taranalysts tax notes Respectfully disagreeable since 197 international -0N2002-82月85g女 New german Draft Ordinance on Transfer Pricing Documentation a399于a品3 by Heinz-Klaus Kroppen and stephan Rasch Reprinted from Tax Notes Int, January 10, 2005, P. 197
(C) Tax Analysts 2005. All rights reserved. Tax Analysts does not claim copyright in any public domain or third party content. New German Draft Ordinance on Transfer Pricing Documentation by HeinzKlaus Kroppen and Stephan Rasch Reprinted from Tax Notes Int’l, January 10, 2005, p. 197
India: Nishith M. Desai, Nishith Desai Associates, Mumbai: Sanjay Sanghvi, RSM Co, Mumbai TAX NOTES INTERNATIONAL Indonesia: Freddy Karyadi, Karyadi Co Law and Tax Office, Jakarta Copyright 2005, Tax Analysts Ireland: Kevin Mcloughlin, Emst Young. dublin IsSN1048-3306 chand Vanderplank, Cains Advocates& Notaries, Douglas naceutical Industries Ltd. Petach Tikva Doron Herman. s. Friedman Editor: Cathy Phillips Co. Advocates Italy: Alessandro Adelchi Rossi and Luigi Penin. George R. Co, P C. New York: N Special Reports Editor: Alice Keane Putman Japan: Gary Thomas, White Case, Tokyo. Shimon Takagi, White Case, Tokyo Managing Editor: Maryam Enayat Jersey: J. Paul Frith, Emst Young. St. Helier Deputy Editor: Doug Smith Kenya: Glenday Graham, Ministry of Finance and Planning, Nairobi Korea: Chang Hee Lee, Seoul National Univ. College of Law. Seoul, Korea Production: Paul Doster Kuwait: Abdullah Kh. Al-Ayoub, Kuwait Latin America: Emst Young LLP. miami Chief of Correspondents: Cordia Scott(scott tax. org) Latvia: Andrejs Birums, Tax Policy Department, Ministry of Finance, Riga Executive Director and Publisher: Chris bergi Libya: Ibrahim Baruni. Ibrahim Baruni Co, Tripoli lithuania: Nora Vitkuniene, Intemational Tax Division. Ministry of Finance, vilnius N8=2-928或 Senior Executive Editor: Robert Manning Malawi: Clement L Mononga Assistant Commisioner of Tax, Blantyre Editor-in-Chief, International: Robert Goulder Malaysia: Jeyapalan Kasipillai, University Utara. Sintok Founder: Thomas F Field Malta: Dr. Antoine Fiott Zammit Tabona Bonello Co, and Lecturer in Taxation, Faculty of Law uascCoopers, Port Louis Kenzie, Juarez, Tijuana, Monterey, and Correspondents Aziz Nishtar. Nishtar Zafar Karachi. Pakista Africa: Zein Kebonang. University of Botswana. Gaborone Monaco: Eamon McGregor, Moores Rowland Coporate Services, Monte Carlo hania: Adriana Civici, Ministry of Finance, Tirana Mongolia: Baldangiin Ganhuleg, General Department of National Taxation, Ulaanbaatar Anguilla: Alex Richardson, Anguilla Offshore Finance Centre, Ang Myanmar: Timothy J. Holzer, Baker McKenzie, Singapore ntigua: Donald B. Ward, Pricewaterhouse Coopers Center, St. Joh ia: Graeme S. Cooper, University of Sydney. Sydney: Richard Krever, Deakin Freshfields, Amsterdam: Michaela Vrouwenvelder Solvay NV. Amsterdam: Jan Ter Wisch. Allen niversity, Melbourne. Austria: Markus Stefaner, Vienna University of Economics and Business Administration, Antilles: Dennis Cijntje, KPMG Meijburg Co. Curacao Koen Lozie Deurle New Zealand: Adrian Sawyer, University of Canterbury, Christchurch Bahamas: Hywel Jones, Canadian Imperial Bank of Commerce Trust Company(Bahamas)Ltd, Nigeria: Elias Aderemi Sulu, Lagos Northern Mariana Islands: John A Manglona, Saipan Bangladesh: M. taque Ahmed, Emst Young, Dhaka Barbados: Patrick B. Toppin, Pannell Kerr Forster, Christ Church Norway: Frederik Zimmer, Department of Public and International Law, University of Oslo, Osk Oman: FudI R Talyarkhan, Emst Young, Muscat elgium: Werner Heyvaert Nauta Dutilh, Brussels, Marc Quaghebeur. Vandendijk Partners, Panama: Leroy Watson. Arias, Fabrega Fabrega, Panama City uda: Wendell Hollis, Ernst Young Bermuda Papua New Guinea: Lutz K. Heim, Emst Young Port Moresby swana: LO. Sennanyana, Deputy Director, Tax Policy, Ministry of Finance Development Peru: Italo Fernandez origgi, Yon Law Firm, Lima razil: David Roberto R. Soares da silva. Farroco Lobo Advogados, Sao Paulo Poland: Dr Janusz Fiszer, Warsaw University/hite Case, Warsaw ritish Virgin Islands: william L. Blum, Solomon Pearl Blum Heymann Stich LLP, St. Portugal: Francisc rais Leitao J Galvdo Teles, Lisbon Manuel Bulgaria: Todor Tabakov, Interlex. Sofia Sexton, Emst Young Doha Romania: Sonin Adrian Anghel Senior Finance Officer& vice President. The Chase Manhattan Canada: Brian J. Arnold Goodmans, Toronto, Ontano Jack Bemstein. Aird Berlis. Toronto, ussia: Scott C. Antel, Emst Young, Moscow, Joel McDonald, Salans, London dy, Toronto(Markham) Ontario M. Novello, Nevis Services Limited, Red Bank Caribbean: Bruce Zagaris, Berliner, Corcoran, and Rowe. Washington, D.C. Saudi Arabia: Fauzi Awad, Saba Abulkhair Co.. Dammam Cayman Islands: Timothy Ridley, Maples Calder Asia, Hong Kong Sierra Leone: Shakib N K Basma and Berthan Macaulay, Basma& Macaulay, Freetown Chile: Alex Fischer. Carey y Cia Ltda. Santiago: Macarena Navarrete, Ernst Young. Santiago ngapore: Linda Ng. White Case, Tokyo, Japan hina(P.RC): Jinyan Li, York University, Toronto: Lawrence Sussman, O'Melveny Myers South Africa: Peter Surtees, Deneys Reitz, Cape Town Cook Islands: David R. McNair, Southpac Trust Limited, Rarotonga Spain: Jose M. Calderon, University of La Coruna, La Coruna Croatia: Hrvoje Zgombic, Zgombic Partners. Zagreb Sri Lanka: DD_M. Waidvasekera Mt lavinia Cyprus: Theodoros Philippou, Pricewaterhouse Coopers, Nicosia Sweden: Leif Muten, Professor Emeritus. Stockholm School of Economics Taiwan: Keye S. Wu, Baker McKenzie, Taipei, Yu Ming-i, Ministry of Finance, Taipei enmark: Nikolaj Bjornholm, Bech-Bruun Dragsted Law Firm, Copenhagen Eastern Europe: lurie Lungu, Graham Levintsa, Chisinau Turkey: Mustafa Camlica, Emst Young, Istanbul Egypt: Farouk Metwally, Ernst Young, Cairo Turks Caicos Islands. British West Indies: Anel Misick. Misick and Stanbrook Grand Turk Estonia: Helen Pahapill, Ministry of Finance, Tallinn European Union: Joann M. Weiner, Facultes Universitaires Saint-Louis, Brussels nited Arab Emirates: Nicholas J. Love, Emst Young Fiji: Bruce Sutton, KPMG Peat Marwick, Suva United Kingdom: Trevor Johnson, Trevor Johnson Associates, Wimal: Eileen O Grady, nland: Marjaana Helminen. University of Helsinki in the Faculty of Law, Helsinki United States: Richard Doemberg. Emory Univ. School of Law, Atlanta GA. James Fuller, Gambia: Samba Ebrima Saye, Income Tax Division. Banj Ministry of Finance, Berlin/Bonn: Rosemarie Portner, Meilicke U.S. Virgin Islands: Marjorie Rawls Roberts, Attomey at Law. St. Thomas, USVI er. Bonn: Klaus Sicker. Flick Gocke Schaumburg, Frankfurt Uruguay: Dr James A. Whitelaw. Whitelaw Attorneys, Uruguay Ghana: Seth Terkper, Chartered Accountant/Tax Expert, Accra Gibraltar: Charles D. Serruya. Baker Tilly. Gibraltar Vanuatu: Bill L. Hawkes, KPMG. Port Vila Venezuela: Ronald Evans Baker McKenzie Caracas Guam: Stephen A Cohen, Carlsmith Ball LLP, Hagatna Vietnam: Frederick Burke. Baker McKenzie Ho chi N Atherly, Georgetown European Consulting Group. ong Kong: Colin Farrell, Pricewaterhouse Coopers, Hong Kong Zambia: W Z Mwanza KPMG Peat Marwick Lusaka Hungary: Daniel Deak, Budapest University of Economics, Budapest Zimbabwe: Prof. Ben Hlatshwayo, University of Zimbabwe, Harare Iceland: Indridi H. Thorlaksson, Reykjavik
Correspondents Africa: Zein Kebonang, University of Botswana, Gaborone Albania: Adriana Civici, Ministry of Finance, Tirana Angola: Trevor Wood, Ernst & Young, Lisbon Anguilla: Alex Richardson, Anguilla Offshore Finance Centre, Anguilla Antigua: Donald B. Ward, PricewaterhouseCoopers Center, St. John’s Argentina: Cristian E. Rosso Alba, Rosso Alba, Francia & Asociados, Buenos Aires Armenia: Suren Adamyan, Association of Accountants and Auditors of Armenia, Yerevan Australia: Graeme S. Cooper, University of Sydney, Sydney; Richard Krever, Deakin University, Melbourne. Austria: Markus Stefaner, Vienna University of Economics and Business Administration, Vienna Bahamas: Hywel Jones, Canadian Imperial Bank of Commerce Trust Company (Bahamas) Ltd., Nassau Bangladesh: M. Mushtaque Ahmed, Ernst & Young, Dhaka Barbados: Patrick B. Toppin, Pannell Kerr Forster, Christ Church Belgium: Werner Heyvaert, Nauta Dutilh, Brussels;Marc Quaghebeur, Vandendijk & Partners, Brussels Bermuda: Wendell Hollis, Ernst & Young, Bermuda Botswana: I.O. Sennanyana, Deputy Director, Tax Policy, Ministry of Finance & Development Planning, Gaborone Brazil: David Roberto R. Soares da Silva, Farroco & Lobo Advogados, São Paulo British Virgin Islands: William L. Blum, Solomon Pearl Blum Heymann & Stich LLP, St. Thomas, USVI and New York Bulgaria: Todor Tabakov, Interlex, Sofia Cameroon: Edwin N. Forlemu, International Tax Program, Harvard University, Cambridge Canada: Brian J. Arnold, Goodmans, Toronto, Ontario; Jack Bernstein, Aird & Berlis, Toronto, Ontario; Martin Przysuski, Srini Lalapet, and Hendrik Swaneveld, Transfer Pricing and Competent Authority Services, BDO Dunwoody, Toronto (Markham) Ontario Caribbean: Bruce Zagaris, Berliner, Corcoran, and Rowe, Washington, D.C. Cayman Islands: Timothy Ridley, Maples & Calder Asia, Hong Kong Chile: Alex Fischer, Carey y Cia Ltda., Santiago; Macarena Navarrete, Ernst & Young, Santiago China (P.R.C.): Jinyan Li, York University, Toronto; Lawrence Sussman, O’Melveny & Myers LLP, Beijing Cook Islands: David R. McNair, Southpac Trust Limited, Rarotonga Croatia: Hrvoje Zgombic, Zgombic & Partners, Zagreb Cyprus: Theodoros Philippou, PricewaterhouseCoopers, Nicosia Czech Republic: Michal Dlouhy, White & Case, Prague Denmark: Nikolaj Bjørnholm, Bech-Bruun Dragsted Law Firm, Copenhagen Dominican Republic: Dr. Fernándo Ravelo Alvarez, Santo Domingo Eastern Europe: Iurie Lungu, Graham & Levintsa, Chisinau Egypt: Farrouk Metwally, Ernst & Young, Cairo Estonia: Helen Pahapill, Ministry of Finance, Tallinn European Union: Joann M. Weiner, Facultés Universitaires Saint-Louis, Brussels Fiji: Bruce Sutton, KPMG Peat Marwick, Suva Finland: Marjaana Helminen, University of Helsinki in the Faculty of Law, Helsinki France: Olivier Delattre, Latham & Watkins, Paris Gambia: Samba Ebrima Saye, Income Tax Division, Banjul Germany: Jörg-Dietrich Kramer, Ministry of Finance, Berlin/Bonn; Rosemarie Portner, Meilicke Hoffmann & Partner, Bonn; Klaus Sieker, Flick Gocke Schaumburg, Frankfurt Ghana: Seth Terkper, Chartered Accountant/Tax Expert, Accra Gibraltar: Charles D. Serruya, Baker Tilly, Gibraltar Greece: Alexandra Gavrielides, Athens Guam: Stephen A. Cohen, Carlsmith Ball LLP, Hagatna Guernsey: Neil Crocker, PricewaterhouseCoopers, St. Peter Port Guyana: Lancelot A. Atherly, Georgetown Hong Kong: Colin Farrell, PricewaterhouseCoopers, Hong Kong Hungary: Daniel Deak, Budapest University of Economics, Budapest Iceland: Indridi H. Thorlaksson, Reykjavik India: Nishith M. Desai, Nishith Desai Associates, Mumbai; Sanjay Sanghvi, RSM & Co., Mumbai Indonesia: Freddy Karyadi, Karyadi & Co Law and Tax Office, Jakarta Iran: Mohammad Tavakkol, Maliyat Journal, College of Economic Affairs, Tehran Ireland: Kevin McLoughlin, Ernst & Young, Dublin Isle of Man: Richard Vanderplank, Cains Advocates & Notaries, Douglas Israel: Joel Lubell, Teva Pharmaceutical Industries, Ltd., Petach Tikva; Doron Herman, S. Friedman & Co. Advocates & Notaries, Tel-Aviv Italy: Alessandro Adelchi Rossi and Luigi Perin, George R. Funaro & Co., P.C., New York; Gianluca Queiroli, Cambridge, Massachusetts Japan: Gary Thomas, White & Case, Tokyo; Shimon Takagi, White & Case, Tokyo Jersey: J. Paul Frith, Ernst & Young, St. Helier Kenya: Glenday Graham, Ministry of Finance and Planning, Nairobi Korea: Chang Hee Lee, Seoul National Univ. College of Law, Seoul, Korea Kuwait: Abdullah Kh. Al-Ayoub, Kuwait Latin America: Ernst & Young LLP, Miami Latvia: Andrejs Birums, Tax Policy Department, Ministry of Finance, Riga Lebanon: Fuad S. Kawar, Beirut Libya: Ibrahim Baruni, Ibrahim Baruni & Co., Tripoli Lithuania: Nora Vitkuniene, International Tax Division, Ministry of Finance, Vilnius Luxembourg: Jean-Baptiste Brekelmans, Loyens & Loeff, Luxembourg Malawi: Clement L. Mononga, Assistant Commisioner of Tax, Blantyre Malaysia: Jeyapalan Kasipillai, University Utara, Sintok Malta: Dr. Antoine Fiott, Zammit Tabona Bonello & Co., and Lecturer in Taxation, Faculty of Law, University of Malta, Valletta Mauritius: Ram L. Roy, PricewaterhouseCoopers, Port Louis Mexico: Jaime Gonzalez-Bendiksen, Baker & McKenzie, Juarez, Tijuana, Monterrey, and Guadalajara; Ricardo Leon-Santacruz, Sanchez-DeVanny Eseverri, Monterrey Middle East: Aziz Nishtar, Nishtar & Zafar, Karachi, Pakistan Monaco: Eamon McGregor, Moores Rowland Corporate Services, Monte Carlo Mongolia: Baldangiin Ganhuleg, General Department of National Taxation, Ulaanbaatar Morocco: Mohamed Marzak, Agadir Myanmar: Timothy J. Holzer, Baker & McKenzie, Singapore Nauru: Peter H. MacSporran, Melbourne Nepal: Prem Karki, Regional Director, Regional Treasury Directoriate, Kathmandu Netherlands: Eric van der Stoel, Otterspeer, Haasnoot & Partners, Rotterdam; Dick Hofland, Freshfields, Amsterdam; Michaela Vrouwenvelder, Solvay NV, Amsterdam; Jan Ter Wisch, Allen & Overy, Amsterdam Netherlands Antilles: Dennis Cijntje, KPMG Meijburg & Co., Curaçao; Koen Lozie, Deurle New Zealand: Adrian Sawyer, University of Canterbury, Christchurch Nigeria: Elias Aderemi Sulu, Lagos Northern Mariana Islands: John A. Manglona, Saipan Norway: Frederik Zimmer, Department of Public and International Law, University of Oslo, Oslo Oman: Fudli R. Talyarkhan, Ernst & Young, Muscat Panama: Leroy Watson, Arias, Fabrega & Fabrega, Panama City Papua New Guinea: Lutz K. Heim, Ernst & Young, Port Moresby Peru: Italo Fernández Origgi, Yori Law Firm, Lima Philippines: Benedicta Du Baladad, Bureau of Internal Revenue, Manila Poland: Dr. Janusz Fiszer, Warsaw University/White & Case, Warsaw Portugal: Francisco de Sousa da Câmara, Morais Leitao & J. Galvão Teles, Lisbon; Manuel Anselmo Torres, Galhardo Vilão, Torres, Lisbon Qatar: Finbarr Sexton, Ernst & Young, Doha Romania: Sorin Adrian Anghel, Senior Finance Officer & Vice President, The Chase Manhattan Bank, Bucharest Russia: Scott C. Antel, Ernst & Young, Moscow; Joel McDonald, Salans, London Saint Kitts–Nevis: Mario M. Novello, Nevis Services Limited, Red Bank Saudi Arabia: Fauzi Awad, Saba, Abulkhair & Co., Dammam Sierra Leone: Shakib N.K. Basma and Berthan Macaulay, Basma & Macaulay, Freetown Singapore: Linda Ng, White & Case, Tokyo, Japan Slovakia: Alzbeta Harvey, Principal, KPMG New York South Africa: Peter Surtees, Deneys Reitz, Cape Town Spain: José M. Calderón, University of La Coruña, La Coruña Sri Lanka: D.D.M. Waidyasekera, Mt. Lavinia Sweden: Leif Mutén, Professor Emeritus, Stockholm School of Economics Taiwan: Keye S. Wu, Baker & McKenzie, Taipei; Yu Ming-i, Ministry of Finance, Taipei Trinidad & Tobago: Rolston Nelson, Port of Spain Tunisia: Lassaad M. Bediri, Hamza, Bediri & Co., Legal and Tax Consultants, Tunis Turkey: Mustafa Çamlica, Ernst & Young, Istanbul Turks & Caicos Islands, British West Indies: Ariel Misick, Misick and Stanbrook, Grand Turk Uganda: Frederick Ssekandi, Kampala United Arab Emirates: Nicholas J. Love, Ernst & Young, Abu Dhabi United Kingdom: Trevor Johnson, Trevor Johnson Associates, Wirral; Eileen O’Grady, barrister, London; Jefferson P. VanderWolk, Baker & McKenzie, London United States: Richard Doernberg, Emory Univ. School of Law, Atlanta GA.; James Fuller, Fenwick & West, Palo Alto U.S. Virgin Islands: Marjorie Rawls Roberts, Attorney at Law, St. Thomas, USVI Uruguay: Dr. James A. Whitelaw, Whitelaw Attorneys, Uruguay Uzbekistan: Ian P. Slater, Arthur Andersen, Almaty Vanuatu: Bill L. Hawkes, KPMG, Port Vila Venezuela: Ronald Evans, Baker & McKenzie, Caracas Vietnam: Frederick Burke, Baker & McKenzie, Ho Chi Minh City Western Samoa: Maiava V.R. Peteru, Kamu & Peteru, Apia Yugoslavia: Danijel Pantic, European Consulting Group, Belgrade Zambia: W Z Mwanza, KPMG Peat Marwick, Lusaka Zimbabwe: Prof. Ben Hlatshwayo, University of Zimbabwe, Harare TAX NOTES INTERNATIONAL Copyright 2005, Tax Analysts ISSN 1048-3306 Editor: Cathy Phillips Special Reports Editor: Alice Keane Putman Managing Editor: Maryam Enayat Deputy Editor: Doug Smith Production: Paul M. Doster Chief of Correspondents: Cordia Scott (cscott@tax.org) Executive Director and Publisher: Chris Bergin Senior Executive Editor: Robert Manning Editor-in-Chief, International: Robert Goulder Founder: Thomas F. Field (C) Tax Analysts 2004. All rights reserved. Tax Analysts does not claim copyright in any public domain or third party content
Report New German Draft Ordinance on Transfer Pricing Documentation by Heinz-Klaus Kroppen and Stephan Rasch -N six-page document that-based on new sections 90 an Heinz-Klaus Kroppen is an international tax 162, Code of Procedures specifies documentation partner and head of Deloitte s European Transfer requirements for the taxpayer. 6 Whereas the Documen- Pricing Group. Stephan Rasch is a senior manager tation Law and the Decree Law (hereinafter jointly with the European Transfer Pricing Group referred to as the "Documentation Law)are binding on Copyright o 2004 Deloitte Touche Tohmatsu. the tax authorities and the taxpayer the draft All rights reserved ordinance is only the tax authorities interpretation of the new legal requirements and is only binding on the tax authorities. We analyze some of the provisions in The german Ministry of Finance published a draft the draft ordinance below taking into account that it is ordinance on" the audit of the income allocation impossible to cover the 88 pages in detailin this article. between internationally related companies and related persons with cross-border transactions on . Overview income adjustments as well as investigation and coop- The draft ordinance is divided into seven chapters eration obligations and competent authority and arbi- (1)introduction; (2)obligation of the tax authorities; (3) tration procedures"on October 18, 2004. This 83-page cooperation duties of the taxpayer and others; (4)con- document is the last of a series of changes in the sequences of noncompliance; (5)performance of adjust German transfer pricing environment ments;(6)competent authority and arbitration 是 Tax Court decided on October 17, procedures; and(7)the replacement of 2001, that under German law there were no documen- The tax authorities have taken quite some time to tation requirements for the taxpayer and that the produce the draft ordinance under the lead of the 8 burden of proof was on the tax authorities. Then the Federal Ministry of Finance with the involvement of German legislature introduced documentation requirements into the Code of Procedures (Abgabenordnung), including penalties for noncompli- Nov. 12, 2003: Heinz-Klaus Kroppen and Stephan Rasch, 11 ance(section 90 and 162, Code of Procedures). The Transfer Pricing Report 885, Feb. 19, 2003; Heinz-Klaus Krorso documentation requirements were later regulated in and Stephan Rasch, Tax Notes Intl, Nov. 18, 2002, p. 66 more detail through the documentation Decree Law,. 731, December 1, 2002; see also 11 Transfer Pricing Report 1080 April 16, 2003. For further coverage with numerous reference see: Rasch, in: Becker/Kroppen(eds )Handbuch internationale JA first overview is provided by Heinz-Klaus Kroppen and number 5.2 note 4 Terrechnungspreise(Koln: Dr. Otto Schmidt Verlag, 1999), O ordinanceisavailableat:http://www.bundesfinanzministerium Verordnung zu Art, Inhalt und Umfang von Aufzeichnungen dAnlage27113/Entwurf_ x. pdf U. im Sinne des 8 90 Abs. 3 der Abgabenordnung-Gewinnabgren- 2German Federal tax Court decision. dated October 17.2001 zungsverordnung, "dated Oct. 17, 2003, Federal Council BR Drs I R 103/00, Der Betrieb 2001, p 2474 583/03 For coverage see inter alia: Heinz-Klaus Kroppen, Stephan Rasch, and Achim Roeder, Tax Notes Int'l, Dec. 10, 2001, p 1111 Stephan Rasch, 12 Transfer Pricing Report 642, Nov. 12, 2003 Heinz-Klaus Kroppen, Stephan Rasch, and Achi Internationale Wirtschaftsbriefe, Fach 3 Deutschland, Gruppe 1 Kuckhof, and Rolf schreiber internationale wirtschaisbreafe Rasch, Tax Notes Int'l, Nov. 18, 2002, p 666; Stephan Rasch and Achim Roeder, 11 Transfer Pricing Report 731, Dec. 1, 2002; Fach 3 Deutschland, Gruppe 1, p. 1863; Hubertus Baumhoff, also 11 Transfer Pricing R Internationales Steuerrecht 2001, P. 745: Wolf-Dieter Hoffmann Eigelshoven and Roman Dawid, Tax Notes Int'l, Jan. 12, 2004, p gmbh Rundschau 2001. 1163: Dietmar Gosch. Die Steuerlich 185; Franz Wassermeyer, Der Betrieb, 2003, p. 1535: Rolf Betriebspruifung 2001, p 360. Schreiber, Steuerberatung 2003, P. 474. Hahn/Suhrbier-Hahn Internationales Steuerrecht, 2003, p 84; Stephan Schnorberger English translation, see 11 Transfer Pricing Report Der Betrieb, 2003, p. 1241 1085, April 16, 2003; for an analysis, see, e.g., HeinzKlar ppen and Stephan Rasch, 12 Transfer Pricing Report 642, Heinz-Klaus Kroppen and Axel Eigelshoven in IBFD, Ta (Footnote continued in next column. pricing, Chapter 1, loose-leaf, Amsterdam as of June 2002 Tax Notes International January10,2005·197
New German Draft Ordinance on Transfer Pricing Documentation by Heinz-Klaus Kroppen and Stephan Rasch The German Ministry of Finance published a draft ordinance on “the audit of the income allocation between internationally related companies and related persons with cross-border transactions on income adjustments as well as investigation and cooperation obligations and competent authority and arbitration procedures” on October 18, 2004.1 This 83-page document is the last of a series of changes in the German transfer pricing environment. The Supreme Tax Court decided on October 17, 2001,2 that under German law there were no documentation requirements for the taxpayer and that the burden of proof was on the tax authorities.3 Then the German legislature introduced documentation requirements into the Code of Procedures (Abgabenordnung), including penalties for noncompliance (section 90 and 162, Code of Procedures).4 Those documentation requirements were later regulated in more detail through the Documentation Decree Law,5 a six-page document that — based on new sections 90 and 162, Code of Procedures — specifies documentation requirements for the taxpayer.6 Whereas the Documentation Law and the Decree Law (hereinafter jointly referred to as the “Documentation Law”) are binding on the tax authorities and the taxpayer, the draft ordinance is only the tax authorities’ interpretation of the new legal requirements and is only binding on the tax authorities.7 We analyze some of the provisions in the draft ordinance below, taking into account that it is impossible to cover the 83 pages in detail in this article. I. Overview The draft ordinance is divided into seven chapters: (1) introduction;(2) obligation of the tax authorities;(3) cooperation duties of the taxpayer and others; (4) consequences of noncompliance;(5) performance of adjustments; (6) competent authority and arbitration procedures; and (7) the replacement of existing rules. The tax authorities have taken quite some time to produce the draft ordinance under the lead of the Federal Ministry of Finance with the involvement of Tax Notes International January 10, 2005 • 197 Special Reports Heinz-Klaus Kroppen is an international tax partner and head of Deloitte’s European Transfer Pricing Group. Stephan Rasch is a senior manager with the European Transfer Pricing Group. Copyright © 2004 Deloitte Touche Tohmatsu. All rights reserved. 1A first overview is provided by Heinz-Klaus Kroppen and Stephan Rasch, Tax Notes Int’l, Nov. 15, 2004, p. 591. The draft ordinance is available at: http://www.bundesfinanzministerium. de/Anlage27113/Entwurf__x.pdf U. 2German Federal Tax Court decision, dated October 17, 2001 — I R 103/00, Der Betrieb 2001, p. 2474. 3For coverage see inter alia: Heinz-Klaus Kroppen, Stephan Rasch, and Achim Roeder, Tax Notes Int’l, Dec. 10, 2001, p. 1111; Heinz-Klaus Kroppen, Stephan Rasch, and Achim Roeder, Internationale Wirtschaftsbriefe, Fach 3 Deutschland, Gruppe 1, p. 1787; Franz Wassermeyer, Der Betrieb 2001, p. 2465, Harald Kuckhoff, and Rolf Schreiber, Internationale Wirtschaftsbriefe, Fach 3 Deutschland, Gruppe 1, p. 1863; Hubertus Baumhoff, Internationales Steuerrecht 2001, p. 745; Wolf-Dieter Hoffmann, GmbH Rundschau 2001, 1163; Dietmar Gosch, Die Steuerliche Betriebsprüfung 2001, p. 360. 4For an English translation, see 11 Transfer Pricing Report 1085, April 16, 2003; for an analysis, see, e.g., Heinz-Klaus Kroppen and Stephan Rasch, 12 Transfer Pricing Report 642, (Footnote continued in next column.) Nov. 12, 2003; Heinz-Klaus Kroppen and Stephan Rasch, 11 Transfer Pricing Report 885, Feb. 19, 2003; Heinz-Klaus Kroppen and Stephan Rasch, Tax Notes Int’l, Nov. 18, 2002, p. 666; Stephan Rasch and Achim Roeder, 11 Transfer Pricing Report 731, December 1, 2002; see also 11 Transfer Pricing Report 1080, April 16, 2003. For further coverage with numerous references, see: Rasch, in: Becker/Kroppen (eds.) Handbuch Internationale Verrechnungspreise (Köln: Dr. Otto Schmidt Verlag, 1999), O number 5.2, note 4. 5“Verordnung zu Art, Inhalt und Umfang von Aufzeichnungen im Sinne des § 90 Abs. 3 der Abgabenordnung-Gewinnabgrenzungsverordnung,” dated Oct. 17, 2003, Federal Council BR Drs. 583/03. 6For a detailed discussion, see cf. Heinz-Klaus Kroppen and Stephan Rasch, 12 Transfer Pricing Report 642, Nov. 12, 2003; Heinz-Klaus Kroppen and Stephan Rasch, 11 Transfer Pricing Report 885, Feb. 19, 2003; Heinz-Klaus Kroppen and Stephan Rasch, Tax Notes Int’l, Nov. 18, 2002, p. 666; Stephan Rasch and Achim Roeder, 11 Transfer Pricing Report 731, Dec. 1, 2002; see also 11 Transfer Pricing Report 1080, Apr. 16, 2003; Axel Eigelshoven and Roman Dawid, Tax Notes Int’l, Jan. 12, 2004, p. 185; Franz Wassermeyer, Der Betrieb, 2003, p. 1535; Rolf Schreiber, Steuerberatung 2003, p. 474.; Hahn/Suhrbier-Hahn, Internationales Steuerrecht, 2003, p. 84; Stephan Schnorberger, Der Betrieb, 2003, p. 1241. 7Heinz-Klaus Kroppen and Axel Eigelshoven in IBFD, Tax Treatment of Transfer Pricing, Commentary on German transfer pricing, Chapter 1, loose-leaf, Amsterdam as of June 2002. (C) Tax Analysts 2005. All rights reserved. Tax Analysts does not claim copyright in any public domain or third party content
Special Reports representatives of the German states'tax authorities. possibility also existed prior to the draft ordinance the The document was prepared by a working group, explicit statement in the draft ordinance certainly will which met regularly in Berlin and received input from lead to an increased demand from tax auditors for representatives of German industry. The tax authori- those documents. Therefore, taxpayers are well ties requested comments on the document within four advised when formulating those minutes to take into weeks from the publishing date. It can be expected that account that their content might be reviewed by the after reviewing those comments the final document tax auditor will be published at the beginning of 2005 B. Use of Secret Comparables Il Obligations of the Tax Authorities The draft ordinance allows tax auditors to use secret comparables, which can be found in the tax files of the Unlike other announcements of the tax authorities, authorities for other taxpayers. 12 This is in line with the draft ordinance emphasizes that tax authorities have the jurisdiction of the Supreme Tax Court of October an obligation to investigate and try to discover facts that 17, 2001, in which the court also permitted the use of are beneficial for the taxpayer: The draft ordinance also those secret comparables. However, the draft orrectly states that a correct transfer price usually does ordinance emphasizes that these data cannot be not exist and that the taxpayer has no obligation under disclosed to the taxpayer, the tax court, and the other German law to prove the correctness of the chosen price. tax authority in a competent authority or arbitration This last clarification is particularly important because it procedure. In spite of those disclosure restrictions, the had been asserted in German tax literature that the draft ordinance then requires that the taxpayer be Documentation Law, under which the taxpayer is given the opportunity to comment on the comparable required to prepare documentation on the appropriate data and the comparability of that data. This is, of ness of the transfer price, would lead to a change of the course, almost impossible for the taxpayer if the burden of proof. This is technically not correct, although necessary information is not disclosed to him a832938 the taxpayer should prepare documentation about the Therefore, the evidence value of secret comparables is appropriateness of the chosen price. That documenta- largely decreased. This is acknowledged in the draft tion, however, will usually lead to the identification of a ordinance. Therefore, it can be expected that the range of prices or results that could be arms length Of relevance of secret comparables will be minimal in ourse, then the tax authorities can establish a different practice. range, and, in case of doubt, the taxpayer does not have to prove the correctness of the chosen price setting. Instead, C Criminal Proceedings the tax authorities have the burden of proof that the One rather disturbing aspect of the new draft osen price is not at arms length. ordinance is that the tax authorities mention several A Preparation of an Audit evasion in connection with the determination and The new draft ordinance encourages the tax author- documentation of transfer prices. It can only be hoped ities to organize and plan the tax audit before the start that in practice the tax auditors will apply those provi- of the investigation on the premises of the taxpayer. 10 sions very carefully. As already stated by the OeCD, To achieve this, the draft ordinance suggests that setting transfer prices is not an exact science 16 and certain documents and papers be obtained prior to the requires considerable judgment. Therefore, criminal start of the audit. among other documents, the draft proceedings for setting transfer prices should be ordinance also states that the auditor might request limited to very extreme cases minutes from supervisory board meetings, board meetings, and shareholder meetings. 1 Although this Wassermeyer/Baumhoff, AuBensteuerrecht, section 1 AStG, note 823.1 See in particular, Heinz-Klaus Kroppen and Stephan Ras BFD, International Transfer Pricing Journal, 2004, P. 222 Heinz-Klaus Kroppen and Stephan Rasch, Internationa 12Note 2.6 of the draft ordinance haftsbriefe, Fach 3 Deutschland, Gruppe 1, p. 2057; Axel Eigelshoven and Stephan Rasch, 13 Transfer Pricing Report 114 June9,2004. 10Note 2.2 of the draft ordinance Heinz. 11See, e.g., decision of the tax court of Munster, dated Aug 22, Internat. 000, 6K 2712/00, Entscheidungen der Finanzgerichte 20 pp. 1787, 1789, and note 3.30 of the OECD Guidelines ff. ; see also Rasch, in Becker/Kroppen (eds ) Ho Internationale verrechnungspreise(Koln: Dr. Otto Verlag. 1999),0 number 5.2, note 4. CNote 1.46 of the OECD guidelines
representatives of the German states’ tax authorities. The document was prepared by a working group, which met regularly in Berlin and received input from representatives of German industry. The tax authorities requested comments on the document within four weeks from the publishing date. It can be expected that after reviewing those comments the final document will be published at the beginning of 2005. II. Obligations of the Tax Authorities Unlike other announcements of the tax authorities, the draft ordinance emphasizes that tax authorities have an obligation to investigate and try to discover facts that are beneficial for the taxpayer. The draft ordinance also correctly states that a correct transfer price usually does not exist and that the taxpayer has no obligation under German law to prove the correctness of the chosen price. This last clarification is particularly important because it had been asserted in German tax literature8 that the Documentation Law, under which the taxpayer is required to prepare documentation on the appropriateness of the transfer price, would lead to a change of the burden of proof. This is technically not correct, although the taxpayer should prepare documentation about the appropriateness of the chosen price. That documentation, however, will usually lead to the identification of a range of prices or results that could be arm’s length. Of course, then the tax authorities can establish a different range,and,in case of doubt,the taxpayer does not have to prove the correctness of the chosen price setting.Instead, the tax authorities have the burden of proof that the chosen price is not at arm’s length.9 A. Preparation of an Audit The new draft ordinance encourages the tax authorities to organize and plan the tax audit before the start of the investigation on the premises of the taxpayer.10 To achieve this, the draft ordinance suggests that certain documents and papers be obtained prior to the start of the audit. Among other documents, the draft ordinance also states that the auditor might request minutes from supervisory board meetings, board meetings, and shareholder meetings.11 Although this possibility also existed prior to the draft ordinance, the explicit statement in the draft ordinance certainly will lead to an increased demand from tax auditors for those documents. Therefore, taxpayers are well advised when formulating those minutes to take into account that their content might be reviewed by the tax auditor. B. Use of Secret Comparables The draft ordinance allows tax auditors to use secret comparables, which can be found in the tax files of the authorities for other taxpayers.12 This is in line with the jurisdiction of the Supreme Tax Court of October 17, 2001,13 in which the court also permitted the use of those secret comparables. However, the draft ordinance emphasizes that these data cannot be disclosed to the taxpayer, the tax court, and the other tax authority in a competent authority or arbitration procedure. In spite of those disclosure restrictions, the draft ordinance then requires that the taxpayer be given the opportunity to comment on the comparable data and the comparability of that data. This is, of course, almost impossible for the taxpayer if the necessary information is not disclosed to him. Therefore, the evidence value of secret comparables is largely decreased.14 This is acknowledged in the draft ordinance. Therefore, it can be expected that the relevance of secret comparables will be minimal in practice. C. Criminal Proceedings One rather disturbing aspect of the new draft ordinance is that the tax authorities mention several times15 the possibility of criminal proceedings for tax evasion in connection with the determination and documentation of transfer prices. It can only be hoped that in practice the tax auditors will apply those provisions very carefully. As already stated by the OECD, setting transfer prices is not an exact science16 and requires considerable judgment. Therefore, criminal proceedings for setting transfer prices should be limited to very extreme cases. 198 • January 10, 2005 Tax Notes International Special Reports 8For a discussion, cf. Franz Wassermeyer, in Flick/ Wassermeyer/Baumhoff, Außensteuerrecht, section 1 AStG, note 823.17. 9See in particular, Heinz-Klaus Kroppen and Stephan Rasch, IBFD, International Transfer Pricing Journal, 2004, p. 222; Heinz-Klaus Kroppen and Stephan Rasch, Internationale Wirtschaftsbriefe, Fach 3 Deutschland, Gruppe 1, p. 2057; Axel Eigelshoven and Stephan Rasch, 13 Transfer Pricing Report 114, June 9, 2004. 10Note 2.2 of the draft ordinance. 11See, e.g., decision of the tax court of Münster, dated Aug. 22, 2000, 6 K 2712/00, Entscheidungen der Finanzgerichte 2001, pp. 4 ff.; see also Rasch, in Becker/Kroppen (eds.) Handbuch Internationale Verrechnungspreise (Köln: Dr. Otto Schmidt Verlag, 1999), O number 5.2, note 4. 12Note 2.6 of the draft ordinance. 13See footnote 2. 14See Heinz-Klaus Kroppen, Stephan Rasch, and Achim Roeder, Tax Notes Int’l, Dec. 10, 2001, p. 1111, at 1112; Heinz-Klaus Kroppen, Stephan Rasch, and Achim Roeder, Internationale Wirtschaftsbriefe, Fach 3 Deutschland, Gruppe 1, pp. 1787, 1789, and note 3.30 of the OECD Guidelines. 15Note 2.7. and 3.2.6 of the draft ordinance. 16Note 1.46 of the OECD guidelines. (C) Tax Analysts 2005. All rights reserved. Tax Analysts does not claim copyright in any public domain or third party content
Report III Cooperation Duties of Taxpayers and later have a substantial practical impact on prior And others tax years A Preservation of documents C Documents Prepared by Related Parties In this section, the tax authorities cover the general The draft ordinance put extensive obligations on the operation duties of the taxpayer. The tax authorities taxpayer to obtain documents and information from formulate rather extensive cooperation and document related parties. 19 However, those obligations are preservation duties for taxpayers. It is, for example limited by the legal or factual ability to obtain the required that the taxpayer, within his or her legal and documents or information from those parties. This is factual ability, assures that documents and data kept particularly relevant for a German subsidiary of a by a foreign related party and relevant to german foreign parent, because it might be legally and taxation will not be destroyed before the german time factually very difficult to obtain information from the limit for the preservation of files has elapsed. 1? This is a parent company or another related party. In that case, rather critical point, because the German time period it cannot be held against a German taxpayer if the for the preservation of documents is generally 10 years, taxpayer can show through pertinent correspondence which is often longer than the time periods in other that a foreign related party does not cooperat countries and can be extended for an audit it therefore can be a substantial burden for an international group The draft ordinance emphasizes that to ensure that the german preservation periods are tax authorities have a duty to observed by related parties in other countries. investigate and try to discover facts that B. Amendments of prior Tax Returns are beneficial for the taxpayer. A very important aspect of the new draft ordinance the stipulated requirement to amend previously ag品38 filed tax returns. That will have a substantial impact in For a German parent company, the draft ordinance practice. According to section 153 of the Code of assumes generally that the ability to obtain documents and information from foreign related parties exists Procedures, the taxpayer is required to amend prior because the German parent company can influence the decision process in the foreign subsidiaries. The draft in the German Code of Procedures for a long time, its ordinance also states that in the relationship between practical importance was rather limited. However a German subsidiary and its foreign parent, it will be with the explicit reference in the new draft ordinance presumed that a possibility to obtain information exists if the same person is a managing director of the In relatio on to the documentation and cooperation obli- gations, it can be expected that the importance of this German subsidiary and the parent company. 1 It therefore should be carefully considered for the future provision will largely increase in tax audits. It can whether foreign officers of the group become officers of easily be foreseen that a taxpayer who tries to fulfil the new documentation obligations for the year 2003 and following years may learn that for prior years that In addition, the draft ordinance stipulates cases in either a particular transaction was not charged at which independent third parties would have contrac- (for instance, headquarter services from a German tually agreed on the provision of information and parent company to its foreign subsidiary)or the prices documents, namely that were charged were clearly not at arm s length. In for the participation in a cost-sharing pool for that case, the draft ordinance requires that the tax the allocable cost and the allocation key; returns be amended for all open years. Failure to amend prior years' tax returns could lead to criminal for the charging of services on the cost basis proceedings. Taxpayers are therefore well advised to analyze what impact their documentation package, which they must prepare for the years 2003 and later, may have on their tax returns for prior years and take steps to prevent harsh consequences. Therefore, based 19Note 3.3.2 of the draft ordinance on section 153 of the Code of Procedures and the expla Roman Seer, Finanzrundschau 2002, pp 380, 281: Wolfgang nation in the tax authorities ordinance. the new docu Ritter, Finanzrundschau 1985, pp 34, 35; Michael Kemperman Finanzrundschau 1990, pp. 437, 438: Franz Wasse mentation requirements effective for the years 2003 note 822; for an analysis of notes 5.10 and 5.11 of the OECD guidelines, cf. Rasch, in Becker/Kroppen (eds ) Handbuch Internationale Verrechnungspreise(Koln: Dr. Otto Schmidt Verlag, 1999), O number 5.10 and 5.11 1 Note 3.4.1 of the draft ordinance INote 3.3.2 lit. b) draft ordinance 18Note 3.2.5 of the draft ordinance 22Note 3.3.2 lit. b) draft ordinance Tax Notes International January10,2005·199
III. Cooperation Duties of Taxpayers And Others A. Preservation of Documents In this section, the tax authorities cover the general cooperation duties of the taxpayer. The tax authorities formulate rather extensive cooperation and document preservation duties for taxpayers. It is, for example, required that the taxpayer, within his or her legal and factual ability, assures that documents and data kept by a foreign related party and relevant to German taxation will not be destroyed before the German time limit for the preservation of files has elapsed.17This is a rather critical point, because the German time period for the preservation of documents is generally 10 years, which is often longer than the time periods in other countries and can be extended for an audit.It therefore can be a substantial burden for an international group to ensure that the German preservation periods are observed by related parties in other countries. B. Amendments of Prior Tax Returns A very important aspect of the new draft ordinance is the stipulated requirement to amend previously filed tax returns.That will have a substantial impact in practice.18 According to section 153 of the Code of Procedures, the taxpayer is required to amend prior year tax returns if the taxpayer learns that the tax return was incorrect. Although this provision has been in the German Code of Procedures for a long time, its practical importance was rather limited. However, with the explicit reference in the new draft ordinance in relation to the documentation and cooperation obligations, it can be expected that the importance of this provision will largely increase in tax audits. It can easily be foreseen that a taxpayer who tries to fulfill the new documentation obligations for the year 2003 and following years may learn that for prior years that either a particular transaction was not charged at all (for instance, headquarter services from a German parent company to its foreign subsidiary) or the prices that were charged were clearly not at arm’s length. In that case, the draft ordinance requires that the tax returns be amended for all open years. Failure to amend prior years’ tax returns could lead to criminal proceedings. Taxpayers are therefore well advised to analyze what impact their documentation package, which they must prepare for the years 2003 and later, may have on their tax returns for prior years and take steps to prevent harsh consequences. Therefore, based on section 153 of the Code of Procedures and the explanation in the tax authorities’ ordinance, the new documentation requirements effective for the years 2003 and later have a substantial practical impact on prior tax years. C. Documents Prepared by Related Parties The draft ordinance put extensive obligations on the taxpayer to obtain documents and information from related parties.19 However, those obligations are limited by the legal or factual ability to obtain the documents or information from those parties.20 This is particularly relevant for a German subsidiary of a foreign parent, because it might be legally and factually very difficult to obtain information from the parent company or another related party. In that case, it cannot be held against a German taxpayer if the taxpayer can show through pertinent correspondence that a foreign related party does not cooperate. The draft ordinance emphasizes that tax authorities have a duty to investigate and try to discover facts that are beneficial for the taxpayer. For a German parent company, the draft ordinance assumes generally that the ability to obtain documents and information from foreign related parties exists because the German parent company can influence the decision process in the foreign subsidiaries. The draft ordinance also states that in the relationship between a German subsidiary and its foreign parent, it will be presumed that a possibility to obtain information exists if the same person is a managing director of the German subsidiary and the parent company.21 It therefore should be carefully considered for the future whether foreign officers of the group become officers of the German subsidiary. In addition, the draft ordinance stipulates cases in which independent third parties would have contractually agreed on the provision of information and documents,22 namely: for the participation in a cost-sharing pool for the allocable cost and the allocation key; for the charging of services on the cost basis; Tax Notes International January 10, 2005 • 199 Special Reports 17Note 3.4.1 of the draft ordinance. 18Note 3.2.5 of the draft ordinance. 19Note 3.3.2 of the draft ordinance. 20Roman Seer, Finanzrundschau 2002, pp. 380, 281; Wolfgang Ritter, Finanzrundschau 1985, pp. 34, 35; Michael Kempermann, Finanzrundschau 1990, pp. 437, 438; Franz Wassermeyer, in Flick/Wassermeyer/Baumhoff, Außensteuerrecht, section 1 AStG, note 822; for an analysis of notes 5.10 and 5.11 of the OECD guidelines, cf. Rasch, in Becker/Kroppen (eds.) Handbuch Internationale Verrechnungspreise (Köln: Dr. Otto Schmidt Verlag, 1999), O number 5.10 and 5.11. 21Note 3.3.2 lit. b) draft ordinance. 22Note 3.3.2 lit. b) draft ordinance. (C) Tax Analysts 2005. All rights reserved. Tax Analysts does not claim copyright in any public domain or third party content