German Federal Ministry of Finance publishes administrative principles Transfer pricing 2023

June 27, 20230

On 6 June 2023, the German Federal Ministry of Finance published its revised Transfer Pricing Administrative Principles 2023 (VG VP 2023). In addition to some chapters that have been taken over unchanged from the VG VP 2021, two new topics in particular should be emphasized:

  • Relocation of functions
  • Price adjustment clause

The updated VG VP 2023 with a volume of approx. 830 pages contain explanations in six main chapters on the principles of income correction (Chapter I), the competitive relationship with other correction provisions and the concept of a related party. In Chapter II, the tax authorities comment on the significance of the OECD Transfer Pricing Guidelines, which are attached in German language to the letter with a length of approx. 780 pages as Annex 1.

Chapter III represents the core of this VG VP 2023: in 12 subchapters, the tax authorities comment on the arm’s length principle (Chapter A), TP methods (Chapter B), comparability analysis (Chapter C), transfer pricing conflicts (Chapter D), documentation (Chapter E), intangible assets (Chapter F), cost allocations (Chapter H), relocation of functions (Chapter I), financing relationships (Chapter J) and the price adjustment clause (Chapter K).


Relocation of functions


After the Ordinance on the Transfer of Functions (FVerlV) of 18 October 2022 was adapted and revised to the AbzStEntModG (Federal Law Gazette I 2021, p. 1259) (including the concretisation of the provisions on the transfer of functions and transfer to a new Section 1 (3b) of the Foreign Tax Act (AStG) and a legal definition of the transfer package), the FVerlV is now being incorporated into the VG VP 2023. In Chapter III, Subchapter I, the tax authorities comment in particular on the determination and relocation of a function, the transfer package and the valuation. Numerous examples explain the opinion of the administration.

In numbers 3.87 to 3.120, the tax authorities comment on 9 pages, among other things, on the definition (nos. 3.88 to 3.90) and relocation of a function (nos. 3.91 to 3.100), on the transfer package and on the valuation nos. 3.101 to 3.103). Numerous examples of valuation in the event of functional relocations illustrate the opinion of the administration. In addition to the concepts of relocation and duplication of functions, the BMF letter also deals with the facts of a functional restriction, e.g. in the case of the melting of functions and risks with a high scope of functions and risks to a lower level. Other chapters include the components of the transfer package (nos. 3,104 and 3,105), questions of capitalisation in the context of valuation (nos. 3,106 to 3,110) and the determination of the area of agreement (nos. 3,111 to 3,118). Comments on claims for damages (no. 3.119) and permanent establishment cases (no. 3.120) conclude the chapter on the transfer of functions.

Compared to the administrative principles from 2010, numerous negative accruals have been omitted, e.g. there is no relocation of functions in the event of a decline in sales of less than € 1 million (de minimis regulation).

In accordance with the FVerlV, the administrative opinion is applicable to cases of relocation of functions after 31.12.2021. For cases of relocation of functions before 31.12.2021, the administrative principles of relocation of functions of 13.10.2010 remain applicable.




With regard to financing relationships (Chapter III, Subchapter J), the tax authorities adopt the Federal Fiscal Court case law on the determination of arm’s length loan interest rates on group loans (judgments of 18.05.2021, I R 4/17 – on group retention) and of 13.01.2022, I R 15/21 – on the arm’s length of the (non-)collateralization of an intra-group loan) in the letter.

The cost-plus method no longer takes precedence in principle for intra-group loans from financing companies, but only within the framework of the “best method” approach. If the cost-plus method is used as the most appropriate method, a fee shall be applied on the basis of proven and directly attributable costs.


Price adjustment clause


Subchapter K (no. 3.136) contains a note on the exclusion of § 1a Foreign Tax Act (AStG), insofar as an appropriate price adjustment clause has been contractually agreed. However, this passage only repeats the law. There is no further specification of an appropriate price adjustment clause there. Here, the tax authorities are basically going round in circles.


Temporal applicability


In principle, the new VWG VP 2023 are to be applied to all open cases and thus retroactively. On the other hand, the statements contained in Chapter I on the transfer of functions are to be applied to relocations of functions that are realized after 31.12.2021 in accordance with the FVerlV, which was amended on 01.01.2022.

With the publication of the VG VP 2023 in the German tax gazette, the previous version of the VG VP 2021 of 14.07.2021 and the non-application decree of 30.03.2016 on the highest fiscal court (BFH) judgments I R 23/13 and I R 29/14 are repealed.


Author: Carsten Schmid, Partner, Transfer Pricing & Friends

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