Joerg Kemkes provides over 25 years of tax consultancy in the areas of international tax, transfer pricing, real estate taxation, and tax compliance. He has been a Partner with Rueter und Partner for more than 23 years as a “Steuerberater” [similar to a U.S. CPA focused on tax law] and is an expert in German-related international tax matters. Joerg Kemkes’ success includes representing companies in matters ranging from full tax advisory services, payroll, and accounting support, up to representation before the German tax authorities. Joerg is also a founding member and the Managing Director of Rueter Partner Steuerberatungsgesellschaft mbH.
In January 2014, the company opened a permanent office in San Francisco to better serve its US-based clients.
The Key to a successful launch of a business
What happens when things go wrong
Understanding and respecting cultural differences
Keys to successful international law.
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[email return to Philip@Auerbach-Intl.com]
Hello everyone, and welcome to Global Gurus where every Friday, we explore stories of international business and speak with industry leaders operating around the world.
I’m your host, Phillip Auerbach, of Auerbach International. Thank you for joining us. If you’re tuning in for the first time, we start each podcast with a running segment called “Faux Pas Fridays,” where we explore a funny blooper or mistranslation that does not quite convey the professional image that your organization wants to project. And since today’s guest is from Germany, I’d like to give you a sign that was written in English in Germany’s the Black Forest. And by the way, what I’m going to read to you is an abridgment of what was on the sign. And it says, “it is strictly forbidden on our Black Forest camping site that people of different sexes, for instance, Men and women live together in one tent unless they are married for this purpose.”
Today’s guest is Joerg Kemkes. For over 25 years, he’s provided tax consultancy in the areas of international tax transfer pricing, real estate taxation, and tax compliance. For over 23 years, he’s been a partner with Rueter und Partner as a “Steurberater”, similar to a US CPA focused on tax law and he’s an expert in German-related international tax. Mr. Kemkes’ successes include representing companies in matters ranging from full tax, advisory services, payroll, and accounting support, up to representation before the German tax authorities.
Joerg Kemkes is also a founding member and the Managing Director of Rueter Partner Steurerberatungsgesellshaft mbH.
In January 2014, Rueter Partner Steurerberatungsgesellshaft expanded their US operations with a permanent office in San Francisco to better serve their US-based clients, and the company is primarily an international tax company that serves international clients from the United States, the United Kingdom, and other countries entering Germany. So, welcome to Joerg. It’s a pleasure to have you with us today.
Thank you for having me.
So before we dive in, could you tell us a bit more about your background: how you grew up, and how you gained your global experience? And perhaps you can also elaborate on your company and what it does and how it does it.
Sure, my pleasure. So, I was born and raised in a very small town in Germany, which is situated on the River Rhine, directly where the River Rhine enters the Netherlands, called Emery. I’ve always felt like I was misplaced there from a young age.
And the revelation for me was in 10th grade. We took a field trip with our school to London for ten days, and this was for me the first time that I thought I could breathe. And I was so fascinated by this international world that I said, OK, this is something I want to live in. And for whatever reason I came, my family did not have any ties to the US whatsoever but even as a 9-year-old, I had a picture of the Golden Gate in my room and always said this is exactly where I wanted to live one day.
So, my path did not take me down that one. To go to the US, of course, I had to finish my education. And from my little hometown, I went to school first, finished all my exams, and then I was looking for a firm where I could become a partner, which should also be generally focused, and this was the reason when I met Rueter und Partner back in 1998, and maybe also a funny story. Because I wanted to apply for this, and in this day and age, we were still looking at newspaper ads, and there was no internet; nothing like that was available.
And actually, my wife pointed out this ad because I didn’t want to answer it. After all, it was situated close to the closest central station in Munich. And I said, “It’s normally a bad area. I don’t want to work in such an area again” because our office in Düsseldorf was not in such a good area. I said, “No, I’m not going to apply there. And then my wife insisted and I simply, let’s say, filled out the application and did everything just to get my peace over the weekend. So, this is how the success story started, we moved to Munich. And that Rueter und Partner were amazed by this because they mostly had American clients out of San Francisco, Silicon Valley, and that is the reason I thought from the very first moment that this was the right fit for me.
That’s amazing. Amazingly, you know yourself. You had a picture of the Golden Gate Bridge in your bedroom as a child, and that was in your consciousness and then it materialized. And you came. You came here. That’s pretty remarkable.
It’s pretty wonderful. But that’s how the law of attraction works, so that’s pretty neat. So, for the benefit of our listeners, many of our interviewees and many of our guests have done business in many, many countries, and that’s perfectly fine. And of course, your experience primarily is between the US and Germany, which is also perfectly fine. So, some of our interviewees do business in one country only, or one or two countries, and others do it around the world. So, it’s very interesting for me to hear the differences between individual countries and the cultural issues and so forth in both directions. So perhaps you could tell us something about, if not in the US, perhaps from Germany, some of the more successful launches that you’ve done or successful clients that you’ve worked with.
Do you mean the companies we have brought from the US to Germany? Let’s express it this way. We have confidentiality rules that mean I can’t disclose any names, but I can assure you that we have household names.
We have clients that everybody knows, but we also have very small clients who have never heard of us. I always like to say that everybody is equally welcome, and you never know what will come out of it.
So, for example, we had very well-known clients, and they started with one employee in Germany, and then you don’t know what this is going to become. So, what I’m trying to say is that we serve clients of all sizes. Everybody is equally welcome, and we are always happy and proud to be a part of the success story when it comes to this. And I said that since we are so internationally focused, I think our name is way more well-known in the San Francisco Bay area than in Germany because the reason is that we mainly focus on international clients. Of course, we have a couple of German clients. It’s perfectly fine, but maybe that is 10% of our overall portfolio.
Very interesting. That’s great. What about doing business between the two countries? Surely there are different ways of doing business, different assumptions, and different methods. Can you give us some of those?
A couple of them, of course, so I think part of our success is, first of all, that we make sure that all of our personnel speak English if they don’t do it themselves. And when we hire them, we make sure they get proper training. And what I try to combine is that there’s strength in both cultures, so let’s say the precision and the directness and efficiency of Germany, together with American service, attitude, and politeness, we try to accept the American attitude when serving our clients. So, I would never tolerate any kind of rudeness, or let’s say it’s now 5:00 PM we are not serving you anymore, so I expect someone to stay later.
So, this is one of the big differences when I see that we have to overcome it. That’s why so many foreign clients, and especially American clients, feel so comfortable with us because they think they speak to their equals in the US and not to someone in Germany who might brush them off.
Are you saying that in Germany, if it’s 5:00, the employees automatically leave?
Not ours, but very often, yes. Well, maybe 6:00, whatever it is. So, perhaps another amusing thing. I’m being asked when people want to hire talent in Germany, what do they have to pay attention to? And I always tell them, “Look, if you want to have good talent in Germany, give them six weeks of paid vacation, you can cut back on your salary, and you can cut back on other incentives. That’s perfectly fine. But never take German employees’ vacations away. Never! This is the most important factor in attracting talent to Germany and among Germans. They stick to their vacation, and they take it, and they enjoy it. And this is a big thing to understand and to remember when you want to do business in Europe overall. And I think France is even stricter when it comes to that. Then there’s Germany. And again, I’m not judging you. I’m simply saying be prepared for this.”
Absolutely. It’s a condition of employment, very much like people have conditions of employment here in the United States. Yeah, perhaps you could also share with us something that went wrong with a client, with one of your clients, perhaps someone who didn’t take advice, or just something that went wrong.
There’s a very strict rule in Germany when it comes to how accounting software is designed. The reason is that one way of German taxation is that every company is going to get audited by the Revenue Service. At some point, every business has nothing to be afraid of. They announce themselves long before they come, but simply to be prepared. But one of the reasons is that the data is going to be extracted. The data is extracted from the accounting system in a certain format called GOBD, and only a handful of foreign accounting software can extract data in this format. So, sometimes clients say No, we have our worldwide system. So that’s fine with me as long as you make sure that you are compliant in Germany.
So, then we had a client for a long time, and this client was acquired by a bigger company, and then the new mother company was actually, let’s say, in a tax audit, they obtained an accounting from our client, let’s say, who changed to this bigger company. Then she contacted me at some point and said, “Look at our mother company, we have a huge issue” and then they were in the middle of a tax audit, which had been dragging on for nearly a year. And it was devastating because they had accounting software that was not compliant with German tax law. They were not just now facing penalties and taxes for corporate tax, and I’m not kidding about €775,000 and more than 350,000 in VAT.
So, the company negotiated with the Revenue Service, and we took over the client. It was a long story, but it was the most expensive text message we’d ever received in terms of fees. So, they had to pay us in the end. At the very least, we got the Revenue Service’s demands down. In the end, they paid 122,000 in corporate tax, I think. We also had 120,000 in VAT and when they were done, and we changed the system. Now I can tell you we just had three or four more tax audits afterward and now they are in the role of model client, and everybody is completely happy that it worked out this way.
So there, but I think this was one of the biggest mistakes I’ve ever experienced in our firm.
Wow, that’s a huge hit. A hugely expensive mistake that company made. Pretty amazing, but your company is in… Did you do it in Munich or…
Yeah, the American company.
Yes, yes. All our work is performed in Munich, yes.
So, the Munich office told them how to format the data properly. And then they said, “Yes” but they didn’t. They didn’t originally.
Again, it was a long process. A lot of letters had to be written, and a lot of negotiations with the Revenue Service, but in the end, we succeeded.
But that’s wonderful, yes. And we can do the same thing with the IRS here. There, they tend to be very understanding most of the time in my experience.
When you got into international business in the beginning, when you first came to the United States, was there anything that was shocking to you that you had to adjust to, that you weren’t experienced in or that you weren’t expecting?
Let’s say the biggest thing for me was to learn how compartmentalized the services were in the US versus Germany, So, as an example, we declined requests to prepare the monthly payroll only. And then they wanted to set up a proper entity in Germany. They were then questioned. Can you also do the accounting? I said, “Why shouldn’t we?” So, in the United States, one person sits at the table for accounting, the next for accounting protection, the next for year-end closure, the next for HR, one more for payroll, and possibly another for other compliance issues.
In Germany, you can normally only contract one CPA firm like ours does it all. It’s not that we are superstars, but simply how the German system is set up. So, when a client comes to us, we typically do the accounting, payroll, HR service, tax returns, tax filings, and tax consulting. Because it’s simply a house design. And in the beginning, I didn’t, I couldn’t understand it. So why didn’t they think of us? Until I learned to understand that it is, as I said, way more compartmentalized here in the US. So now I say this right in the beginning. Look, if you go to Germany, we are a one-stop shop. We can do it all.
That’s very interesting. I think that occurs perhaps more in very large companies. What about cultural differences? Did you find any major differences in the way one does business or the way one behaves? You know, at a restaurant or just acting with people?
OK, then maybe I have a couple of stories for that, but let’s say this is first one. Early Americans were very polite and also phrased their complaints so that the Germans still think they are being praised for something. So, I had an issue with it with a very large client in San Diego that was about to arise when I was here on a business trip. I was not a responsible partner in this crime, but something was going on. And my partner in Germany was responsible for this client. I would appreciate it if you could be so kind as to speak to them, and I flew down from San Francisco to San Diego and met with them. And the issue wasn’t a big one. I think we could solve everything within 45 minutes, it was done. It was only a miscommunication.
But when I got back to Germany, I said to my partner, “Look, the client has been unhappy for such a long time. I’m very thankful that they stayed with us.” So, my partner and I talked about the issues, and then he said, “I don’t understand what the client was unhappy about. Could you please show me those emails?“ I looked at the emails and I could simply say the Americans were complaining all over the place for at least four or five months, but we didn’t understand it because the language was so well written and friendly. Germans would be far more direct when they would complain. I said you have to listen to what the Americans are saying. They write that they are completely unhappy. So, again, iron it out, and everything will be fine.
But when it comes to a restaurant, when you order something here, you can change whatever you order. You can add something, take something away, or whatever.
A couple of years ago, I was hiking with a friend in the Alps, and we wanted to have dinner. It was not that cheap, not very fancy, but I’d say a decent restaurant, and I simply wanted to exchange fried potatoes with potato salad, which were both on the menu, so I didn’t want them to make something special for me. I just wanted to exchange one side dish with the other, and I asked the waiter for this, and he simply said No. “What do you mean by no?” “No, you cannot exchange this item.”
So I replied, “Excuse me. When I see how the food is coming out with the potato salad and the fried potatoes, they are both in separate cups or bowls. So why not accept one bowl for the other one? I don’t understand this.” And then the waiter said, “No, you have to accept it the way it is.” And my friend who was sitting there was sliding down his chair because he knew it was coming. I said, “Look, I’m telling you one thing, Sir. I’m American and I want to understand this. You will go to the chef now, and I want to meet him inside and get an explanation for why you are not able to exchange the side dishes. I want to have this explained.” So, of course, I was a troublemaker. Everybody was looking at me, but I was simply not willing to accept that. I asked them to prepare some potato souffle for me or something. Simply switch the sides. That’s it. Yeah, so far from cultural differences.
They did not expel you from the restaurant?
I think it was close.
That’s amazing. Did you get what you wanted from the change?
Yes, in the end, they just wanted to shut me up. And this is something I was not willing to give in to seriously. So, if you have an explanation for this, fine, but if not, as long as you cannot explain it, exchange it.
I guess it reminds me that when I go into American restaurants for breakfast, I never order eggs, scrambled eggs because they always come out very soft and yellow, and when I was growing up, my mother somehow made them very brown. And if I ask the waitress or the waiter to tell the chef to make them brown, the chef has no idea what it means or how to do it, and it comes out yellow. So, I’ve learned that to avoid being disappointed, I just don’t order eggs in restaurants.
So that’s what’s funny. Based on your experience, sort of looking back over the many years you’ve been in the United States, if you could give your past self, perhaps when you were a child or before you came here some current advice, what would you tell yourself?
First of all, I would always say, “Believe in your dreams and do not give up.”
So, I think because, you know, as a German-trained CPA, going to the US is more or less unheard of. But I think the thing is, just be open and try to assimilate. This is one of the most important things. When you go to another country and try to assimilate. It does not mean that you have to give up your character or something. And don’t, let’s say this phrase carefully, “parade your history” or your own, or let’s say, your habits in front of anybody else. So, if you live in the US, celebrate the 4th of July. Celebrate Memorial Day. But I’d say there’s one big difference when it comes to this, and we talk about differences. In Germany, Christmas, the big day, is December 24, the night before the 25th. So, this is something I would never be able to give up because this was exactly the way I was raised all those years. And the same thing for my wife. So, it is December 24th when we have our big Christmas event, that’s it. But this doesn’t change my character. It’s not something I prayed in front of people, but this does not mean they have to deny it, but with other things. So, for example, we, especially last year, had a big invitation for the 25th, except for this. Be nice to this. But this does not mean that you have to give yourself up but try to assimilate. Don’t offend anyone. And be open to the culture that you want to fit into, be accepting.
That’s wonderful. It’s very good. You know, it also reminds me of the Russian Orthodox and the Greek Orthodox that their Christmas or their Easter is about a week after the Catholic and Protestant ones. So, it’s just similar in that way.
And let’s say to be prepared for this, I always say get all the information you can prepare yourself for this. And I think preparation is the key to everything, and I try to be at least 85 to 90% prepared because there will be surprises; there always are surprises, but when you have prepared for the 80 or 90%, then you have enough bandwidth and time to prepare for the unforeseen 10%.
And when you say “prepare,” what exactly do you mean?
Learn about the culture, learn about, let’s say, what’s different, let’s say with electricity. Especially what’s different in healthcare, which is huge when you compare the difference. Trends in healthcare between Germany and the US and again, I am not judging because I don’t think that the American healthcare system is as bad as anybody says. But for sure, the German one is not as good as anybody says. It’s simply how you navigate this.
Yeah, that’s very good advice. Really. Yeah, this is excellent advice. and very insightful. Thank you.
So, what do you do in your non-business time? What do you do that gets you excited? What do you like to do? You mentioned hiking. Is that something you do in the USA?
Yes, so let’s, first of all, that sounds, I don’t know, like bragging, but I like my job. I like what I’m doing. I’ve always wanted to do this. Some people might think it’s boring, but let’s say it’s a mission for me to make an expansion into Germany easy. Let’s say, hopefully, a pleasant surprise. and I’m very happy with it. My clients are happy afterward, and I like dealing with them.
Besides this, yes, we have a dog, we laugh very much, and he’s the best dog in the world. And I think most dog owners will say this about their dogs. But this is perfectly fine, and we like to spend time with him and go on hikes at least once a day. I also like to play Frisbee with him in the backyard to make him happy, and I also like to read in the lodge, as this gets my mind off things and allows me to concentrate on other things. And I think when people read a lot, they have a lot more empathy. They have more insight, and maybe they are less rude because they try to understand things. And let’s say this is maybe a cliché, but, ah, I wish I had a little bit more time to play golf. I’m very bad at it, but it’s fun. It’s outside. It’s fun to be outside with friends and people and be in nature, but this is the only thing I would like to have a little bit more time for.
That’s wonderful. I guess it reminded me of another question I wanted to ask you, which is about success. I presume you feel that the branch that you’ve started in the US, which was back I think in 2014, is successful. What do you think is one key that made it successful? Or one key to your success?
I think it’s about knowing the culture and the thing is to look when someone wants to expand to Germany from the US, it’s a foreign country. It’s a foreign culture. And very often, people have no clue what to do. So, what I try to do is to explain in basic and plain language, maybe even with examples, what’s about to happen. And I tell them very clearly how we are going to do this again in an easy fashion so that they understand this well. It’s the same with you. When you go to a doctor, you know that this doctor is very well-educated. And when he’s explaining a procedure to you, he can maybe use very fancy words to make himself seem more important. You will look at him in awe and you will have no idea what he’s talking about.
Right. That’s true.
Yeah, but the next one might be able to explain it in very easy words. And I always tell my staff members, if you cannot explain it to a 5-year-old, you didn’t understand it yourself.
So again, what I try to do is to take the complexity out of it and make it very easy and to tell them step-by-step what we are going to do. And I think this is something that people then value and, of course, deliver afterward and make sure that everything runs smoothly.
So, I want a German operation to run so smoothly that you can focus on your success. On your business, but not on the administrative side of this, I think we are the only German CPAs west of the Mississippi and it’s not that difficult to find a German lawyer, but I haven’t met another German CPA in this area. So, I think that makes us a little bit unique, but again, my main mission is to explain everything, to break it down into single parts, and make it very easy and understandable how to expand to Germany.
That’s truly wonderful. I love that approach because I very much like it also when steps are broken down easily and things are very clear. What I find very often is that, especially from programmers, especially getting some instructions, Step One is always missing or usually missing. Step Two is not quite clear. It’s sort of the equivalent of making sure your computer is plugged in or making sure your computer battery is charged. And you know, they often assume that you know that without stating it. And it’s a very interesting approach from what you’re saying, it’s sort of like how do you explain to a child how to wash his or her hands? And if you break it down into very simple steps, it becomes very clear.
So, I tell people in my company that I’m the target idiot. If I can understand something, anyone can understand something, so make it very simple for me.
So that’s something I also say very often. So, I have no idea and I’m not afraid to admit that I have no idea. I always say, “No idea.” Look, there are a couple of things I can do very well in my life, and I know that I’m very sophisticated in this, but let’s say 90% of the time, I have no clue what they are. So, explain it to me so that I know what it is. And I’m not afraid to ask.
Yeah, good, and that’s the key. Also, I think for business success as well as international success, if you don’t know something, ask and, obviously, yes politely, but still ask.
And unless it’s about, let’s say, the side of potatoes.
Nice. It’s fun. Is there anything else you’d like to say before we go?
You know, when I was growing up in Germany, “Up there was a thing which I had never believed.” Man, I gave my freedom too much for this, but I think maybe not be mandatory, but I think everyone, young human beings should be, let’s say, persuaded to spend some time in a different culture or abroad.
Maybe not mandatory, but I think it should be part of proper education that people are sent somewhere simply to learn about different cultures and to understand everything. So, for example, I always had a strange feeling about Asia. Until we were in a worldwide connection with other law and CPA firms, I met people from Asia, and let’s say we are all the same. Because once you sit down with someone, no matter where those people come from, they all have the same goals. They want to have a little bit of money, they want safety for their family, and they want to live in peace.
And when you start one, maybe there are different holidays for this, so maybe they have different ways of preparing their dinner. Whatever It is, the basic rule is that everybody wants the same thing, and I think that’s why it is so important that you understand everyone, no matter what they believe in or what their background is. But simply understand. Again, not judging.
You might find valuable things for yourself. You might not want to do these things, which is perfectly OK as long as you understand, and I think. The next thing is that my journey is quite unusual. Don’t believe people that are casting doubts. Forget them. Believe in yourself. Because this is your life, it is your goal, what you’re going to see, and I think the very most important thing is when you are going to close your eyes for the very last time and the last thought you might have. Hopefully, you can say I experienced everything I wanted to experience. I’m not talking about material things, and I think the worst thing that can happen is when you close your eyes for the last time, and you have so many regrets for the things you haven’t done. When you have done things and you have failed, perfectly fine. At least you tried, but not trying, I think, is the worst thing in life.
That’s very sage advice. On all counts, you’re very, very right. Tonight, I very much believe the same way. That’s fascinating. Thank you so much. You’re so right. This has been Philip Auerbach of Auerbach International (www.auerbach-intl.com). Please return next week for another installment of Global Gurus and their stories about international business. Thank you.
My pleasure. Thank you.
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