Profit allocation and thus the tax burden within a group of companies can be actively structured using transfer pricing. For this reason, the hurdles for the tax recognition of transfer prices have become much higher worldwide over the past few years. The current changes in the rules governing transfer pricing documentation are also the result of this development.
Following on from the BEPS (base erosion and profit shifting) project of the OECD/G20 countries, the German legislature has increased the minimum standards for transfer pricing documentation. For example, companies that generated sales of at least EUR 100 million in the previous fiscal year are required to create a master file from 2017 onwards. This document must describe the overall structure of the group and disclose its transfer pricing policy. A particular focus is on the presentation of intangible assets that are essential for the Group's creation of value.
As in the past, all companies, regardless of their sales, must create a "local file" showing that their transfer prices in transactions with affiliated companies are appropriate.
A new requirement, however, is the obligation for the Group's parent company to draw up a "country-by-country report," provided that the Group's consolidated sales are at least EUR 750 million. In particular, this report gives an overview of various key figures (e.g. number of employees, sales, profits or taxes paid), broken down by tax jurisdiction. These key figures are intended to enable the tax authorities to determine where a more thorough examination is necessary.
Moreover, in the future there will be increased cross-border cooperation between the tax authorities, as one of the objectives of the OECD's BEPS project is to increase transparency in the taxation of groups that do business internationally. To this end, the Federal Republic of Germany and many other countries have committed themselves to increasingly exchanging information that is relevant to taxation. This includes automated exchange of country-by-country reports as well as increasing cooperation in cross-border joint audits.
Against the backdrop of these developments, consistent inter-country transfer pricing documentation is becoming increasingly important. A further complicating factor is that the deadlines for reporting accounting-related information vary from country to country. The fact that the deadlines are much shorter in certain other countries means that an ongoing documentation process must be implemented for all companies in a group, in order to avoid inaccuracies in the presentation of intra-group business relations. This will be no mean feat, since corporate and jurisdiction structures vary widely!
For this reason, the individual parts of the company must work closely together to meet these requirements, which are both time-consuming and complicated. Central coordination is essential.
The way to ensure a high-quality and efficient information procurement and documentation process throughout the entire company is to implement a worldwide software solution. Thus, for example, Ebner Stolz uses a digital transfer pricing management tool. In addition to creation and central storage of all documentation required for local purposes worldwide, the tool also makes it possible to map and monitor the creation process and the respective responsibilities.
The use of the digital transfer pricing management tool does not require time-consuming and costly implementation in the company's IT system landscape. Rather, it is hosted by Ebner Stolz in Germany in accordance with the Federal Data Protection Act. The tool can then be accessed via a web-based interface by authorized persons all over the world. In addition, it can be configured to meet the individual needs of each company.