Stricter Transfer Pricing Rules in Germany?

By Bernhard Schwechel, FACT GmbH

A draft law was published regarding the implementation of the Anti-Tax Avoidance Directive (“ATAD draft bill”).

Reform of the Arm’s Length Principle
Standardises the price setting approach and abolishes the hierarchy of transfer pricing methods: the taxpayer has to choose the most appropriate transfer pricing method.

Increased Sigificance of Economic Analysis
The application of the interquartile range – being state of the art in today’s transfer pricing practice – becomes part of the German transfer pricing laws.

Business Restructurings and the Transfer Package
The terms transfer package in case of business restructurings and intangible asset are legally defined. The period for price adjustments of transfer packages is reduced from 10 to 7 years. In addition, if the price fluctuation of the transfer package does not exceed 20 %, the taxpayer is not obliged to adjust the transfer price.

The OECD’s DEMPE Approach
Included is the OECD’s DEMPE approach for intangible assets, which postulates that an analysis of the development, enhancement, maintenance, protection and exploitation of an intangible asset is conducted.

Financial Transactions
So far, countries have not been able to agree on a common approach regarding financial transactions on an OECD level. Therefore, the German legislator decided to include in the ATAD draft bill unilateral stipulations on whether and to what extent interest payments are deductible for tax purposes.

Advance Pricing Agreements
A new national legal basis for advance pricing agreements applicable to all international cases of potential double-taxation is introduced.

Master File Threshold Lowered to a Turnover of EUR 50 Million from 2021 onwards
The threshold for the compulsory creation of an overview documentation for transfer pricing for fiscal years starting after 31 December 2020 (i.e. 2021) is reduced from EUR 100 million to EUR 50 million annual turnover.

Electronic Filing of the Master File at the End of the following Financial Year
The Master File is supposed to be created on a yearly basis and submitted electronically. Filing is due at the end of the following fiscal year at the latest.

Required Actions
Multinational groups should check for possible effects of the current ATAD draft bill. Therefore, the further development of the implementation process should be observed.

Bernhard Schwechel

GGI member firm
FACT GmbH Wirtschaftsprüfungsgesellschaft
Tax, Auditing & Accounting, Advisory, Corporate Finance, Fiduciary & Estate Planning
Kassel, Germany
T: +49 561 316 6860
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W: www.fact-ks.de

FACT GmbH Wirtschaftsprüfungsgesellschaft is a tax consultancy, public auditing company, and law firm located in Kassel, known as the heart of Germany. FACT provides German and international accountancy and tax services to companies and individuals. The expe rienced team works on cross-border issues for German clients as well as for foreign clients. FACT works closely with its clients and responds rapidly to their needs.

Bernhard Schwechel is a Managing Partner of FACT GmbH and is experienced in the field of international taxation. His areas of expertise include tax and business advice for large multinational corporations and mid-size companies, as well as for internationally oriented individual clients. He supports his clients in inbound and outbound M&A projects.

Published: International Taxation Newsletter, No. 13, Autumn 2020 l Photo: Tobias Arhelger - stock.adobe.com