Germany: Proposals regarding transfers of functions, transfer pricing documentation, transposition of DAC7

Draft decree-laws regarding transfers of functions and transfer pricing documentation

Draft decree-laws regarding transfers of functions and transfer pricing documentation

The German tax authorities recently issued draft decree-laws regarding transfers of functions and transfer pricing documentation, among other items.

  • Concerning transfers or relocations of functions, there are measures addressing items such as the exclusions of exemption rules.
  • Concerning transfer pricing documentation, the draft proposes various changes such as amendments to the rules regarding transfer pricing documentation.

There are also provisions regarding the transposition and implementation into German tax legislation of an EU Directive (Council Directive (EU) 2021/514)—that is often referred to as “DAC7.”

Transfers or relocations of functions

One of the topics addressed in the first draft concerns the arm’s length principle. Historically, the arm’s length principle has appeared in regulatory guidance, but that guidance is now viewed as obsolete with codification of the arm’s length principle in areas of the foreign tax law that deal with cross-border transfers or relocations of functions. In effect, the part dealing with the arm’s length principle is being restructured generally to follow the OECD Transfer Pricing Guidelines, and specifically, provisions on the relocation of functions are being moved to a new paragraph of the External Tax Act (AStG).

The new measures would eliminate certain ambiguities and application issues from the prior (2008) regulatory version.

The Federal Ministry of Finance would be authorized to issue a statutory ordinance, with the consent of the Bundesrat, pursuant to which details for the uniform application of the arm’s length principle are being regulated. The statutory ordinance would be decisive in securing application of the arm’s length principle within the provisions of AStG.

Read a July 2022 release (German) and a detailed explanation of the draft decree (German) [PDF 174 KB] from the Federal Ministry of Finance.


A second draft decree-law would transpose and implement the EU Directive referred to as “DAC7.”

DAC7 allows the tax authorities of the EU Member States to collect and automatically exchange information on income earned by sellers on digital platforms. The aim of Germany’s draft decree-law would be to implement DAC7 in an effort to determine the lawful taxation of cross-border transactions and to address tax evasion and tax avoidance and to prevent the erosion of tax revenue.

Read a July 2022 release (German) and a detailed explanation of the draft decree-law (German) [PDF 1.1 MB] from the Federal Ministry of Finance.

KPMG observation

Tax professionals have observed that the discussions in the draft decree-laws are quite extensive and that only a minor part of the decree on DAC7 covers transfer pricing-related topics. Note that both decree-laws are still in draft form.

The purpose of this report is to provide text of the documents, with more detailed discussions to be provided in future editions of TaxNewsFlash.


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