The international documentation requirements applicable in most countries with regard to intra-group business relationships abroad have also existed in Germany since 2003. According to these requirements, business relationships involving a foreign element with related persons have to be documented without exception in terms of type and content; in the case of unusual or irregular business transactions within a narrow time frame.

As a rule, records should only be presented to the tax authorities when an external audit is performed. We strongly advise against any follow-up documentation to meet such a demand, which is subject to a deadline of 60 days, or 30 days in the case of unusual or irregular business transactions. In order to be prepared for the questions and demands of the tax audit, we therefore develop complete transfer pricing documentation in good time with our clients for all intra-group trade relationships. We try to avoid recording all individual business transactions through standardisation and binding definitions of transfer prices for all the existing business transactions within the group, in the form of a so-called group transfer price guideline. An obligation to record individual transactions only arises if they deviate from this generally applicable group guideline.

These group transfer price guidelines take into account all of the legal requirements and the supplementary Regulation on Recording Profit. As a rule, they include:

  • the shareholdings in related parties
  • the organisational and operational group structure including business premises and shareholdings in business partnerships and incorporated companies
  • the type and scope of the business relationships including the underlying contracts
  • a list of the main intangible assets used or transferred for use
  • the functions performed and the risks borne by the parties concerned
  • the chosen business strategies and the prevailing market and competition conditions
  • the value-added chain and the value contribution of the companies involved
  • internal data for the plausibility check (e.g. forecasts, projections of sales, expenses and profits)
  • the chosen transfer pricing method along with reasons for its suitability and
  • a review of the prices and financial data of independent companies referred to for comparison.

The non-fulfilment of documentation obligations can be heavily penalised by the tax authorities. If records are not presented, the tax office is authorised to use an estimate, exercising the full range of an appropriate transfer price to the detriment of the taxpayer. Furthermore, if records are not presented, or are unusable, a profit mark-up of € 5,000.00 can be imposed, which can rise to between at least 5% and at most 10% of the income correction amount. If presentation is late, the profit mark-up can be as much as € 1,000,000.00, but at least € 100.00 for each full day that the deadline is exceeded.

At the same time, we ensure through consultation with our foreign partners in Kreston International, a global network of medium-sized auditors and tax consultants, that the country-specific peculiarities of the foreign group company are also taken into account.