Transfer prices and their documentation
Incorrect or improperly documented transfer prices can lead to these very unpleasant consequences in Germany:
- High additional tax payments due to estimates by the tax office
- Reversal of the burden of proof
- Interest on tax arrears for previous years
- Surcharges/penalties of up to millions.
Transfer pricing in international tax law - you will find these services with us
If your German company has parent companies, subsidiaries, sister companies or permanent establishments abroad, two fundamental questions arise at the beginning of each new financial year:
1) Are my transfer prices (still) appropriate?
2) Am I obliged to prepare transfer pricing documentation atand submit it to the tax office?
We would be happy to check this for you. Under the new law, such documentation can be requested at any time. In the event of a tax audit, they must be submitted in future without a separate request. The deadline begins with the request or notification of the audit order and is 30 days.
You can find some basic information on transfer pricing documentation here.
Even if you are not obliged to do so, you should prepare yourself for how you can prove to the tax office that your transfer prices are appropriate. Are you relocating individual operational functions or units such as purchasing, sales, production, etc. from Germany to a foreign country?
If so, this transaction may result in the release of hidden reserves and thus incur taxes. This is known as a transfer of functions.
This can be expensive.
Let us check whether a transfer of functions has taken place and show you how you can take countermeasures in good time to avoid taxes.
The sooner you contact us, the better, because some mistakes cannot be rectified later.
You are welcome to leave the preparation of your transfer pricing documentation to us. Applications are often not submitted on time or it is overlooked that transfer pricing documentation prepared in accordance with foreign law or in a foreign language is generally rejected by the German tax authorities.
Whether local file, master file or country-by-country reporting (CBCR), we can help. The components of transfer pricing documentation are factual documentation (who in the group has which relationships with whom and in what amount) and appropriateness documentation (do the selected transfer prices correspond to what third parties would have agreed). Various transfer pricing methods can be considered, which are listed here for you.
However, the simplest cost-plus method is not always permitted. Sometimes a more complex method such as the TNMM is required.
Depending on the transfer pricing method chosen, the evidence must be provided in different ways. As suitable external data is not always available, it is sometimes necessary to resort to databases that are subject to a charge. To ensure that you are on the safe side, we use the Amadeus database, which is also used by the German tax authorities.
If you are unsure whether the transfer pricing documentation prepared by you or your consultant meets the requirements of the tax authorities, you are welcome to have this checked by us. If something is missing, we will complete the missing parts or create the documentation from scratch.
This can save you a lot of money, especially if you are preparing transfer pricing documentation for the first time, have unusual business transactions or if a tax audit has been announced or is likely.
If you are unsure whether transfer pricing documentation needs to be prepared at all or whether there is a transfer of functions, we will be happy to check this for you and point out any tax risks. We will find solutions for you. Here too, the earlier you contact us, the better, as it is usually easier to resolve a problem that is identified early on.
Are you asked questions about international issues or transfer prices as part of a tax audit? Your tax advisor tells you that he or she can no longer provide you with expert advice or you realize that your advisor is not at home here?
Then you are welcome to consult us as specialists in international tax law. This is particularly the case if a specialist auditor for foreign matters is called in during an ongoing tax audit or if a lot of money is at stake.
If you wish, you can only ask us to answer international tax questions. If you wish, we will not interfere with purely German determinations that your in-house tax advisor has under control. Our experts are almost exclusively involved here. Oliver Biernat, as a specialist consultant for international tax law and head of GGI’s international tax law practice group for many years, is particularly predestined for this. You can find out more about tax audits here.
