GermanyGermany

Legal ReferenceSection 1 External Tax Relations Act (Außensteuergesetz) Section 8 (3) Corporation Tax Act (Körperschaftsteuergesetz)

Legal ReferenceSection 1(1) through (5) External Tax Relations Act Circular on Transfer Pricing (Verwaltungsgrundsätze Verrechnungspreise) of 12 December 2024

The External Tax Relations Act aims at allowing to apply the OECD Transfer Pricing Guidelines under German law. Furthermore, the German Federal Ministry of Finance’s circular on transfer pricing not only refers to the OECD Transfer Pricing Guidelines but includes them as an annex.

Legal ReferenceSection 1(2) External Tax Relations Act

Section 1(2) of the External Tax Relations Act defines related parties as follows: 1(2) A party is related to the taxpayer if 1. the party a) holds a stake in the taxpayer, or the taxpayer holds a stake in the party, of at least one quarter directly or indirectly in the subscribed capital, membership rights, participation rights, voting rights or company assets (substantial stake), or b) is entitled to at least one quarter of the profits or liquidation proceeds from the taxpayer, or the taxpayer is entitled to at least one quarter of the profits or liquidation proceeds from the party; or 2. the party is able to exercise a controlling influence directly or indirectly on the taxpayer, or the taxpayer is able to exercise a controlling influence directly or indirectly on the party; or 3. a third party a) holds a substantial stake in both the party and the taxpayer, b) is entitled to at least one quarter of the profits or liquidation proceeds from both the party and the taxpayer, or c) is able to exercise a controlling influence directly or indirectly on both the party and the taxpayer; or 4. the party or the taxpayer, when agreeing on the terms of business relations, is in a position to exercise on the taxpayer or on the party influence that is not based on such business relations, or if one of them has an own interest in realisation of the other’s income. The first sentence, no 3 (a) to (c), above also applies if, in the third party’s relationship to the party and the taxpayer, one of the criteria specified in the first sentence, no 3 (a) to (c), above is fulfilled.

Legal ReferenceSection 1(3) External Tax Relations Act Para. 3.9 et seq. Circular on Transfer Pricing of 12 December 2024

Section 1(3) of the External Tax Relations Act provides for the transfer pricing methods accepted in Germany. In its administrative practice, Germany follows the OECD TPG in this respect. If no comparables can be identified for the purposes of determining an arm’s length price, then it must be determined by establishing a hypothetical arm’s length price, as provided for under section 1 (3) sentence 7 of the External Tax Relations Act, with due regard for section 1 (1) sentence 3 of the External Tax Relations Act.

• CUP (provided)
• Resale Price (provided)
• Cost Plus (provided)
• TNMM (provided)
• Profit Split (provided)
• Other (provided)

Legal ReferenceSection 1(3) sentence five External Tax Relations Act Para. 3.9 et seq. Circular on Transfer Pricing of 12 December 2024

Section 1(3) of the External Tax Relations Act applies the most appropriate method as a criterion for the selection of the applicable transfer pricing method. In its administrative practice, Germany follows the OECD TPG in this respect.

• Hierarchy of methods (not selected)
• Most appropriate method (selected)
• Other (if so, please explain) (not selected)

Since the OECD TPG are included as an Annex in the Circular on Transfer Pricing, the guidance in the OECD TPG is followed in Germany’s administrative practice. In German legislation, however, there is no specific guidance on commodity transactions.

Legal ReferenceSection 1(3) External Tax Relations Act Para. 3.18 Circular on Transfer Pricing of 12 December 2024

Section 1(3) of the External Tax Relations Act provides for a comparability analysis. The Circular on Transfer Pricing in para. 3.18 refers to Chapter III of the OECD TPG.

A transparent approach to peer companies and criteria is of great importance (compliance factor).

Legal ReferenceSection 1(3a) External Tax Relations Act Para. 3.29 Circular on Transfer Pricing of 12 December 2024

Section 1(3a) of the External Tax Relations Act defines the application of the interquartile method. In addition, the Circular on Transfer Pricing in para. 3.29 refers to paras. 3.55 to 3.62 of the OECD TPG.

Legal ReferenceSection 1(3) sentence six External Tax Relations Act

Section 1(3) sentence 6 of the External Tax Relations Act demands comparability adjustments to increase the comparability, when necessary.

Legal ReferenceSections 1(3c) and 1a External Tax Relations Act Paras. 3.47 et seq. Circular on Transfer Pricing of 12 December 2024 Paras. 3.53 et seq. Circular on Transfer Pricing of 12 December 2024

The Arm’s Length Principle also applies to intangibles. The allocation of income from intangible assets should generally be based on the assumed functions and risks and the measures for managing them, and does not therefore depend solely on who is the owner or holder of the intangible assets. It should therefore be based on the contributions to value creation that result from performance of the DEMPE functions (development, enhancement, maintenance, protection and exploitation).

Legal ReferencePara. 3.52 Circular on Transfer Pricing of 12 December 2024

The common Arm’s Length Principle also applies to HTVI to the extent that Section 1a of the External Tax Relations Act states special requirements for all intangibles.

Legal ReferenceParas. 3.64 et seq. Circular on Transfer Pricing of 12 December 2024

Legal ReferencePara. 3.74 Circular on Transfer Pricing of 12 December 2024

An application of the cost-plus-method with a mark-up of 5 % is accepted.

Legal ReferenceSections 1(3c) and 1a External Tax Relations Act Para. 3.121 Circular on Transfer Pricing of 12 December 2024

The principles set out in Chapter X, in accordance with section 1 (3d) and 1 (3e) of the External Tax Relations Act, must be applied for the purposes of assessing income allocations based on financing relationships between related parties.

Legal ReferenceSection 4k Income Tax Act Section 4h Income Tax Act Section 8a Corporation Tax Act

Limitation of interest deductions: The German interest limitation rule was introduced in 2008 and limits the deduction of excessive net interest expenses. The OECD and G20 have recommended under BEPS Action Item 4 that an interest deduction restriction comparable to the German interest limitation rule be introduced. The anti-hybrid regulation in Section 4k of the Income Tax Act in accordance with BEPS Action 2 also applies to financial transactions if the other requirements of the regulation are met.

Legal ReferencePara. 3.81 Circular on Transfer Pricing of 12 December 2024

Legal ReferenceSection 90(3) Fiscal Code (Abgabenordnung) Section 138a Fiscal Code Circular on Administrative Principles of 3 December 2020 (Verwaltungsgrundsätze 2020) Circular on Country-by-Country Reports of 11 July 2017 Circular on Country-by-Country Reports of 27 September 2019 Fact sheet on the transaction matrix within the meaning of section 90 (3) sentence 2 no 1 of the Fiscal Code

• Master file consistent with Annex I to Chapter V of the TPG (selected)
• Local file consistent with Annex II to Chapter V of the TPG (selected)
• Country-by-country report consistent with Annex III to Chapter V of the TPG (selected)
• Specific transfer pricing returns (separate or annexed to the tax return) (not selected)
• Other (specify): General transfer pricing documentation upon request, transfer pricing documentation on extraordinary transactions and transaction matrix. (selected)

Legal ReferenceSections 90(3) and 138a Fiscal Code, Ordinance on the Documentation of Profit Allocations (Gewinnabgrenzungsaufzeichnungs-Verordnung) Circular on Administrative Principles of 3 December 2020 CbC reports

Master File with a threshold regarding returns of EUR 100 million. In case of a tax audit, Master File, transaction matrix and transfer pricing documentation on extraordinary transactions are to be submitted without a separate request within 30 days of the notification of the audit order. Local file and additional records according to section 90 (3) Fiscal Code are to be submitted upon request within 30 days. Transfer Pricing Documentation on extraordinary transactions (see section 3 Ordinance on the Documentation of Profit Allocations): preparation within 6 months after fiscal year. All of the above have to be provided in German or (if this is reasoned) in another language (English); in the latter case, a translation into German may be required upon request or in case of domestic court procedures. CbCRs have to be submitted one year after the end of the fiscal year. CbCRs will also be accepted in English.

Legal ReferenceSection 162(3) and (4) Fiscal Code Circular on Administrative Principles of 3 December 2020

In case that the transfer pricing documentation is not provided or provided insufficiently, the authorities are able to estimate the respective income pursuant to section 162(3) Fiscal Code. Furthermore, surcharges are determined pursuant to section 162(4) Fiscal Code.

Legal ReferenceOrdinance on the Documentation of Profit Allocations

Exemption for small entities (see section 6 of the Ordinance on the Documentation of Profit Allocations): entities do not have to prepare and submit Transfer Pricing Documentation, but need to present all underlying business papers in relation to the determination of the transfer price.

Legal ReferenceSection 89a Fiscal Code Section 89b Fiscal Code Section 175a Fiscal Code Circular of 26. June 2024 - Application Ordinance for the Fiscal Code regarding section 89a - advance mutual agreements Circular on MAP and Arbitration Procedures of 21 February 2024 Germany’s Dispute Resolution Profile Circular on Joint Audits and Simultaneous Controls of 15 May 2025

For information on MAPs and APAs, please refer to our Dispute Resolution Profile.

• Rulings (not selected)
• Enhanced engagement or cooperative compliance programmes (selected)
• Advance Pricing Agreements (APA) (selected)
• Unilateral APAs (not selected)
• Bilateral APAs (selected)
• Multilateral APAs (selected)
• International Compliance Assurance Programme (ICAP) (selected)
• Mutual Agreement Procedures (selected)
• Other (please specify): ETACA, Joint Audits and Simultaneous controls (selected)

Legal ReferencePara 3.63a Circular on Transfer Pricing of 12 December 2024

For transactions that fall under the scope of the simplified and streamlined approach, it is not objectionable if the transfer price for these transactions is determined according to the simplified and coordinated approach described in Annex 4. This only applies if the business relationship is with a covered tax jurisdiction (Annex 5) with which a double taxation agreement exists and which is not a non-cooperative tax jurisdiction within the meaning of the Tax Haven Defense Act.

• In-scope tested parties resident within the jurisdiction can elect to apply the simplified and streamlined approach (i.e. safe harbour) (not selected)
• In-scope tested parties resident within the jurisdiction are required to follow the simplified and streamlined approach for in-scope qualified transactions and tax administrations are allowed to impose the application of the simplified and streamlined approach to in-scope qualified transactions of tested parties resident within their jurisdiction (i.e. rule) (not selected)
• N/A (selected)

• 20% (not selected)
• 30% (not selected)
• Other (please specify) (not selected)
• N/A (selected)

Legal ReferencePara. 3.42 et seq. Circular on Transfer Pricing of 12 December 2024

The Circular on Transfer Pricing, with reference to the OECD TPG, allows and requires year-end adjustments when profit level indicators are out of the range of comparables.

Legal ReferenceSection 175a Fiscal Code

Generally, secondary adjustments are possible in accordance with the common tax legislation, especially after a MAP.

Legal ReferenceSection 1(5) External Tax Relations Act Ordinance on the Application of the Arm’s Length Principle to Permanent Establishments under Section 1 of the External Tax Relations Act (Betriebsstättengewinnaufteilungsverordnung) Circular on the Allocation of Profits of Permanent Establishments of 22 December 2016 (Verwaltungsgrundsätze Betriebsstättengewinnaufteilung)

• Article 7 as it read before 2010. (selected)
• Article 7 as it reads after 2010. (selected)

Legal ReferencePara. 4 Circular on the Allocation of Profits of Permanent Establishments of 22 December 2016 (Verwaltungsgrundsätze Betriebsstättengewinnaufteilung)

Generally, the AOA is applied in all cases with OECD countries. If older tax treaties do not contain the new version of Article 7 (OECD MTC 2010 and later), the implementation is done by interpretation in the light of the AOA report, except for transactions of intellectual property. This interpretation is applicable in all cases of transactions to OECD countries. However, for transactions of intellectual property, the AOA approach is only applicable if the tax treaty contains Art. 7 in the version of OECD MTC 2010 or later. In case of Tax treaties with non-OECD Countries the approach in the specific tax treaty is followed.

Legal ReferenceOrdinance on the Application of the Arm’s Length Principle to Permanent Establishments under Section 1 of the External Tax Relations Act (Betriebsstättengewinnaufteilungsverordnung)