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Transfer pricing is a topic about which one hears much but understands little. The increasing globalisation of the world economy and complexity of multinational enterprises ensures that the sheer volume of transfer pricing expands every day. The enormous fiscal implications of transfer pricing have unfortunately led to its politicisation in recent years because of increasing doubt on the part of certain major trading nations, such as the United States, that they were receiving their "fair share" of world tax revenue. But even if political pressures were absent, transfer pricing would still not be an exact science. It involves too many imponderables and interrelates directly with business administration, which is judgmental in nature as well. Hence, transfer pricing remains a shifting ground for both taxpayers and revenue authorities.

This is the first of a series of articles surveying the current status of major transfer pricing issues from a German perspective in the context of the important developments in recent years. A list of these developments is as follows:

1.     Oct. 1986       Amendment of U.S. section 482 IRC to require
                       payments "commensurate with income" on 
                       transfers of intangible assets
2.     March 1991      U.S. IRS Revenue Procedure 91-22, the legal 
                       basis for U.S. advanced pricing agreements 
                       (APAs)
3.     June 1991       Regulations under section U.S. 6038A IRC 
                       (record-keeping)
4.     Jan. 1992       Proposed regulations under U.S. section 482 
                       IRC
5.     Dec. 1992       Recommendations of OECD Task Force on U.S.
                       proposed transfer pricing regulations
6.     Jan. 1993       Temporary regulations under U.S. section 482 
                       IRC
7.     Feb. 1993       German Federal Tax Court decision on transfer
                       pricing of domestic marketing subsidiaries
8.     Jan. 1994       Temporary regulations under U.S. section 6662 
                       (e) IRC (penalties)
9.     June 1994       Draft OECD Transfer Pricing Guidelines, Part I
10.    July 1994       Final regulations under U.S. section 482 IRC,
                       amendments to temporary regulations under  
                       section 6662 (e) IRC
11.    Jan. 1995       Entry into force of European Union Transfer 
                       Pricing Arbitration Convention 
12.    March 1995      Draft OECD Transfer Pricing Guidelines, Part 
                       II
13.    June 1995       Publication of U.S. Announcement 95-49 with 
                       proposed changes in APA rules (Revenue
                       Procedure 91-22)
14.    July 1995       OECD Transfer Pricing Guidelines, Chapters I - 
                       V
15.    Dec. 1995       Final regulations under U.S. section 482 IRC 
                       on research and development cost sharing
16.    Feb. 1996       Final regulations under U.S. section 6662 (e) 
                       IRC (penalties)
17.    March 1996      OECD Transfer Pricing Guidelines, Chapters VI
                       and VII

Disclaimer and 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. We in particular insist 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 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 our articles are carefully reviewed, we can accept no responsibility in the event of any inaccuracy or omission. Please note the date of each article and that subsequent related developments are not necessarily reported on in later articles. Any claims nevertheless raised 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 Deutsche Treuhand-Gesellschaft AG (KPMG Germany). Distribution to third persons is prohibited without our express written consent in advance.