New German Documentation Requirements for Transfer Pricing

Today, about 30 countries have requirements on the legal documentation of transfer pricing, which have, in some countries, existed for many years. Germany first adopted legal provisions in 2003. The new legal provisions were necessitated by a decision made by the German supreme tax court in 2001. Due to the lack of legal provisions, the German supreme tax court ruled that the tax office was not entitled to estimate the profit derived from inter-company transactions to the detriment of the taxpayer only because the taxpayer did not provide sufficient transfer pricing documentation. The tax office still has to prove the transfer price was not in accordance with the dealing at arm’s length principle. Hence the tax administration amended the general tax code with new laws, which established documentation requirements and a change of the burden of proof if the documentation requirements are not met by the taxpayer.