Germany: Updated transfer pricing guidelines; U.S. agreement on automatic exchange of country-by-country reporting

Application of the arm's length principle, transfer of functions

U.S. agreement on automatic exchange of country-by-country reporting

The German Federal Ministry of Finance (BMF) published updated transfer pricing administrative guidelines (dated 6 June 2023) (Verwaltungsgrundsätze Verrechnungspreise) regarding:

  • Application of the arm's length principle with reference to the OECD Transfer Pricing Guidelines
  • Transfer of functions

The updated guidelines include general explanations on the principles of income correction, the competitive relationship with other correction regulations, the term of a related person, and the term of a business relationship. In addition, the guidelines include new explanations on the recently revised business function relocation ordinance (Funktionsverlagerungsverordnung).

With regard to financing relationships in particular (Chapter III, Subchapter J), the German Federal Tax Court (BFH) case law on the determination of arm's length loan interest on group loans (judgments I R 4/17 of 18 May 2021 and I R 15/21 of 13 January 2022) is adopted into the updated guidelines. Under those judgments, there may be further transactions between the financing company and the company that exercises actual control of the functions or risks associated with the granting of the loan if the granting of the loan and the actual control of the associated functions or risks diverge. Furthermore, both collateralization and non-collateralization of loans can be arm's length. Whether a lack of collateralization of a loan is in conformity with arm's length depends on whether a third party would have granted the loan under the same conditions, taking into account possible risk compensation.

The updated guidelines generally apply to all open cases and thus retroactively. However, the statements contained in Chapter I on the relocation of business functions apply to relocations of business functions after 31 December 2021.

Germany-U.S. agreement on automatic exchange of country-by-country (CbC) reporting

The entry into force of the Germany-U.S. agreement (signed 14 August 2020) on the automatic exchange of CbC reporting as of 4 April 2023 was announced in the Federal Law Gazette of 10 May 2023. However, the automatic exchange of information of the country-specific reports under the agreement will only begin once the agreement on the concrete design of the exchange of information, which has yet to be concluded by the competent authorities, has become effective.

​Up to now, Germany and the United States had exchanged CbC reports by way of spontaneous exchange.

Read a June 2023 report [PDF 355 KB] prepared by the KPMG member firm in Germany



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