Transfer pricing regulations in Germany are not confined to a single section but are dispersed across various legislative acts. These regulations incorporate references to OECD guidelines and have integrated the Base Erosion and Profit Shifting (BEPS) Action Plan standards, enhancing transparency for tax administrations. Germany’s definition of related parties is detailed, with a minimum direct or indirect participation of 25% to establish an affiliate.
Germany’s transfer pricing documentation is comprehensive, requiring contemporaneous documentation for transactions. It follows a three-tier approach, including the Masterfile, Local file, and Country-by-Country-Reporting (CbCR). The local file provides information on ownership structure, business relations, functional and risk analysis, and transfer pricing analysis. A Masterfile contains details on the organization structure, supply chains, service agreements, and transfer pricing policies.
Value drivers for relevant industries are identified to gauge profitability. A detailed company analysis includes information on the local entity’s management structure, business strategy, and involvement in restructurings or intangible transfers.
Germany, an OECD member, follows OECD transfer pricing methods. The German transfer pricing regulations align with the OECD Guidelines, including the Comparable Uncontrolled Price (CUP), resale minus method, cost plus method, TNMM, and profit split methods. An economic analysis involves a benchmark study, with comparables ideally from the German market.
Documentation must be in the German language, although English documents are accepted. Records must be maintained for ten years, following Germany’s General Tax Code.
Germany has established a penalty regime, with penalties ranging from 5% to 10% of a profit adjustment, and minimum penalties apply for delayed document submission.