Please note:
Articles on taxation matters are, by their very
nature, general in the comments they make. No action
should be taken, based on these articles, without
the benefit of specific advice.
In the past Germany had resisted issuing guidance
regarding documentation requirements for transfer
pricing, only to have the Federal Tax Court eliminate
the effectiveness of guidelines promulgated in 1999
by the Federal Ministry of Finance regarding such
documentation requirements with two 2001 decisions1.
Those decisions held that the fiscal authorities
could not penalize taxpayers for failing to document
their transfer pricing methodologies without such
a requirement being written into the tax code itself.
On 11 April 2003 the German Parliament passed an
amendment to the tax code enabling the revenue authorities
to require just such documentation. This takes the
form of an additional paragraph 3 to § 90 of
the Fiscal Code (Abgabenordung or AO). In particular,
the changes entail:
| 1. |
A specific duty on the part of taxpayers
with cross-border transactions to maintain
documentation regarding the setting and methodology
of their transfer pricing program, focusing
on the economic and legal basis for said transfer
prices and other related transactions; |
| 2. |
The exact manner and scope of the documentation
is to be specified by guidelines to be issued
by the inland revenue authorities; |
| 3. |
The above mentioned documentation must be
presented to the revenue authorities 60 days
after demand of such; |
| 4. |
Failure to produce the requested documentation
can then result in a revaluation and readjustment
of the related parties? income; |
| 5. |
A readjustment can then lead to a penalty
of 5 to 10 % of the amount of the adjusted
income (not the tax thereon); should the required
documentation be filed late, a penalty of
at least € 1,000,000.00, but no less
than € 100 per day of delay, shall be
assessed. |
This documentation's requirement is first applicable
for fiscal year 2003 (that is, after 31 December
2002); for contracts of a continuing nature - e.g.
leases - such documentation would not have to be
provided until 30 June 2003.
The following is an extremely non-inclusive list
of documentation and types of documentation which
businesses active in Germany should begin compiling
and maintaining2. This documentation must be kept
for at least a 10-year time period, but need not
be physically stored in Germany, provided that it
can be produced within the above stated deadlines.
| 1. |
Comparable data from uncontrolled transactions,
where available; |
| 2. |
Data regarding changes to the conditions
upon which prior transfer pricing arrangements
were based; |
| 3. |
Data supporting prudent business management
decisions; |
| 4. |
Efforts undertaken to comply with the arms-length
principle and subsequent pricing; |
| 5. |
Information upon which transfer pricing
decisions were based; |
| 6. |
Information on the factors which were taking
into account while determining transfer prices; |
| 7. |
Details on the transfer pricing method selected; |
| 8. |
And in particular:
| a. |
An outline of the business; |
| b. |
Structure of the organization; |
| c. |
Ownership linkages within the MNE
group; |
| d. |
Amount of sales and operating results
from the last few years preceding the
transaction; and |
| e. |
The level of the taxpayer's transactions
with foreign associated enterprises. |
|
| 1 |
Federal Tax Court decisions: May 10, 2001,
-I S 3/01 and October 17, 2001, -I R
103/00 |
| 2 |
Although the revenue authorities have yet
to issue their non-binding recommendation
regarding documentation requirements, this
list reflects the OECD's position and is
likely to be influencial for the authorities. |
For more detailed information,
please contact:
Klaus Resing
D&P Dehnen GmbH
Rechtsanwaltsgesellschaft
Prinz-Georg-Str. 91
40479 Düsseldorf
Germany
tel: +49 211-449701
fax: +49 211-4497322
e-mail: kr@dpcompany.de
web: www.dpcompany.de
|
