Transfer pricing Cross-border supply and service relationships

The value chains of multinational enterprises and the value-adding contributions of the individual group entities change constantly. So it’s necessary to examine where within the business the contributions to value added are made. This is determined by the group entities’ function and risk profiles and the assets employed. Existing transfer pricing systems should therefore be checked regularly, particularly when breaking into new markets, with restructuring or acquisitions.

The right transfer pricing system also has to be practised. The key point is that the necessary processes are introduced or adapted. This includes the processes within the business just as much as implementation in the ERP system. There’s a lot of information to obtain and process, especially in interplay with managerial accounting. Serious risks in audits can come about due to faulty or incompletely implemented transfer pricing systems.

Meeting documentation obligations in an integral part of compliance requirements. It’s essential to avoid penalties or having to make adjustments. Taxpayers are confronted with ever more extensive documentation obligations. In an environment of more transparency, such as due to country-by-country reporting but also to tax authorities cooperating internationally, a purely national approach to documentation is not practical. With the help of our excellent international network, we can offer to compile for you high-quality domestic and foreign transfer pricing documentation as a complete package. 

A combination of proper transfer price documentation, skill in negotiating and experience form the basis for a successful defence of transfer prices at an audit. The tax authorities have massively expanded their skills. If the increase in transparency is also taken into account, taxpayers are now often faced with having to make adjustments to their transfer pricing if they don’t prepare properly. Involving an experienced team of advisers helps to recognise pitfalls and risks in time and to design suitable strategies to minimise risk.

If adjusting taxes leads to double taxation, this can be avoided by applying for a mutual agreement procedure. In the case of particularly complex value-added chains or particularly important business relationships, an advance pricing agreement can help to achieve legal certainty at an early stage. Our many years of experience with both mutual agreement procedures and advance pricing agreements, our excellent relationship with the Federal Central Tax Office [Bundeszentralamt für Steuern] and our qualified colleagues in in other countries form the basis for carrying out the procedure successfully and efficiently. 

Besides the question of setting them up, with permanent establishments the crucial point is dividing the profits between the head office and the permanent establishment. The authorised OECD approach (AOA), as it’s known, plays a key role here. According to the way it’s implemented in Germany, auxiliary and separate accounts must be compiled for permanent establishments as the basis for tax returns. We’ll support you with recording and documenting your HR functions and with the resulting questions on defining them.