Basic Transfer Pricing Legislation Pack for Germany

TABLE OF CONTENTS

Introduction

I. Primary Law
1. Section 89 General Tax Code (Abgabenordnung): Consultation, Information
2. Excerpt from Section 90 General Tax Code (Abgabenordnung): Cooperation Duties of Concerned Persons
3. Translated excerpt from Section 162 General Tax Code (Abgabenordnung): Estimation of Taxable Income
4. Translated excerpt from Section 8 Corporation Tax Code (Körperschaftsteuergesetz): Determination of Taxable Income
5. Translated excerpt from Section 1 Foreign Tax Code (Aussensteuergesetz): Adjustment of Income

II. Secondary Law
1. Translated Decree Law (Kind, Content and Extent of Documentation in the Sense of Section 90 Paragraph 3 of the General Tax Code (Abgabenordnung).
Section 1 – Principles of Documentation
Section 2 - Kind, Content and Extent of the Documentation
Section 3 - Contemporaneous Documentation in the Case of Extraordinary Business Transactions
Section 4 - Generally Required Documentation
Section 5 - Documentation Required in Particular Cases
Section 6 – Application Rules for Smaller Companies and Taxpayers with Income other than that from a Trade or Business
Section 7 - Corresponding Application for Permanent Establishments and Partnerships
Section 8 – Effective Application

III. Statutory Notices

Important Notice: Laws, regulations, administrative instructions, tax treaties and court decisions could deviate from each other and are subject to permanent changes. The judgement of a case depends on individual facts and circumstances so that it is strongly recommended to contact a tax advisor before making a decision that affects one's tax situation.

Introduction

Being into the international tax business for a couple of years, I always found it extremely difficult to deal with cross border cases without having an opinion of what are the tax consequences in other foreign jurisdictions.

Often it was not just to know the foreign tax law – sometimes difficult enough to understand – but to find tax information into the right language and the right format.

The intention of this short script is to provide especially small to medium sized businesses with a first familiarization with German transfer pricing legislation in English language when investing in Germany. This script does not intend to provide you with a full overview of all available provisions. Binding is only the German version!

Please note: In case you may be exposed to German transfer pricing issues in Germany it is recommended to always ask a certified tax advisor (Steuerberater) for further advice.

Hamburg/Germany, 2007

Rudiger Urbahns

I. Primary Law

1. Section 89 General Tax Code (Abgabenordnung): Consultation, Information

(1) The fiscal authority shall foster the submission of tax returns and applications or the correction of returns and applications if they have not been made due to ignorance or unawareness or if they have been made or submitted incorrect. The fiscal authority does provide information to the taxpayer over his rights and obligations in organizational matters.
(2) Tax offices and the Federal Central Tax Office can provide binding rulings on request regarding the fiscal treatment of exactly determined, yet not carried out circumstances, if there is a special interest with regard to the fiscal impact of the case. Responsible for the distribution of a binding ruling is the fiscal authority, which would be locally responsible when the circumstances of the request would be implemented. Requester, for which at the time of the filing of an application after sections 18 to 21 no fiscal authority is responsible, the Federal Central Tax Office is, deviating from sentence 2, responsible for taxes in the area of taxes, which are administered by the federal fiscal authorities on behalf of the federation, in this case the binding ruling binds also the fiscal authority, which is responsible with the implementation of the circumstances of the requested case. The Federal Ministry of Finances will be authorized with consent of the Upper House of Parliament to release decrees concerning the form, content and conditions for the application of a binding ruling and the range of the binding effect.
(3) Fees for the handling of requests for binding rulings in accordance with paragraph 2 will be raised in accordance with the paragraphs 4 and 5. The fee is to be paid by the applicant within one month after notification of its assessment. The fiscal authority’s decision on the request can be put on hold until payment of the fee. The fee can be reduced in case an application for a binding ruling request is taken back before publication of the decision.
(4) Fees are based on the value which the binding ruling has for the applicant (request value). The applicant shall lay down in his request for a binding ruling the request value and the most important circumstances according to which he has determined this value. The fiscal authority shall base its fee assessment on the declared request value, as far as it does not lead to an obviously unfounded result. In case the request value can not be determined by estimation, a time fee needs to be computed; the time fee amounts to 50 Euro per half hour per begun and to at least 100 Euro.
(5) Fees based on the request value need to be determined in appropriate application of section 34 of the Court Charges Law (Gerichtskostengesetz). The request value amounts to at least 5,000 Euro.

2. Excerpt from Section 90 General Tax Code (Abgabenordnung): Cooperation Duties of Concerned Persons

(3) In cases which concern transactions with foreign involvement taxpayers have to document the kind and contents of their business relations with related persons (related persons are defined in section 1 (2) Foreign Tax Code [Aussensteuergesetz]). The documentation duty includes also the economic and legal base of dealings with related parties for the adherence of the arm’s length principle in connection with business relations and price setting. Extraordinary business transactions require contemporary documentation. The documentation obligation applies accordingly to taxpayers, who have to allocate profits between their domestic operations and foreign permanent establishments or between their domestic permanent establishment and foreign operations for purposes of domestic taxation. To safeguard a uniform application of the law the Federal Ministry of Finances is authorized to determine with agreement by the Upper House of Parliament in a decree law the kind, content and extend of the documentation duties.^[1][2] The tax authorities shall demand the documentation usually only for the execution of a field tax audit. The submission will – with exception of its paragraph 2 – be dealt with according to section 97 General Tax Code. The disclosure needs to be made within a period of 60 days beginning with its request. As far as extraordinary documentation will be requested, the period will be 30 days. In justified individual cases the submission time can be extended.

[...]

^[1] Version as of Sept 2007; generally introduced with effect for FY with begin after 31.12..2002

^[2] For the decree law see under section 0