Recently, the German Ministry of Finance has issued new Administrative Guidelines (“Guidelines”) regarding audits of Transfer Pricing matters. These Guidelines may impact all groups being present in Germany that are subject to Transfer Pricing legislation there.
The Administrative Guidelines are by nature not directly binding for taxpayers; they only set out how the tax authorities should interpret and apply the laws and ordinances on Transfer Pricing matters. However, as the Guidelines set out how tax authorities will look at Transfer Pricing, they of course indirectly have an impact on taxpayers. The Administrative Guidelines 2020 update earlier guidelines on Transfer Pricing and replace certain parts of the Administrative Guidelines 2005. As Transfer Pricing relevant matters are dealt with now in a number of guidelines (among others: Administrative Guidelines 1983, 2005, 2020; Guidelines on allocation of income to PEs; etc.) it is by now not always easy to get a clear view as to the position of the authorities on individual questions.
The Guidelines deal with a number of procedural questions that are important during tax audits rather than in the preparation process of Transfer Pricing documentation or the design of the Transfer Pricing system.
Among those procedural aspects are the following:
The topics relevant for the actual documentation preparation are especially the following:
Finally, it should be noted that the increasing requirements stipulated in the Guideline to provide evidence and support to the “best method” come along with reduced burden to estimate the income of a taxpayer. Therefore, it should be expected that the German tax authorities might try to quicker than in the past go to an income estimation.