The observation of German transfer pricing regulations is essential for internationally working businesses. Transfer pricing covers the
- documentation and
of charges made between related parties located in different countries (e.g. parent company in country A and its subsidiary based in country B) for
- use of (intangible) property etc.
In principle, an adequate transfer price should match what a seller would charge an independent customer (so-called arm's-length-principle).
For determining the correct transfer prices, a thorough research is imperative. It is by far not sufficient to roughly estimate transfer prices. Indeed, generally an in-depth research is required and conducted with the help of professional databases which compare a huge number of similar transactions performed by competitors. Typically, the tax authorities use similar tools.
In addition to carefully determining the correct transfer prices, a comprehensive documentation is required by law, stating how and on what grounds the respective company determined the respective transfer prices.
Frequently, medium-sized businesses violate these requirements, either because the respective national regulations are unknown to them or because the topic of transfer pricing is at the very bottom of the to-do-list. However, if transfer prices are not determined under consideration and in compliance with the respective regulations (also taking into account possible challenging deadlines), the company may be subject to back taxes and cumbersome processes with the tax authorities. Even worse, business companies violating transfer pricing rules usually get into severe trouble not only with their local tax authorities but with the revenue services in all affected countries.
To avoid lengthy discussions with the tax authorities, enterprises should therefore focus on complying with transfer pricing regulations from the beginning. Reliable transfer pricing data should already be collected in the planning phase. Furthermore, the necessary documentation should be prepared before entering into intercompany contracts. In case of discrepancies or insecurities, the possibility of Advanced Pricing Agreements in the relevant jurisdictions should be considered and evaluated.
Transfer pricing is a complex topic. That is why its relevance should not be underestimated. In over 50(!) percent of all transfer pricing disputes, the tax authorities consider transfer prices to be inadequate. The result is that in these cases the transfer prices are adjusted in one or more countries leading to an immense tax burden of the affected party/parties. This risk may be significantly reduced by complying with the rules from the beginning. A correct and comprehensive transfer pricing documentation is decisive! An experienced transfer pricing lawyer can help you with this.
Transfer pricing can also be a great chance for internationally working businesses. Navigating through the different transfer pricing regulations, companies can actively influence their consolidated/international tax rate. Especially profit allocation and double tax treaties play a decisive role in this respect.
Our specialized transfer pricing attorneys:
- prepare your transfer pricing documentation
- defend your transfer pricing documentation against tax offices, tax auditors and tax investigators
- determine the "right" transfer price to avoid potential pitfalls and disputes with the tax authorities
- review our clients' existing transfer pricing documentation and identify potential points of attack and weaknesses
- conduct tax proceedings on transfer pricing before the German tax courts and the Federal Fiscal Court
- defend companies and their managing directors in criminal tax proceedings
Do you have any questions regarding transfer pricing in Germany? Our transfer pricing lawyers are happy to help. Together with our international cooperating partners, they help you minimize tax risks and take opportunities within the overall tax rate.
If you want to discuss your case with us, please do not hesitate to contact us by e-mail (email@example.com) or by phone (+49 69 76 75 77 80). We will promptly arrange an appointment for you in order to talk about your transfer pricing needs in more detail.
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