019. Advance Pricing Agreements in Germany

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The German tax administration recognises that foreign tax authorities are making increased use of advance transfer pricing agreements (APA's). This is in particular true of the U.S. Internal Revenue Service. An APA can relate either to a foreign company with operations in the taxing jurisdiction or domestic companies doing business abroad.

Directives recently issued by the Ministries of Finance of Baden-Wurttemberg and Bavaria (dated 28 Nov. 1994 and 9 Jan. 1995 respectively) state that the German tax authorities can likewise enter into advance pricing agreements and cooperate in connection with APA proceedings pending before a foreign tax administration. This represents a significant change in the attitude of the German tax authorities in that they previously refused to make transfer pricing the subject of advance rulings.