On December 12, 2024 the German Ministry of Finance provided with updated administrative guidelines on transfer pricing for 2024. For instance, the guide addresses key topics, including income corrections, competition rules, and detailed methods for determining transfer prices, such as the price comparison, resale price, and cost-plus methods. In addition, the Ministry outlined the procedures for arm’s length comparisons and comparability analyses, emphasizing the importance of the OECD Transfer Pricing Guidelines in managing cross-border business relationships. Additionally, the guide highlights administrative approaches for preventing and resolving transfer pricing disputes. This update provides clear direction for businesses to ensure compliance with transfer pricing regulations and resolve potential conflicts efficiently.
To access and read more on the updated guidance, click here.
On December 6, 2024 the German Ministry of Finance unveiled a draft bill to implement OECD guidelines under the Minimum Tax Adjustment Act. The proposal aims to align the minimum tax law with global standards, ensuring fair taxation and reducing tax base shifting. Key changes include fully incorporating deferred taxes into calculations, simplifying rules for short-term deferred tax liabilities, and aggregating deferred tax liabilities for later taxation. The bill proposes abolishing certain tax barriers, such as the licensing barrier and additional taxes on foreign investment income, while raising exemption limits for foreign-controlled entities to €250,000. Transitional country-by-country safe harbor rules introduce simplified tests for effective tax rates and routine profits, with phased tax rate increases starting at 15% for 2023 and reaching 17% by 2026. The law would take effect upon promulgation.
Germany is working to extend the deadline for taxpayers to submit transfer pricing documentation and simplify the process for audits. A new proposal aims to give taxpayers more time, changing the current 30-day requirement. Approved by Germany’s first chamber on September 26,2024, the Bill, supported by the Justice Committee, aims to reduce the bureaucratic burden.
The Bill is expected to streamline the submission process by focusing only on necessary documents. For instance, instead of submitting all records upfront, taxpayers would provide only key information needed to identify important areas for audit.
To learn more about proposed Bill, click here.
Germany’s Growth Opportunities Act, effective from January 1, 2024, highlights differences between German and OECD guidelines on intra-group financing. This has caused confusion for multinational companies on how to apply the new tax laws. In August 2024, Germany’s Finance Ministry released draft updates to clarify the arm’s-length principle, aiming to align more closely with OECD transfer pricing guidelines.
These updates bring several clarifications: refinancings are considered at arm’s length, borrowing for profit distribution is generally acceptable, and short-term investments of “capital buffers” in cash pools may also meet the standard under certain conditions. In addition, high-risk financing, such as in startups, isn’t automatically seen as a violation of the arm’s-length principle. The draft applies to cross-border intra-group financing agreements starting January 1, 2024, and extensions after December 31, 2023.
To access the details and specifics of the Draft, click here.
To access the details and specifics of the Growth Opportunities Act, click here.