UK: Salans Vox Tax Transfer Pricing Documentation Survey - Part 1

Last Updated: 9 September 2009

Survey Salans Vox Tax Transfer Pricing Documentation Survey For this special edition of Vox Tax, we produced a survey of 21 questions relating to cross-border transfer pricing ("TP") documentation for our tax experts worldwide to answer.

#1 Is there an obligation to submit TP documentation in your local jurisdiction?

#2 How often does the transfer pricing documentation need to be updated? What is the first financial year which can be covered by TP documentation? Can TP documentation be adopted with retrospective effect?

#3 Is a parent company subject to different TP documentation requirements than a subsidiary company?

#4 Are small and medium-sized enterprises concerned by mandatory TP documentation? If so, are their documentation compliance requirements identical to those of larger enterprises?

#5 Do transfer pricing documentation requirements apply also to transactions between a permanent establishment and an associated entity? If so, are their documentation compliance requirements identical to those of larger enterprises?

#6 Are there transfer pricing documentation requirements for domestic transactions? If so, are their documentation compliance requirements identical to those of larger enterprises?

#7 Does TP documentation protect taxpayers from transfer pricing adjustments?

#8 Does your jurisdiction have an APA procedure to protect against TP adjustments? If so, can APAs be concluded on a unilateral, bilateral or multilateral basis? What is the legal force of an APA?

#9 How does a taxpayer prepare and store TP documentation: paper, electronic, other?

#10 What is the timeframe to produce TP documentation? Is there an obligation which exists at the time the pricing is determined? Or can the TP documentation be produced for review by a tax administration after the tax audit has begun/upon specific request?

#11 Do TP documentation requirements affect every intra-group transaction or only extraordinary transactions eg. transfer of intangibles or a substantive change of the functions and risks of the company?

#12 In which language should TP documentation be presented? Are translations considered valid documentation?

#13 If TP documentation exists, who has the burden of proof that the arm's length principle was respected: the enterprise or the tax administration? Is the burden of proof shifted to the taxpayer if they do not (sufficiently) fulfil their TP documentation requirements?

#14 Does the tax system in your jurisdiction require a detailed list of documents to be submitted by the taxpayer, or is it an open case-by-case obligation (as recommended by the OECD)?

#15 Is it possible to centralise the core part of TP documentation at group level?

#16 Is the use of database searches for comparables (national / international) recognised by your jurisdiction as valid independent transactions?

#17 When applying traditional methods ("Cost plus", "Resale minus") and the TNMM ("Transactional net margin method"), are internal comparables considered as valid comparable uncontrolled transactions? Or should external comparables be preferred?

#18 Searching for comparables: does your local jurisdiction require for a local search for comparable transactions? Or are regional (eg. European) or international comparables accepted?

#19 What are the penalties applicable where there is no TP documentation? What are the penalties applicable in cases of insufficient or non compliant TP documentation?

#20 What legal resources are applicable in your jurisdiction to mitigate/eliminate potential double taxation related to TP adjustments?

#21 What is the corporate tax rate in your jurisdiction?


  • Note from Editors
  • China
  • Czech Republic
  • France
  • Germany
  • Netherlands
  • Poland
  • Romania
  • Russia
  • Spain
  • Ukraine
  • USA
  • Newsflashes

Note from Editors
By Sandra Hazan and Evgeny Timofeev

In addition to this, the Global Tax Group wishes to announce that it is establishing a dedicated service to clients of preparing transfer-pricing documentation for major jurisdictions. This new service offering completes the palette of transfer pricing services available from Salans.

As companies do more business overseas and develop more sophisticated methods for reducing their taxes, transfer pricing disputes between multinational companies and tax regulatory agencies are a hot topic.

In practice, the objectives of one national tax administration in assessing a multinational's transfer pricing policy are opposed to those of another tax administration. This situation can easily generate an intolerable double taxation situation. To prevent those situations, tax administrations around the world are imposing stringent new documentation requirements and increasing the scrutiny on taxpayers.

Transfer pricing documentation is an analysis under the arm's length principle. It is generally based on information about the associated enterprises involved in the controlled transactions, the transactions at issue, the relevant functions, assets and risks, and information derived from independent enterprises engaged in similar transactions or businesses. A company is in general required to prepare and maintain the documentation for transactions or arrangements between itself and an associated enterprise resident in another jurisdiction, to demonstrate compliance with the arm's length principle. This documentation needs to be of sufficient quality to establish compliance in accordance with the taxpayers' own local transfer pricing rules, with the relevant tax treaty, and to be consistent with OECD Guidelines.

It is possible that one day in the future, taxpayers around the world may be able to rely on a standardised set of transfer pricing documentation that is valid for all jurisdictions in which their companies operate. There has been some progress in that respect. Following the example of the Pacific Association of Tax Administrators (PATA), its members being Australia, Canada, Japan and the United States, the European Union approved the Transfer Pricing Documentation Code of Conduct on 27 June 2006 to prevent groups having to take a country-by-country approach to documentation, with all its inherent downsides. European Union Member States are currently integrating the code of conduct's principles into their own local regulations.

Until there is a common international approach, companies involved in crossborder transactions must comply with different arrangements in place on an individual country basis. This special edition of Vox Tax aims to provide you with a comparative analysis of transfer pricing documentation requirements across multiple jurisdictions. We produced a survey of 21 questions relating to cross-border transfer pricing for our tax experts worldwide to answer. The result is a unique across-the-board view of the differing approaches of developed and emerging market economies to transfer pricing as reflected in their documentation requirements.

With almost 80 lawyers practicing in 16 jurisdictions across the globe and our recognised Transfer Pricing Practice, Salans' Global Tax Group continues to offer a full range of advisory services for all intra-group transactions. These include assessment of risks involved, sector-by-sector pricing assessment, defence of transfer pricing policy before the tax authorities, litigation, as well as arbitration procedures to remedy double taxation situations.

In addition to this, the Global Tax Group wishes to announce that it is establishing a dedicated service to clients of preparing transfer-pricing documentation for major jurisdictions. This new service offering completes the palette of transfer pricing services available from Salans.

We trust that you will find this special edition of Vox Tax informative and useful as an ongoing source of reference.

By Yun Wei, Fang Liu and Fei Yang

#1 Yes. From 2008, an enterprise with related party transactions must prepare annual TP documentation, and submit it to the tax authorities on request. Exempt are enterprises with:

  • annual related party sales and purchases totalling less than RMB 200 million and other annual related party transactions total less than RMB 40 million;
  • related party transactions covered by an existing advanced pricing agreement; or
  • foreign shareholding of less than 50% and only domestic party transactions.

#2 TP documentation must be updated every year.

2008 is the first financial year in which TP documentation is required.

It is not yet clear whether TP documentation can have retroactive effect.

#3 No. The requirements are the same for parent companies and subsidiaries.

#4 Small and medium-sized enterprises have the same TP documentation requirements and burdens as large enterprises.

#5 It is not clear whether a permanent establishment needs to prepare the TP documentation in China. If it does, the documentation compliance burdens are identical to other enterprises.

#6 TP documentation requirements cover domestic transactions unless the enterprise is exempt, i.e. its foreign shareholding is below 50% and it only has domestic party transactions. The documentation compliance burdens for domestic transactions are the same.

#7 Not completely. A tax authority may adjust transfer pricing if, by following established tax audit methodology, it finds that related party transactions do not comply with the arm's length principle. A taxpayer who has prepared TP documentation, can be exempt from a 5% penalty interest rate charge if the transfer pricing is adjusted.

#8 Yes, in China, generally speaking, an applicant for an APA must have had annual aggregate related party transactions of more than RMB 40 million, have disclosed all related party transactions, and prepared, maintained and provided the relevant TP documentation.

It is possible to conclude APAs unilaterally, bilaterally or multilaterally. If an APA is concluded with tax authorities and the enterprise complies with the APA, the enterprise can be protected from transfer pricing adjustments for a period of three to five years. With tax authority approval, the same methodology agreed in the APA may also be applied to the current and prior years. The tax authorities have the right to supervise the performance of APAs by the taxpayer.

#9 The regulations are silent on the exact form but TP documentation submitted to tax authorities must be on paper with the tax payer's company chop and its legal representative's signature.

#10 For all related transactions occurring in a calendar year, the enterprise must produce relevant TP documentation before 31st May of the next year. The enterprise has no contemporaneous obligation when the pricing is determined. At the request of the tax authority, the enterprise must submit TP documentation within 20 days. Hence, it seems impossible for an enterprise to prepare its TP documentation after the tax audit or request is made.

#11 The TP documentation requirements hit every intra-group transaction.

#12 The TP documentation must be prepared in Chinese. If the original materials are in a foreign language, a Chinese translation can be submitted to the tax authority.

#13 The law and regulations do not specify who has the burden of proof. However taxpayers should in good faith demonstrate that their determinations of transfer pricing are consistent with the arm's length principle, and the tax authorities should follow the arm's length principle in their audits and adjustments.

#14 The Chinese tax administration can require an enterprise to submit documents, in addition to the annual TP documentation materials, supporting its TP policy on a case-by-case basis.

#15 The Chinese tax regulations require each enterprise to prepare TP documentation separately. However at group level, it is recommended to take a group transfer pricing review to identify issues and to establish the degree of potential exposure for each subsidiary and each type of transaction. Of course the subsidiaries can share common information within the group such as group organisational structure, market and competition analysis, and the group's supply chain.

#16 Yes, according to current practice.

#17 Theoretically, internal comparables can be valid comparable uncontrolled transactions. However, our experience reveals that the tax authorities prefer external comparables.

#18 The tax regulations do not prohibit regional or international comparables, but in practice, the tax authority prefers local comparable transactions.

#19 In case of absence of TP documentation, the taxpayer may face a penalty of up to RMB 10,000 and more significantly, a higher risk of audit by the tax authorities.

If an enterprise submits false or incomplete information to the tax authorities, it faces a penalty of up to RMB 50,000. The more critical consequences could be a tax audit:

  • the authorities may assess the taxable income of the enterprise on reasonable "deemed income"; and
  • any tax found to be unpaid by an enterprise will be penalised at interest of 5% plus a corresponding RMB lending rate on the amount of tax unpaid.

#20 The Trial Implementing Measures on Special Tax Adjustment (Guo Shui Fa [2009] No. 2) stipulates that if a related party is subject to tax adjustment, the other related party should be allowed to make a corresponding adjustment to eliminate double taxation. If any related parties are in a country/region that has a tax treaty with China, both tax authorities should negotiate the adjustment according to the tax treaty.

An enterprise should apply to the Chinese tax authorities for the corresponding adjustment within three years after it or its overseas affiliate receives an adjustment notice.

#21 Standard tax rate is 25%.

Czech Republic
By Radovan Bernard and Petr Kotab

#1 Czech tax laws do not require taxpayers to prepare and submit TP documentation to the financial authorities. However, as the burden of proof falls in most cases on the taxpayer rather than on the financial authority, it is in the interest of the taxpayer to diligently maintain any evidence that shows transfer pricing was established at arm's length.

For such purposes, the Czech Ministry of Finance issued various guidelines on transfer prices and TP documentation (e.g., Guideline D-293 on the scope of documentation on establishing prices between the related parties). Such guidelines are not legally binding on taxpayers, but enjoy a high level of respect as the tax authorities commonly use them in tax proceedings.

The rules set forth in OECD's Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (although not legally binding) are also taken into account by Czech financial authorities when interpreting Article 9 (Associated Enterprises) of tax treaties and also when interpreting TP provisions of Czech tax laws.

The Czech Republic also adopted the Code of Conduct on Transfer Pricing Documentation for Associated Enterprises in the EU. The Code, however, has not been implemented into Czech laws and it merely serves as a basis for guidelines of the Czech Ministry of Finance (see above) and uniform interpretation of TP provisions of Czech tax laws.

#2 As mentioned above, there is no requirement in the Czech Republic to maintain TP documentation so Czech tax laws do not set out rules concerning updates, retroactive effect and the date of commencement of the maintenance of TP documentation. Therefore, the only principle that applies is that such documentation needs to be maintained in a way that will allow the taxpayer to demonstrate and prove in a clear and undisputed way adherence to the arm's length principle when setting transfer prices in its intra-group transactions.

#3 No.

#4 There is no mandatory TP documentation in the Czech Republic. The guidelines of the Czech Ministry of Finance regarding TP documentation do not distinguish between small, medium-sized and large enterprises. Usually only large enterprises that are part of a multinational group recognise the importance of TP documentation. It is not common for small and medium-sized enterprises to put much emphasis on TP issues.

#5 There is no mandatory TP documentation in the Czech Republic. The guidelines of the Czech Ministry of Finance regarding TP documentation do not distinguish between permanent establishments and large enterprises. It can be determined from general principles and rules of Czech tax law that the same requirements including transfer pricing issues apply to permanent establishments as they apply to other (i.e., domestic) enterprises.

#6 There is no mandatory TP documentation in the Czech Republic. The guidelines of the Czech Ministry of Finance regarding TP documentation suggest that the identical rules are obeyed when maintaining TP documentation in domestic transactions and large cross-border transactions.

#7 No, because there is no mandatory TP documentation in the Czech Republic. However, solidly maintained TP documentation can help as a procedural tool when fighting transfer pricing adjustments made by tax authorities in tax proceedings.

#8 Since January 1, 2006, Czech tax laws have implemented a procedure similar to the Advance Pricing Agreements concept entitled "binding assessment of transfer prices between related parties". Such assessment is issued by the local tax authority upon the application by a taxpayer and it is binding on all Czech tax authorities. The assessment is delivered to the applicant, and, in addition, to persons involved in the pertinent intra-group transactions of the applicant.

#9 How does a taxpayer prepare and store the TP documentation: on paper, in electronic form or in any other system?

Since there is no mandatory TP documentation in the Czech Republic, no specific rules are set forth by Czech law in this respect. Generally, a taxpayer is entitled to submit tax evidence (such as TP documentation) to financial authorities in any form, including electronic.

#10 Generally, the documentation does not have to be prepared until a tax audit commences.

#11 There is no mandatory TP documentation in the Czech Republic. Based on guidelines of the Ministry of Finance, TP documentation should address all the intra-group transactions.

#12 No specific rules apply as to the language of TP documentation. Generally, all the evidence submitted to Czech financial authorities must be in Czech or Slovak. If the document was prepared in another language, it needs to be submitted along with its translation into Czech or Slovak by a certified translator.

#13 There is no mandatory TP documentation in the Czech Republic and the burden of proof regarding intra-group transactions lies with the taxpayer. Even if a taxpayer prepares TP documentation in compliance with suggestions included in the Guidelines of the Ministry of Finance (see Q.1), the taxpayer still has the burden of proof.

#14 Since there is no mandatory TP documentation in the Czech Republic and the burden of proof lies with the taxpayer, the taxpayer is free as to the scope and kind of documents submitted. The guidelines of the Ministry of Finance (please refer to Q. 1) contain a list of documents that should be included in the TP documentation but this is not intended to be a conclusive list.

#15 Czech tax laws do not prohibit doing so. In such an event, however, a Czech taxpayer needs to have access to such documentation when necessary and also the rules as to the language of such documents (please refer Q. 12) should be adhered to.

#16 The use of database searches could be handy, for example, when applying a "comparable uncontrolled price" method for assessing whether the prices are arm's length. Czech tax laws do not prohibit using databases but in case of doubt, a taxpayer must be able to prove that the database is sufficiently broad and reliable. Even if the taxpayer proves this, the financial authorities may put into question the results of the database but in such event they have to provide their own evidence.

#17 The guidelines of the Ministry of Finance prefer to take into account external variables when assessing the profit (in case of the TNMM method), resale price (in case of the Resale minus method) or cost (in case of the Cost plus method).

#18 Czech tax laws do not have specific rules in this respect and also the guidelines of the Ministry of Finance (see Q.1) do not favour local searches over searches covering broader regions. Therefore, the general rule applies that the comparables obtained within the search have to be reliable and applicable to the given transaction.

#19 As there is no mandatory TP documentation in the Czech Republic, there are no specific penalties in this respect. On the other hand, the lack or limited scope of TP documentation can result in the inability of a taxpayer to prove compliance with the arm's length principle in intra-group transactions. This usually results in tax base adjustments, outstanding tax payment requests and penalties for late assessment.

#20 If the Czech financial authority reevaluates transfer prices in the intra-group transactions of a taxpayer and demands outstanding tax, this does not entitle the other related party in the transaction to decrease their tax base by the corresponding amount. Therefore, double taxation occurs.

Where prices in intra-group transactions correspond to arm's length principle pursuant Article 9 (Associated Enterprises) of a relevant tax treaty which is binding on the Czech Republic, double taxation is prevented by operation of the treaty itself.

Also, further legal remedies may be available under the convention on the elimination of double taxation in connection with the adjustment of profits of associated enterprises (the "Arbitration Convention" 90/436/EEC) to which the Czech republic acceded from 1 October 2006.

#21 The corporate income tax rate was reduced several times over the past few years in the Czech Republic. Currently, the general corporate tax rate is 20% and it is scheduled to be decreased to 19% as from January 1, 2010.

By Fabrice Korenbeusser and Jessie Gaston

#1 Under current legislation, the French tax authorities (FTA) may request that enterprises, in the course of a tax audit, supply TP documentation provided that the FTA gathers beforehand sufficient evidence of a transfer of profit to related foreign entities.

Under new proposals, large enterprises will be subject to TP documentation requirements, irrespective of whether the business will be run in the form of a company or permanent establishment, under the following alternative criteria:

  1. Companies with a turnover or net assets (total amount of the balance sheet) higher than EUR 400 million , or
  2. Which hold directly or indirectly more than half of the share capital or the rights in an entity stated under point a), or
  3. Where share capital or rights are directly or indirectly held by an entity stated under point a), or
  4. Which are part of a tax consolidation group, within which there is at least one entity stated under point a)

#2 The law proposal requires that TP documentation be available to the FTA from the starting date of a tax audit.

The TP documentation should be implemented or updated during the course of the financial year during which the intragroup transactions occurred. Given that the TP documentation must be available on the first day of the tax audit, the intragroup transaction should be documented in as soon as it occurs. So, in principle, the TP should not be considered as having a retroactive effect.

EU recommendations are that the French tax authorities' draft guidelines allow for comparable transaction data to be updated every three years1.

#3 No, the TP documentation requirements are similar for each eligible enterprise (see response #1, irrespective of its status or form.

#4 The TP documentation mandatory requirements in the legislative proposal will only apply to large enterprises (see Q, 1). So, SMEs should only set up TP documentation upon specific request of the FTA, in the course of a tax audit. In principle, such requests may occur only under exceptional circumstances if the FTA has gathered sufficient evidence suggesting a transfer of profit to related foreign entities. However, small companies are also being urged to prepare contemporary TP documentation2.

#5 French PEs of foreign entities which fall within the scope of mandatory TP documentation (see response #1) are subject to similar requirements to those of large companies or SMEs.

#6 No, by virtue of article 57 of the French Tax Code ("FTC") TP documentation requirements only apply in the case of transactions between French and foreign related enterprises.

#7 If the TP documentation were considered as insufficient by the FTA, the enterprises would then be exposed to penalties (see response #19) and potential reassessments. However, even if the TP documentation is sufficient, the FTA could challenge the method or the appropriateness and accuracy of the comparable analysis.

#8 Any multinational enterprise may request a bilateral agreement between the FTA and a foreign tax administration, in order to determine an appropriate TP method. This multilateral APA should protect the taxpayer from any adjustments within its scope.

A taxpayer may also request a unilateral APA, under which the FTA certifies that the transfer pricing utilised by the enterprise will not be adjusted in France in the course of a TP tax reassessment. This unilateral APA will not protect the enterprise against potential double taxation of the same income in the foreign jurisdiction.

#9 In accordance with the EU code of conduct on transfer pricing documentation3, there is no specific requirement for TP documentation form. French tax regulations recognise, under certain conditions, the validity of electronic data for a tax audit procedure.

#10 The mandatory TP documentation for large companies must be available to the FTA at the date when the tax audit begins. The FTA is required to notify the taxpayer of the date when the tax audit is scheduled to begin.

SMEs are required to produce TP documentation within a minimum 2 months period from the date of a FTA request.

#11 The TP documentation must describe all intra-group transactions4 including the nature of the cash flows and royalties. Such information may be limited to global flows for each type of transaction5.

#12 The TP documentation may be drafted in a language other than French. However, all information and vouchers presented to the FTA should be translated into French6.

#13 In principle, the burden of proof is always on the tax administration when it tries to establish:

  • that the transaction occurs between two linked enterprises;
  • that the pricing of any particular transaction does not satisfy the arm's length principle (with or without TP documentation);
  • the amount of presumed profit transfer to the linked foreign enterprise7.

But in practice, the taxpayer bears the burden of proof and is the one to provide justifications to combat the FTA's position.

In the absence of any TP documentation, the FTA can simply make presumptions and the taxpayer will need to prove that the presumptions of the FTA are inaccurate.

#14 The French project guidelines refer to the "masterfile" approach, set up by EU code of conduct on transfer pricing documentation, under which taxpayers are required to implement TP documentation at two levels:

  1. general information on the group of associated enterprise – this sets out a general description of the business, a general description of the group's organisational, legal and operational structure, the general identification of the associated enterprises, the ownership of intangibles, the group's inter-company transfer pricing policy
  2. specific information on the audited enterprise – this describes the taxpayer's activities and business, the transactions with related parties (including nature and amount of flows), list of agreements and APAs, an explanation about the selection and application of the transfer pricing method, and any other relevant information (spontaneously or upon FTA request).

#15 Yes, in accordance with the EU code of conduct on transfer pricing documentation on general information (see response #15). However, the FTA project guidelines do not allow for one company's TP documentation to be implemented at group level.

#16 Yes, the use of database searches for comparables (national / international) recognised by the FTA as valid independent transactions. There are no provisions as to the source of the comparable analysis but experience shows that the FTA usually bases its own analysis on the data issued by the Amadeus or Diane databases, or alternatively uses its own record. In such cases the names of companies on the panel will not be divulged.

#17 The analysis may be based on internal comparable transactions (ie. transactions between the enterprise and an independent company) as well as on external comparable transactions extracted from a data base. As is recommended by the OECD, the FTA recognises that the most appropriate comparable may be often the internal one8.

#18 The comparable transactions may be extracted from national, regional (European) or international data, depending on the type of company assessed and its geographical interaction.

#19 If no TP documentation is provided by SMEs upon FTA request (see response #11), or if the TP documentation provided by SMEs is insufficient the FTA will issue a formal request to provide complying TP documentation within 30 days.

Failing to provide sufficient TP documentation within this period could result in maximum penalties for each audited year9 of EUR 10000.

In the absence of the mandatory TP documentation for large enterprises, or if the TP documentation is considered as insufficient, the FTA formally requests the taxpayer to produce or to complete the TP documentation within a 30-day period.

Failing to provide a satisfactory TP documentation could result in penalties for each audited year of whichever is the highest:10 EUR 10 000 for each financial year audited; or 5% of the profits considered as transferred abroad by the FTA.

These penalties have been highly criticised. The FTA draft guidelines on assessing the quality of TP documentation have also been criticised as extremely subjective.

#20 Under most of the double tax treaties signed by France, and under the EU Arbitration Convention France accepts to correct the "corresponding adjustments" of French companies when a foreign linked enterprise is the object of a primary adjustment. France also accepts to correct "secondary adjustments" subsequent to primary adjustments of French companies, provided that the corresponding deemed divested funds are paid back by the foreign linked entity to the assessed French entity. In such cases, the FTA accepts not to levy any withholding taxes on the deemed divested funds.

#21 The French common corporate income tax is 34.43% for large companies.

By Michael Helm and Markus Thewes

#1 TP documentation is related to the type, the content and the legal and economic basis of their business connections with foreign related persons, as per Sec. 90 para. 3 German General Tax Act (GGTA).

An executive order law has also been issued with effect of 1st July 2003 (Gewinnabgrenzungsaufzeichnungsverordnung – GAufzV).

The Ministry of Finance has put the duty of TP documentation into concrete terms with decree of 12 April 2005 (cf. decree of Federal Ministry of Finance dated 12 April 2005, published in the German Federal Tax Gazette I 2005, page 570, et seq.).

#2 TP documentation has to be issued in paper or in electronic form for every foreign related business transaction. In general, taxpayers are not required to issue TP documentation within very short timeframes. Extraordinary business transactions, e.g. reorganisations of the group have to be issued within six months after they have occurred.

Several new TP documentation regulations apply for financial years after 31 December 2002, as per Sec. 90 para. 3 GGTA. Before 1 January 2003 no regulations existed but a decree dated 23 February 1983 had to be observed by taxpayers (cf. decree of Federal Ministry of Finance dated 23 February 1983, published in the German Federal Law Gazette I 1983, page 218, et seq.).

In 2001 the Federal Court of Finance held against the Federal Ministry of Finance that on the basis of the decree dated 23 February 1983 taxpayers are not obliged to issue TP documentation but only have to cooperate with the fiscal authorities and explore the facts regarding the sufficiency of transfer pricing. A Federal Court of Finance decision from the beginning of 2003 (Sec. 90 para. 3 GGTA) establishes a duty to issue TP documentation by law.

TP documentation regulations cannot be adopted with retroactive effect except where a contract performs continuous obligations that comply with an extraordinary business transaction within the meaning of the TP documentation regulations, and the business transaction began before 1 January 2003.

#3 In Germany all taxpayers have to fulfil the same TP documentation requirements.

#4 Small and medium-sized enterprises do not have a duty to issue TP documentation. However, they are obliged to provide further information and documents about the foreign business transactions when requested by the fiscal authorities. In this case, issuing a less detailed TP documentation than that required for larger companies is recommended.

#5 Yes, TP documentation requirements have to be fulfilled also with regard to transactions between a permanent establishment and associated entities. Adequate and orderly bookkeeping for the permanent establishment does not fulfil the requirements for sufficient TP documentation.

#6 In general domestic transactions are not subject to TP documentation. However, domestic business relations may be subject to TP documentation to prove that the arm's length principle is met. Therefore, internal transfer prices can be subject to comparison with those transfer pricing matters that must be documented.

#7 In general, the TP documentation protects a taxpayer from adjustments if it demonstrates that the dealing at arm's length principle was adhered to.

#8 German law does not cover unilateral, bilateral or multilateral APAs.

Unilateral APAs can be obtained via an advance ruling by the competent fiscal authority (verbindliche Auskunft). This is binding for the fiscal authorities only due to the principle of good faith. Please note that an advance ruling does not protect from double taxation.

The regional fiscal offices of the Federal States in Germany have set out an administration order whereby the fiscal authorities have to decide by using equitable discretion whether a bilateral advanced transfer pricing agreement is appropriate (cf. State Ministry of Finance of Baden-Württemberg dated 28 November 1994, published in IStR 1994, 34). Due to tight fiscal authority budgets they are instructed only in exceptional cases to issue an APA. The Federal Ministry of Finance has affirmed this opinion with decree of 12 April 2005 (cf. decree of Federal Ministry of Finance dated 12 April 2005, published in the German Federal Tax Gazette I 2005, page 570, et seq.).

Finally, in Germany multilateral APAs are not covered by regulations and obviously multilateral APAs would have not be issued by the German fiscal authorities. However, as per Sec. 178a GGTA the German legislator has stated fees for multilateral APAs so that it would be possible to apply for multilateral APA but fees are very high (EUR 20 000 per proceeding per country involved).

#9 The taxpayer can issue TP documentation in paper or electronic form. If the taxpayer chooses electronic form, further regulations regarding the adequate and orderly documentation have to be observed (Sec. 147 para. 6 GGTA). The taxpayer has to comply with the basic rules of storage of tax relevant data in electronic systems.

#10 There is no requirement to issue TP documentation within a short timeframe.

TP documentation usually has to be passed to the fiscal authorities after a specific request within a tax audit. But fiscal authorities might also request the TP documentation using equitable discretion without disposal of a tax audit. If so, TP documentation has to be submitted within 60 days, and within 30 days for extraordinary business transactions.

TP documentation which is based on documents that have been compiled a long time after the business transaction has taken place might not prove dealing at arm's length.

#11 TP documentation has to be issued for every intra-group transaction. TP documentation for extraordinary business transactions has to be issued within a short time period (see Q. 10).

#12 TP documentation has to in German. The fiscal authorities can request translations of documents that have been issued in foreign languages. If documents have been issued in English the fiscal authorities shall request for translations only for essential elements of the document.

On request the fiscal authorities can admit documentation in another living language.

Taxpayers unable to supply documents to the fiscal authorities in German should apply to issue documents in a foreign language. Otherwise, the foreign language documents may not be fully admitted by the authorities.

#13 In principle, the fiscal authorities have the burden of proof that the arm's length principle was not respected. But the taxpayer has the duty to issue proper and sufficient TP documentation. If taxpayers fail their duty the fiscal authority's burden of proof lessens. If the TP documentation is proper and sufficient the fiscal authorities can amend the taxpayer's profit assessment if they are able to prove that the dealing at arm's length principle has not been observed. (see response #7).

#14 The tax system requires a detailed list of documents that have to be issued to with TP documentation.

#15 Written documentation for tax purposes does not have to be stored abroad. Electronic documentation might be allowed by the taxpayers' application to store abroad but only in another European Union member state.

#16 Database searches for comparables are not valid, as a rule.

#17 In this case no preferences exists.

#18 For dealings with third parties, all comparables are accepted.

#19 In these cases penalties between EUR 5 000 and EUR 1 000 000 apply.

#20 A tax assessment can be changed within four years from the first assessment.

#21 The German corporate income tax rate is 15% with an additional 5.5% solidarity tax surcharge. Additionally, a local trade tax has to be paid, at an average of 15%. The total the tax burden for German based corporations is therefore about 30%.


1 FTA project guidelines, n°15.

2 "Transfer pricing: guide for small businesses" issued by the FTA in 2006.

3 EU Code of conduct on transfer pricing documentation, §2.4

4 FTA project guidelines n°6.

5 FTA project guidelines n°11.

6 FTA guidelines 4 A-1214 n°22.

7 FTA guidelines 4 A-1214 n°52

8 "Transfer pricing : guide for small businesses" issued by the FTA

9 FTC, article 1735, II

10 FTC, article 1735, ter as provided by the law proposal

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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.