![]() ![]() With respect to intercompany financing transactions, the MoF aligns its interpretation on the examination of income allocation between entities involved in financing transactions with the Organisation of Economic Co-operation and Development (OECD) Guidelines and with recent German jurisprudence of the Federal Fiscal Court (BFH) on determining intercompany interest rates for intercompany loans. Specifically, the new guidance does not include a de minimis rule and certain other aspects that were previously helpful in practice and, thus, further tightens the application of transfer-of-function rules for taxpayers. Additionally, the MoF continues to follow a restrictive view on some aspects not regulated by law. 2 In particular, the AP TP 2023 clarify the definition of a "transfer of function" and the calculation of the transfer package by following the stricter legal rules compared to the previous law. ![]() Key changes include updated administrative guidance on the German cross-border transfer-of-function rules to align the existing Administrative Principles on Transfer of Business Functions as of 13 October 2010 with recent legal changes in the cross-border transfer-of-function rules in the German Foreign Tax Act and the corresponding updated Order Decree Law on Transfer of Business Functions (Funktionsverlagerungsverordnung - FVerlV). The AP TP 2023 replace the previous version of the AP TP published on 30 September 2021 (publication in the Federal Tax Gazette) 1 and are intended to align the AP TP to the current transfer pricing (TP) rules by providing the MoF viewpoint to the interpretation of the arm's-length principle in Germany. As such, they serve as additional guidance for the interpretation and illustration of the tax law and executive order by the tax administration accordingly, they are of significant practical importance for taxpayers. In contrast to tax law and executive orders, the administrative principles are not legally binding on either taxpayers or the tax courts, but are only binding on the tax administration that needs to apply them when assessing or auditing the taxpayer. Administrative principles in Germany represent a third element (in addition to the tax law and order decree law) of German tax provisions. On 6 June 2023, the German Federal Ministry of Finance (MoF) issued updated Administrative Principles Transfer Pricing (AP TP 2023). This Alert summarizes the key aspects of the updated Administrative Principles on Transfer Pricing as well as relevant background on the recent developments with respect to transfer pricing.The updated guidance replaces the previous version of the Administrative Principles on Transfer Pricing published on 30 September 2021 and is intended to align the administrative guidance to the current legislative transfer pricing framework in Germany.The German Ministry of Finance published, on 6 June 2023, updated Administrative Principles on Transfer Pricing clarifying the German transfer pricing rules. ![]()
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