Digital Company Tax Audit and Electronic Data Access

This describes the possibility of accessing the company’s hardware and software for the purpose of inspecting or evaluation them or have them evaluated.

Access includes warranting

• the availability of the data at any time, access to documents and computerised evaluation and the duty of the company to support
• and deliver explanations.

The auditor is entitled to the following authorities at the cost of the company:

• Inspection of data
• Use of hardware and software
• Request for analysis by the company
• Request to store data on media for evaluation by the tax inspector
• Request for clarification and support by personnel
• Request for immediate decryption

• This applies to data relevant for taxation purposes, in the meaning of § 147 Sec 1 AO, for which a duty to record and retain is applicable.
• There is no doubt, that this applies to entrepreneurs who are obligated to maintain an accounting system (duty to maintain records §§ 140, 141, 146 AO).

The Federal Fiscal Court decided in 2009, that taxpayers, who assess their profits according to § 4 Sec 3 EStG, are under a duty to retain records as set out in § 147 Sec 1 and thereby fall under the access to data. This applies within the scope of the duty to maintain records, meaning as far as statutory duties to maintain records apply (i.e. Schedule of assets, limited deductibility of operational expenses and sales tax revenues, see § 4 Sec 3 lit 5, Sec 7 EStG, §22 UStG)

In practice, the following problem arises: In practice, company tax audits consider all data stored as relevant for taxation purposes, and therefore access to data is all-encompassing.

Jurisprudent in this question is fragmented and calls for experienced tax accountants/specialised lawyers for tax law:

• The current jurisprudence does not always deliver unambiguous results in individual cases.
• The company tax audit must face the claim, that access to data is meant to establish equal opportunity for the tax office, but must not enhance the factual scope of a field audit.
• Not included are e.g. Strategy papers, expert reports, documents from research and development.
• The degree to which commercial analysis are included is uncertain. General ledger accounts may be affected, but this is decided on a case-by-case basis.

A. Direct access to data (§ 147 Sec 6 lit 1 AO) = Access level Z1.

• Not only display
• Includes sorting and filtering of data
• By means of existing analysis software
• Only hardware of the taxpayer or his representative (e.g. tax accountant) may be used
• No programs owned by the tax office
• Auditor must be provided with privileges (e.g. password)
• Support by induction/explanation
• Access cannot be precluded by supply of printed data
• The company must ascertain protection of their data (personal data, professional confidentiality); the auditor is not permitted to willingly or intentionally access privileged areas; it is a discretionary decision if a prohibition of exploitation exists.

B. Indirect access to data = Access level Z2

• The computer systems are operated by the company on instructions by the auditor (within the limits mentioned above and in other methods of access to data)
• The company must provide equipment and personnel capacities.
• Company resources must not be used to transfer the workload of the audit to the company (Tipke/Kruse, AO, § 147 Rz. 79)
• Uncertain: what regulation applies if the data is stored on the tax adviser’s systems? The location of the audit is generally the business premises. Possible solution: The audit is conducted at the tax adviser or access level Z3 (provision of media). Compare: Carle, KÖSDI 2001, 13106, 13114

C. (§ 147 Sec 6 lit 2 Alt. 2 AO) = Access level Z3

• Data is provided on media.
• The auditor will use the media on his PC/notebook
• The auditor may not copy data from the company systems himself
• The auditor uses the analysis software IDEA/SmartX
• The software used by the auditor is the same as the IDEA retail version, so all companies can analyse their data themselves. This can also be performed by an experienced auditor (non-Tax-Office)/tax adviser.
• It is controversial, whether a auditor is permitted to take the media outside the company premises, e.g. to the Tax Office. This is a question of the strategy laid out for the company tax audit.
• The auditor is not permitted to copy the media on his PC (only with consent by the company).

Which method of access to data is used is a discretionary decision:

• Requesting data on media beforehand is questionable.
• Discretionary decisions must consider the following: Burden for the company by type of access, costs, workload, blocking computer capacities.

§ 147 Sec 1 of the Tax Code (AO) makes the following distinctions:

• Books = company documents which are part of a proper accounting, in particular general and ancillary ledgers, account ledgers.
• Incoming goods ledger, outgoing goods ledger
• Records
• Annual financial statement
• Work orders and other organisational documents
• Business letters
• Accounting receipts
• Documents used in electronic customs processing
• Other documents, § 147 Sec 1 No 5

$ 147 Sec 1 AO only applies to commercial and business records. Private documents are not included (as ruled by Rhineland-Palatinate Fiscal Court)

Attention: This does not apply if there is no separation of the private/business sphere (e.g. If one bank account is used).

Other documents as set out in § 147 Sec 1 No 5 of the Tax Code (AO) are often a contentious issue. Keywords are e.g. Hourly wage slip, shift slip, commercial lists

New regulation for income millionaires: A new duty to retain applies to so-called income millionaires as set out in § 147a S 1 of the Tax Code (AO) (from an income surplus of more than 500,000 Euro) which ends five years after the conditions for the duty to retain are no longer met

Note: Provisions in respect of the duty to retain under commercial law may differ.

• 10 years (in particular for balance sheets, inventory, accounts, receipts)
• 6 years: Commercial or business letters
• Suspension of expiry of the duration: The duty to retain does not expire if legal proceedings in respect of the tax years concerned are on foot.

The annual financial statement (including profit and loss statement), opening balance sheet and customs documentation must be retained in their originals.

Option: Any type of media is permissible for the retention of other documents as specified in § 147 Sec 1 of the Tax Code (AO), if the respective statutory regulations contained in § 147 AO have been complied with.