 31 December 2005. By this date the review report is due to be filed with the WPK’s Commission for Quality Assurance. 
Regaining investors´ trust? – As a reaction to several spectacular international insolvencies and accounting scandals (Enron and Parmalat, in particular) and the current discussion regarding corporate governance, the German government has stepped in with regulatory measures. For example, auditors face increasingly extensive duties such as testifying in regard to the risk-management systems of companies and financial supervisory authorities will be equipped with more powerful enforcement instruments once they receive hints of irregularities.