Report can be recruited on the local It should first of all be consid administrative principles here market, the general rules should red that an assigned employee view a period of three to five years apply(that is, a division of expen- who is part of a rotation system in which a substitution takes place ditures should be made between might become an expert. It is today as common. 28 It must be carefully the assigning and the receiving quite common that employees are investigated whether the general companies, in accordance with assigned so that the receiving labor turnover in the receiving sections 3.1.1 and 3.1.2). The third company can have access to the company and the particular case refers to the secondment of technical and product know-how of industry, respectively, deviates experts in a rotation procedure from the period mentioned in the Here. the rules of section 3.4.1 should also apply: The receiving Furthermore, it remains unclear administrative principles. In that ompany must bear all expenses if why the taxpayer should not be respect, one should also consider he employee,s operational area. it cannot find a compari expenses related to the assign Employees nowadays probably will employee on the labor market. ment. It is thus worth analyzing one emt Thus, it remains unclear how the the definition. According to the their entire working life. Thus, it is difference between a "mere expert administrative principles, a not feasible to reject a potential secondment,' and secondment under rotation may be defined rotation system is deemed to exist deduction if the taxpayer considers the reality of today s business life exactly. In both cases, the receiving where rotation takes place on an company bears the costs. ongoing basis. The rule that, according to E. Documentation section 3.4.2, applies in a rotation Section 5 deals with the procedure - that the assigning documentation requirements the company also has an operational German tax authorities taxpayer must fulfil regarding interest in the expert secondment cross-border employee nd thus should bear a part of the are at the cutting edge secondments. Taking into account costs-cannot be applied. If a when it comes to putting he decision of the german federal suitable comparable employee the allocation of costs Tax Court dated 17 October 2001.29 cannot be found on the labor however, it is questionable market. the interest of the between related whether the taxpayer is required receiving company may doubt companies on a basis to provide specific documentation essly be assumed A rotation for secondments. The following system for the position filled by that is at least binding documents might serve as that expert certainly won't change on the tax authorities anything in that regard. The precise proof of activity, such assumption rule included in as reports or minutes the section 3.4.2 thus cannot assigned employee has understood in its current form prepared for the assigning company One should also note that the company will face substantial examinations of comparative difficulties in finding an employee if the company performs central salaries in the local labor on the market who is comparable marke defined as someone who has indi- substitution of employees on a particular field. It is thus most continuous basis. However that likely that an enormous effort understanding is not reflected in section 3.4.2 of the administrative would be made to search for an Cf. Kuckhoff/Schreiber adequate expert, an expenditure principles. That criterion is he taxpayer would have to pay considered only a starting point for Betriebspruifung, (Beck Munchen 1997) Once again, it is the taxpayer who must be assumed The use of the must bear the costs for the 2For a detailed analysis, see documentation requirements and phrase"rotation system"is in fact Kroppen/Rasch/Roeder, Tax Notes Int'l, 10 the burden of proof. Thus, it ite confusing Doc 2001-30307(8 original pages); questionable whether the rules of the rotation procedure are at all whether a continuous substitution Wirtschaftsbriefe Fach 3 Deutschland, Gr applicable in the case of expert of employees might discriminate 2465.; Baumhoff, In secondment against the receiving company. The recht 2001, p.751 Tax Notes International 4 February2002·517can be recruited on the local market, the general rules should apply (that is, a division of expen￾ditures should be made between the assigning and the receiving companies, in accordance with sections 3.1.1 and 3.1.2). The third case refers to the secondment of experts in a rotation procedure. Here, the rules of section 3.4.1 should also apply: The receiving company must bear all expenses if it cannot find a comparable employee on the labor market. Thus, it remains unclear how the difference between a “mere expert secondment” and secondment under rotation may be defined exactly. In both cases, the receiving company bears the costs. The rule that, according to section 3.4.2, applies in a rotation procedure — that the assigning company also has an operational interest in the expert secondment and thus should bear a part of the costs — cannot be applied. If a suitable comparable employee cannot be found on the labor market, the interest of the receiving company may doubt￾lessly be assumed. A rotation system for the position filled by that expert certainly won’t change anything in that regard. The assumption rule included in section 3.4.2 thus cannot be understood in its current form. One should also note that the company will face substantial difficulties in finding an employee on the market who is comparable to the expert. An expert is usually defined as someone who has indi￾vidual and specific abilities in a particular field. It is thus most likely that an enormous effort would be made to search for an adequate expert, an expenditure the taxpayer would have to pay. Once again, it is the taxpayer who must bear the costs for the documentation requirements and the burden of proof. Thus, it is questionable whether the rules of the rotation procedure are at all applicable in the case of expert secondment. It should first of all be consid￾ered that an assigned employee who is part of a rotation system might become an expert. It is today quite common that employees are assigned so that the receiving company can have access to the technical and product know-how of the assigning company. Furthermore, it remains unclear why the taxpayer should not be allowed to deduct the operational expenses related to the assign￾ment. It is thus worth analyzing the definition. According to the administrative principles, a rotation system is deemed to exist if the company performs central￾ized human resource planning. The word “rotation” indicates a substitution of employees on a continuous basis. However, that understanding is not reflected in section 3.4.2 of the administrative principles. That criterion is considered only a starting point for determining whether a rotation must be assumed. The use of the phrase “rotation system” is in fact quite confusing. It is moreover questionable whether a continuous substitution of employees might discriminate against the receiving company. The administrative principles here view a period of three to five years in which a substitution takes place as common.28 It must be carefully investigated whether the general labor turnover in the receiving company and the particular industry, respectively, deviates from the period mentioned in the administrative principles. In that respect, one should also consider the employee’s operational area. Employees nowadays probably will not stay with one employer for their entire working life. Thus, it is not feasible to reject a potential deduction if the taxpayer considers the reality of today’s business life, where rotation takes place on an ongoing basis. E. Documentation Section 5 deals with the documentation requirements the taxpayer must fulfil regarding cross-border employee secondments. Taking into account the decision of the German Federal Tax Court dated 17 October 2001,29 however, it is questionable whether the taxpayer is required to provide specific documentation for secondments. The following documents might serve as examples: • precise proof of activity, such as reports or minutes the assigned employee has prepared for the assigning company; • examinations of comparative salaries in the local labor market; Tax Notes International 4 February 2002 • 517 Special Reports 28Cf. Kuckhoff/Schreiber, Verrechnungspreise in der Betriebsprüfung, (Beck München 1997), note 229. 29For a detailed analysis, see Kroppen/Rasch/Roeder, Tax Notes Int’l, 10 Dec. 2001, p. 1111, 2001 WTD 237-11, or Doc 2001-30307 (8 original pages); Kroppen/Rasch/Roeder, Internationale Wirtschaftsbriefe Fach 3 Deutschland, Gr. 1 p. 1787.; Wassermeyer, Der Betrieb 2001, p. 2465.; Baumhoff, Internationales Steuer￾recht 2001, p. 751. German tax authorities are at the cutting edge when it comes to putting the allocation of costs between related companies on a basis that is at least binding on the tax authorities