KPMG Germany Webpage
Click on the above link to visit the KPMG Germany webpage on the Mondaq website

Article by Alexander Vögele

For editorial cut-off date, disclaimer, and notice of copyright see end of this article.

The Federal Tax Court has handed down a major transfer pricing decision dated 17 October 2001 (released in mid-November). The new judgement decides an appeal of a December 1998 decision by the Düsseldorf Tax Court that attracted attention primarily because of the lower court's rejection of the use of so-called secret comparables in transfer pricing litigation. In May 2001, an interlocutory ruling by the Federal Tax Court in the same matter signalled the high court's unwillingness to uphold the transfer pricing documentation requirements that had been proposed by the German tax authorities.

The judgement must be regarded as a victory for the tax authorities in that the high court overturns the lower court's judgement pursuant to the tax authorities' appeal and remands the case for further deliberations. The taxpayer's cross-appeal on a narrow technical issue is rejected.

While the judgement does address the issue of secret comparables, holding that their use by the tax authorities cannot be ruled out categorically, the main thrust of the court's opinion is directed to fundamental questions of methodology and burden of proof in transfer pricing litigation in the context of Germany's present statutory framework. The judgement may be expected to have considerable impact on future transfer pricing litigation.


Editorial cut-off date: 28 November 2001

Disclaimer and notice of copyright

This article treats the subjects covered in condensed form. It is intended to provide a general guide to the subject matter and should not be relied on as a basis for business decisions. Specialist advice must be sought with respect to your individual circumstances. KPMG Germany in particular insists that the tax law and other sources on which the article is based be consulted in the original, whether or not such sources are named in the article. Please note that the article is current only through its editorial cut-off date shown immediately above (not to be confused with the later date as of which the article was placed online – the date appearing at the article's outset). Related developments subsequent to the editorial cut-off are not necessarily reported on in later articles. Please note as well that later versions of this article or other articles on related topics may have since appeared on this database or elsewhere and should also be searched for and consulted. While KPMG Germany's articles are carefully reviewed, it can accept no responsibility in the event of any inaccuracy or omission. Any claims nevertheless raised against KPMG Germany on the basis of this article are subject to German substantive law and, to the extent permissible thereunder, to the exclusive jurisdiction of the courts in Frankfurt am Main, Germany. This article is the intellectual property of KPMG Germany (KPMG Deutsche Treuhand-Gesellschaft AG). No use of or quotation from the article is permitted without full attribution to KPMG Germany and the article's stated author(s), if any. Distribution to third persons is prohibited without the express written consent of KPMG Germany in advance.