Germany not professional as regards transfer pricing procedures

Binding advance information must be utilised to a greater extent

31 October 2022, Munich. Poor marks for the German tax authorities – there are no advance agreements on transfer prices, procedures take too long and there is a lack of transparency. In an international comparison, Germany still lags behind with its transfer pricing practices. This was revealed by a recent empirical study by the Foundation for Family Businesses.

Legal certainty only after many years

Legally independent companies that are part of a corporate group generally negotiate a price with each other and with foreign permanent establishments for deliveries and services of all kinds. This price is the transfer price. Its determination is scrutinised critically by the tax authorities and can also be challenged retrospectively – with unpleasant consequences for companies. This means that legal certainty only materialises years later. At the same time, even if the states involved reach an agreement, taxpayers also incur high costs.

“The latest study shows that the opportunities to create planning and investment security for family businesses have not yet been exhausted,” says Professor Rainer Kirchdörfer, Chairman of the Foundation for Family Businesses. “Germany is lagging behind when it comes to transfer pricing procedures. Once again, we provide specific recommendations – both for tax authorities and companies. This can improve the process for everyone involved.”

Ombudsperson desirable

Tax authorities can already provide companies with binding advance information under procedural law – and this is practised extensively in other countries. Yet this is still not utilised enough in transfer pricing procedures in Germany. According to the authors of the study, bilateral and multilateral advance pricing agreements (APAs) are the solution to reduce uncertainties and establish a basis of trust between the tax authorities and the company. Appointing a tax ombudsperson could also improve the sometimes tense climate between the audited company and the auditing tax authority.

Based on interviews with experts from the tax authorities, companies and consultancies, the researchers from the Georg August University of Göttingen, led by Prof Dr Andreas Oestreicher, and the Ruprechts Karls University of Heidelberg, led by Prof Dr Ekkehart Reimer, make further recommendations.

Tax authorities have insufficient resources available

The results of the study also show that there are not enough resources available in the right places. This is why the authors specifically mention an increase and shift in the resources available to the tax authorities. This is necessary in order to bring audit periods closer to the present day and significantly shorten them. In addition, more staff are needed in the right places to counteract double taxation with the help of joint audits.

Overall, the empirical study makes it clear that there is an urgent need to optimise transfer pricing procedures. This would benefit not only all parties involved, but also Germany as a business location.

31.10.2022, Munich

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