Are you a globally operating company? Do your domestic and international group companies and branches continuously exchange substantial quantities of goods and services? If so, you should pay particularly close attention to how you design and document transfer prices for these cross-border intragroup supply relationships. Tax administrations at home and abroad regularly put the spotlight on these issues and generally view them in a very critical light.
Clean transfer prices?
Most governments have adopted special regimes to prevent international groups of companies from exploiting potential loopholes that could reduce the tax revenue of the countries concerned. These rules stipulate the conditions under which transfer prices are acceptable for tax purposes. The arm’s length principle has emerged as the international consensus benchmark for these rules. This international approach is designed to ensure that the substance of the individual national regimes does not differ to such an extent that the outcome is either double taxation or nontaxation. Complying with this arm’s length principle and documenting compliance pose considerable challenges in practice for companies.
Clear about transfers of functions?
Especially middle-market companies often experience very dynamic growth - in particular when it comes to the structure of their international business. In many cases, they only seek tax expertise if there are changes to the structure of the group under company law. By contrast, the tax dimension is frequently underestimated in the case of purely organizational changes in the group without any legal consequences. The criteria for a “tax transfer of functions” may also be met in cases like this. This normally results in considerable tax liabilities and can endanger the profitability of a restructuring or organizational project.
Documentation requirements satisfied?
Your company must document all intragroup supply relationships in detail so that the tax administrations can examine transfer prices and transfers of functions. It is not enough merely to describe the existing supply relationships and the transfer prices applied, as well as the methodology used to calculate them. Rather, you must demonstrate they are verifiably appropriate, meaning that they pass the arm’s length test. And there’s more: Companies that don’t comply with the documentation requirements and the related filing deadlines will generally face painful penalties, both in Germany and abroad.
Can we help you?
The topic of transfer pricing is very wide-ranging and extremely complex. In light of the considerable impact it can also have on nontax areas, it demands a well thought out, holistic approach that considers all the relevant aspects and reflects them appropriately. It is also vital to ensure that the system can be credibly explained to tax administrations at home and abroad and can be defended in any tax audits. We would be pleased to support you in these activities so that you can benefit from our experience in all kinds of scenarios and projects. We focus systematically on the specific requirements and features that characterize and shape your organization.
Our services at a glance
- Support for pricing cross-border supply relationships that reflects all tax aspects (e.g., VAT, customs duties, accounting)
- Health check for the existing transfer pricing documentation and transfer pricing system
- Design of internationally coordinated, supportable transfer pricing models that are tailored to your company, including implementation support (e.g., drafting contracts, holding workshops, drafting instructions and policies, implementing processes and process descriptions, developing templates)
- Support for preparing transfer pricing documentation - both in individual areas (e.g., preparing the functional and risk analysis, or the arm’s length analysis) or in all areas (e.g., support for the master file concept or for preparing documentation needed only for German purposes)
- Definition of the KPIs for the individual transaction types, including benchmarking if applicable, needed for the arm’s length documentation
- Defending your transfer pricing model in tax audits
- Support for appeals in litigation or out-of-court proceedings relating to technical transfer pricing issues
- Arranging mutual agreement procedures to eliminate economic double taxation that could result from transfer pricing adjustments by domestic or foreign tax administrations
- Implementing advance pricing arrangements (APAs)
- Expert opinions on complex issues
- Coordination/agreement with your advisers/colleagues abroad or with our colleagues in Nexia International.