New Documentation Obligations in Germany For International Transfer Pricing

A. Issues

As in the U.K., the United States, Australia, France, and several other countries, Germany has now enacted (for the first time) legislation which requires companies to document their transfer pricing arrangements. Specifically, Section 90(3) of the German General Tax Code ("GTC") sets forth the rule that taxpayers must sufficiently document their business relationships with foreign, affiliated companies.

The German Ministry of Finance has set forth specific documentation requirements, such as the content and scope of these requirements, in the so-called Profit Allocation and Documentation Regulation dated August 15, 2003 (the "PAD-Regulation"). The PAD-Regulation applies to companies whose fiscal year begins after December 31, 2002, but fines and other penalties for breach of the PAD-Regulation can only be imposed for fiscal years beginning after December 31, 2003.