《税法——转移定价》英文参考文献：01 General_17 Germany's Draft Law on Business Restructurings

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842(vo.15,No.22) ANALYSIS The proposal implies that in any case where func tions are relocated the taxpayer must make a compen business manager standard in the section on documen- tation. However, the standard is not mentioned in case sation payment. The definition is very broad as it in of determination of transfer prices cludes not only intangibles and material goods but also opportunities, risks and other advantages. The govern a difference might for instance be seen because the draft law would require that under the prudent business manager standard all facts and circumstances are tangibles. The idea is that the taxpayer must assume known to the parties of a transaction. This legal as- compensation in case future profit is reduced due to the sumption is of course different from circumstances on relocation of busines the market place and might therefore lead to different The wide application might become clear with the following two examples esults than the arm s- length principle. Again, this as- sumption is not stipulated in the oecd guidelines S Corp licenses intellectual property to its German Hypothetical Arm's -Length Test German market. At the end of the license contract the Us parent does not prolong the agreement, but The prudent business manager test provides the offers its affiliate to act as a contract manufacturer ground for the so-called hypothetical arm' s-length test, on behalf of its US parent and as a buy-sell distribu which is the core valuation method for the determina tion of the compensation in case of a relocation of func tor.Under such circumstances the legislative pro- tions. The law foresees a three step process for the de- posal will require that a compensation payment be made because risks and opportunities are relocated termination of prices to the US parent company. This example shows that a In a first step the taxpayer must the wide definition of the proposed law bears a sub- a evaluate if fully comparable data is available or if stantial potential for a disagreement. It is likely that data is available which is fully comparable after having made adjustments for differences in comparability In the Internal Revenue Service would argue that a such a case the standard method shall have priority ceive a compensation as the contract ended and in The taxpayer may use the full range of third party general license contracts do not foresee a compensa- tion after the end of the license period If limited comparable data is available, the tax method after having The German parent company starts a distribution made adjustments In such e the range of arms operation in the United States. In the past the U.S. length values shall be narrowed (e.g, through the appli market was served out of Germany but since the cation of the interquartile range concept, see below business in the United States grows steadily a buy. sell distribution operation is set up. Again, in such a In case third-party data is unavailable, the hypo- thetical arm's-length test shall be used. The taxpayer case tax authorities would assume that compensa tion is required as the U.S. subsidiary shall then determine the full range where the two pr living profit potential. In the case at hand it can be ques dent business managers would potentially agree u The full range shall be determined through the mini tioned if a third-party distributor would be willing to mum price of the seller and the ma aximum price of pay a compensation for the customer list. In case of purchaser. The taxpayer is then obliged to use the mid termination of the agreement the U.S. distribution point of the range uniess there are arguments for a dif company would not have a compensation claim to ferent value within this range In case functions are wards the German supplier and the customer list transferred (including intangibles, risks and opportuni- night in many cases not be used for other products ties), the taxpayer is obliged to determine the minimum and maximum price throughout a cash flow calculation. Prudent Business Manager Test According to the reasoning of the draft law, the tax payer must use a discount rate, which is conforming to The German Supreme Courts have developed the so- the functions and risks taken by the parties called prudent business manager standard, which has dominated the rulings in case of domestic transactions In many cases taxpayers have used discounted cash flow calculati between the shareholder and its corporation. In many set. However, in such cases, taxpayers only have pro- arms-length transfer prices and have developed vided forecasts for the buying company, for example if rules. It is most noteworthy that for instance, the an assembly plant is opened up in another country, the company will have made in general a detailed invest equirements under German law always were based on ment planning. On the side of the selling company, the prudent business manager standard. For the courts have denied the deductibility of a which gives up its production, a forecast is often not bonus of a managing director, which is also the share available. From a business perspective it might make no holder, in cases where the bonus was not agreed in sense to provide an alternative calculation because a lo- writing in advance cal production is not possible due to high labor costs limited capacity or because the business idea is to es It is believed that other than the arm's-length prin- tablish production close to the cust le, empirical evidence is not required to determine a reasonable price. It is argued that it is possible to derive with income standard to such transactions it also will be a price through"logic thinking. "However, the prudent required to update continuously the fictitious forecasts business manager standard is not established in any other jurisdiction. The German government unsucces on the side of the seller. The draft legislation would re- fully tried to introduce the standard in the organization uire that the underlying assumptions for the valuation for Economic Cooperation and Development guidelines 1995 and 1996. The OECD only refers to the prudent See note 5.4, 5.6, 5.11, 5. 28 of the OECD guidelines 32107 Copyright e 2007 TAX MANAGEMENT INC, a subsidiary of The Bureau of National Affairs, Inc. TMTR ISSN1063-2069

ANALYSIS ol.15,No.22) 843 of the assets be reviewed continuously and in case ma- beforehand and it was argued that the approach by the terial assumptions that are decisive for the determina- tax authorities is not possible because under generally tion of the compensation have changed, the co accepted accounting principles, the valuation must be tion must be adjusted accordingly based on each single asset. This logic would be reversed Moreover, the calculation mechanism might not re by the draft law. The proposed legislation, however, al flect arm's-length dealings The draft law assumes that lows the taxpayer to do a valuation on each single asset both parties to the transaction have full information if no material intangibles or advantages were trans Therefore, the cash flow streams are known to both ferred or if the value of the singl arties to the transaction it is obvious that in an arms value of the transfer package length situation such information is not available and It is obvious that this provision does not provide any light therefore well lead to different price settings on advantage for the taxpayer. As a single valuation the market place. Finally, there also is a legal restriction method always needs to be supported by a valuation cases. The tax authorities only can request information it will hardly be possible for the taxpayer to provid from the German company that is accessible to it. In such evidence. The draft legislation assumes that no of a german subsidia it might have no legal third-party data is available to make a valuation. If this means to receive forecasts to data from its parent or sis- assumption is true, then a valuation on single values ter company. However, it is not possible for the draft seems to be impossible legislation to ask for information that might be impos sible to receive from a subsidiary' s point of perspective Commensurate with Income standard This requirement even becomes more questionable with regard of the changes in Germany's penalty re- According to section 1, para. 3 sentence ll of the ime. In the revised version of the penalty provisions, Foreign Tax Act, it is assumed that third parties would the draft legislation would allow the tax authorities to agree on adjustment provisions when they transfer an estimate the taxpayers income if documentation can- important intangible asset. In case the underlying as not be received from related parties sumptions for the price determination deviate from the Once a taxpayer has determined the minimum and actual circumstances, the price needs to be adjusted ret maximum price it is obliged to choose the midpoint of roactively. The taxpayer has the possibility to rebut the the range. The tax authorities believe that the arms legal assumption. The draft law is therefore heading in the same direction as the commensurate with income standard under section 482 sentence 2 of the u.s. In- l02g时 entr at tge f price. rdis ternal revenue code only be seen different in case only one price can In general third parties do not agree on such provi be observed on the market place. This is usually the sions, In case of for instance the sale of a company con case where market participants have full information tracts only include adjustment me anism and are transacting on a very transparent market. This are valid for a relatively short period of time (e.g, one obviously is not applicable to transactions which in- year)or in case of clearly defined risks.Therefore,one volve intangibles where the third-party price is un nown. In such cases it can be seen at the market place rom the outset. However, it is questionable if a general that the values range significantly. In its reasoning to study providing that adjustment mechanisms are not the draft law it is argued that the assumption of the mid- common is sufficient or if the taxpayer has to provide point is the result of fictitious negotiations between further evidence. This would then of course be difficult third parties that, however, cannot take place between as in most cases by its nature there is a lack of good related parties comparable data The approach of the government also is reflected in the Germany's jurisprudence In case of interest rates, Compliance with EU Law and the Supreme Tax Court has argued that third parties the 0ECD's Arms-Length Principle ould agree on the midpoint between the applicable nterest rates Under European Union law, transactions across EU countries must be treated equally to domestic transac Allocating Arms-Length Values to Assets cross-border transactions. Therefore, the proposed leg As mentioned above, the draft law suggests that in islation likely will infringe the principles as set forth in case of a transfer of functions the valuation has to be done based on a discounted cash flow calculation and ased on a so-called transfer package. Therefore, the 8 The eu Court of Justice has ruled in several and to determine a cash flow stream not for single as embers may not treat cross-border transactions sets but for the entire function which is shifted abroad more harshly than domestic transactions. The ECJ reaffirmed The approach of the draft law was publicly discussed hat position recently in Cadbury Schweppes plc, Cadbury 6 See proposed section 162 para. 3, sentence 3 of the Gen eral Tax Code The ECj earlier ruled against Germanys thin See note 1. 45 to 1. 48 of the OeCD 7 See Supreme Tax Court dated 19.1.1994-IR93/93, Fed- rules as a violation of the EC treaty because it discriminated against companies that borrow from related foreign parties- ette 1994 IL, p 725; Supreme Tax Court 28.2.1990 Lankhorst-Hohorst GmbH v Finanza IR83/87, Federal Tax Gazette II. p 649 00)(lI Transfer Pricing Report 781, 1/18/03) TAX MANAGEMENT TRANSFER PRICING REPORT ISSN 1063-2069 BNA TAX 3-21-07

844(vo.15,No.22 ANALYSIS There are several other concerns from an OECd per Business Restructuring Under Draft Administrative Principles a The draft law would allow qualifying the underly ing agreements of the parties. The OECD, however, is As mentioned earlier, the Finance Ministry has been ry clear that the agreements shall be the basis for the working on the draft administrative principles on the ce determination. Only in very exceptional cases- transfer of functions and risks between related entities There has been a comprehensive discussion about fur- such as cases where a valuation of an intangible is very ther issues, which obviously are going to be considered uncertain-the tax authorities may deviate from the agreements. The draft German law is much broader in in drafting the administrative guidance. The issues de its application as the agreement is always subject to an tailed below will either be included in Germanys de arm' s-length test cree law, which has binding effect on the taxpayer, or in the administrative principles, which will provide fur business manger principle. It must be assumed that the not be binding for tax courts and the taxpayer and then a The German tax authority established the prudent ther guidance for the taxpayer. However, it wo ax authorities will in many cases argue that this is somewhat different to the arm's-length principle Oth Remuneration of a Contract/Toll Manufacturer erwise, the introduction into the draft law would make no sense. As the prudent business manager principle is months there were discussions regarding not established in the OECd guidelines, an area of dis- of production activ ties to foreig pute between the tax authorities will arise cture. It was stated that the intervention a The hypothetical arms-length test is not well of a relative risk-free entity performing only routine ablished under the OECD guidelines. The hypothetical functions, such as a contract manufacturer, should not arm's-length test would be applicable in case where no constitute a tax relevant transfer of functions and risks third-party data is available. The OECd guidelines as However, it has been discussed that a contract manu ell as other tax authorities have not discussed yet such facturer should only earn a return on capital that corre- cases In general the arms-length test always is based ponds to a long-term risk free return on investment. on empirical data. Of course it is often difficult to apply This is nevertheless not in line with the arm' s-length the data to intercompany transactions, but if transfer principle as a neration has to align with an arm s length return prices can be derived through "mere thinking taxpay. earned by a third-party contract manufacturer. There ers will be faced with high legal uncertainty and it nable results should be no doubt that reliable and sufficient data for a In case of valuation of intangibles the tax authori- ties assume that only one price point is acceptable As Administrative Principles on Secondments mentioned above, this view is not shared by the OECD German transfer contain a Finally, and maybe most important is the broad tion between related entities in cases o The adminis- yee sec definition of intangibles. Under the German concept a ondments that were published in 2001 pure reduction of profits is sufficient to trigger a one- trative principles explicitly state that a secondment be time taxation. Depending on the situation it is easy to tween an as foresee that the other tax authority to a transaction will nould o sning entity and the receiving related not share Germany's view. rofit markup nciples also point out that through the work of assigned experts; the receiving Given the above, the taxpayers will be faced with the enterprise regularly also obtains their knowledge and difficult question if they want to follow Germany's inter pretation of the arm's-length principle and get legal cer- experience. The principles on secondments point out tainty in Germany-but being exposed to the risk of and experience through the activity of the assigned ex double taxation in the other country of the transaction. perts, this becomes part and reason for the secondment In one way or another the decision of the taxpayer will more likely lead to competent authority proceedings As and thus has typically not to be remunerated sepa- rately. The reason is that an employee also wo ould be in many cases business is transferred to countries with able to make use of unregistered or unpatented know low-labor costs it can often be seen, that competent au- how when working for a competitor. The employee hority procedures are yet not well established. In such cases, the risk of double taxation becomes a real threat would, however, not receive a separate remuneration to cross border investments. it is unfortunate that the German tax authority could not wait until the OECD provides further guidelines on business restructurings 10 Administrative Principles--Employee Secondment, as of 9 November 2001(Federal Tax Gazette 2001, part I, p. 796 BMF IV B 4S 1341-20/01. For a detailed analysis, see g The OECD is reviewing its position as it has put in pl German Ministry of Finance Releases Final Regulations a draft The Finance Ministry's circular requires taxpayers to use rking Party No. 1 arm’s-le length principles in determining cost Issues, respec the parent company sends its own et a fo ments to filiate for several ents(10 Transfer Pricing Report 651, 12/12/01) situations affecting restructurings(15 Transfer Pricing Report sedi See Administrative Principles--Employee Secondment note 4.2 32107 Copyright e 2007 TAX MANAGEMENT INC, a subsidiary of The Bureau of National Affairs, Inc. TMTR ISSN 1063-2069

ANALYSIS vo.15,No.22) 845 for such knowhow, but would be compensated through is, however, as menti nder German com- its salary mercial law not the case for a commissionaire acting in The essence of the administrative principles on sec- its own name on the account of the principal ondments is apparently turned into its opposite. Any product, process-know-how that a seconded employee Further Changes Under Draft Legislation tion although in third-party cases the entity assigning or Establishment of Interquartile Range; osing an employee could either claim for none or only Income Adjustment to the Median minor protective effects of the know-how. As far as know-how is not registered or not patented, a separate The law stipulates that in cases of limited reliable remuneration is from the authors' standpoint not in line data the range of arm's-length values needs to be n with the arm's-length requirements and is thus unusual rowed 3 The tax authorities were in the past often chal and in practice a third party would most likely only be able to realize such remuneration in exceptional cases there is no room for the inter-quartile range concept The tax authorities, however, have put in place in their Permanent Establishments administrative principles that they want to follow the U.S. approach on ranges. As the Finance Ministry will course of a restructuring from full-fledged distributors work of a decree law, it is expected that Ministry will to a commissionaire, acting in its own name and on the explicitly make reference to the inter-quartile range accou nt of the principal, the commissionaire is consti concept. In cases when the taxpayer has agreed that prices tivities.It appears that the Ministry of Finance is of the are outside the range of arm's-length values, the Su pinion that the sales activity of a domestic commis preme Tax Court has established that an adjustment ds to a PE. According to article 5 of the can be made only to the most favorable point for the OECD Model Tax Treaty and the respective double tax taxpayer in a price range. If tax authorities were able treaties, a permanent establishment requires a depen- to determine a different value in case the taxpayer in lant representative as well as an authority to conclude fringed its documentation obligations as under Germ contracts in the name of the principal. Under German ny's penalty regime one sanction is to pick a less favor commercial law, it has been clearly concluded in the able price point. These principles have changed. In past that a typical commissionaire could not create a Pe cases where taxpayers agreed on prices that are outside ince a commissionaire in the sense of the german the range, an income adjustment must be made to the commercial law only concludes contracts in its own median. This would lead to more controversial discus name with a third party sions with the tax authorities This interpretation was challenged in the past. Based In cases where taxpayers agreed on prices that are at on note 32.1 of the OECD Model Tax Commentary to the rim of the range the tax authorities will try hard to Art 5, it is discussed whether it is sufficient to presume stablish that in fact the transfer prices are outside of n authority to conclude contracts that the representa the range. In such a situation the adjustment would be tive could actually bind the principal. This is from our more significant than before. Experiences from comp perspective not in line with the actual wording and the tent authority procedures, however, show that it is hard historic development of the OECD Model Tax Commen petent authority procedure. Therefore, such procedures Note 32.1 of the OECD Model Tax Commentary to will gain further importance in the future Art 5 points out that"authority to conclude contracts in the name of the enterprise"does not confine the appli Definition of Extraordinary Transactions contracts literally in the name of the enterprise; the Under Germany's documentation law, a contempora paragraph applies equally to an agent, who concludes neous documentation only is required in cases where ontracts which are binding on the enterprise. How- extraordinary transactions take place. The tax au- ever, the history of this amendment shows that the le thorities have proposed including the documentation of al situation in Germany has not been changed. Prior to cost sharing arrangements in the list of extraordinary he amendment of note 32, the United Kingdom filed an bservation outlining that it considered that an agent that was not independent represented a PE if it had the See sec. 1, para. 3, sentence 3 of the Foreign Tax Act the Supreme Tax Court re- jected making adjustments to the median of the range, wh name or that of the principal. is the usual pr other countries. The court opined that This observation was with dray with the actual note ach transfer price within the range is arms-length. Therefore 32 of the OECD Model Tax Commentary. This basically there is no need for an adjustment to a higher or lower price vas because an agent under common law principles could conclude binding contracts for the principal with- preme Tax Court's Decision: Creating Changes in Germany's Transfer Pricing Environment"(18 Transfer Pricing Report out acting actually in the name of the principai. Conse-76is See sec. 3, para 2 of the Decree Law on documentation quently, a PE only can be assumed if the agent can con clude contracts for the enterprise that are binding. This A decree law, adopted in October 2003, established the man ner, content, and extent of required transfer pricing cation The decree law also create 12 See Kroppen/Huffmeier, Intertax 1996, 133 ff, "German documentation or submitting insufficient documentation. The Commissionaire as a Permanent Establishment under the ge from 5 percent to 10 percent of the resulting OECD Model Treaty. transfer pricing adjustment GEMENT TRANSFER PRICING REPORT ISSN 1063-2069 BNA TAX 3-21-07

TEXT (vol.15,No.22) 835 Transfer Pricing Provisions of German Draft Business Restructuring Law [Approved by german Cabinet 3/14/2007; translated by Deloitte, Dusseldorf Sec. 1 Foreign Tax Code: Adjustments of income(1)If a taxpayer,s income from ciple with the utmost probability shall be used; if no other business dealings with foreign countries with a related per price is substantiated; the median shall be used as a basis on is reduc cause the taxpayer's foundation for the the taxpayers range of potential agreement is un- determination of his income is based on other conditions, founded and because of this another range of potential greement is the basis, it is possible to waive the income articularly prices(transfer prices), than those that would adjustment, if the taxpayer,'s under price is within the same or similar circumstances (arm's length principle other range of potential agreeme cases of the 5t then, notwithstanding other provisions, his income shall be sente he corresponding chances determined as if it would have accrue ed under condition and risks and the transferred or disposed assets and other ade between unrelated parties. For the application of the benefits is relocated (relocation of functions), the taxpayer arm's length principle, it is assumed that unrelated parti range of essential circumstances of the busine on a relocation of the function as a whole(transfer dealing and act on principles of a prudent business man age)in consideration of functional and risk adequate dis- ager. If the application of the arm's length principle causes count rate any further adjustments than the other provisions, the fur- In cases of the 9th sentence the determination of the ther adjustments will have to be made in addition to the ransfer prices has to be accepted for all affecting assets ther provisions taxpayer substantiates that no essential intangible assets 3)For a business dealing within the meaning of para. I and advantages are exchanged or transferred for use witi 1st sentence the transfer price has to be det ed pri he function, or that the overall result of the individua ntrolled price method, the re price determination, measured on the price determinatio ale price method or the cost-plus method, if arm's length for the transfer package as a whole, complies with the arms length principle If in cases of 5th and 9th sentences essential the performed functions, the employed assets and the as ssets and advantages are object of the business dealing different values form an arm's length range. If fully made; nd the actual profit deve m from the profit developmen he basis for the esti rable arms length values cannot be determine mation of the transfer prices, it has to be assumed disput omparable values shall be used after having made able that at the time when the deal was concluded uncer- priate adjustments under the application of an appropriate tainties concerning the price agreements existed and unre transfer price method lated parties would have agreed on an appropriate If in cases of the 2nd sentence several limited compa rable arm's length values are determined, the range shall If the parties have not concluded an adjustment provi be narrowed. Is the price, which is used by the taxpayer, in sion and a substantial difference in terms of 1lth sentence ases of the lst sentence ou tside the range or in case the 2nd sentence outside the narrowed range, the median the adjustment according to para. 1, 1st sentence an app applicable If limited comparable arm's length values cannot be determined, the taxpayer has to perform a hy nal transfer price has to be calculated in the year subse- thetical arms length test in compliance with para. 1, 2nd quent to the year in which the difference took place. entence. The taxpayer has to determine the minimum To ensure a consistent application of the law and compli- of the ance with international principles erning income ac ent(range of potential agreement) as a result of a func- crual, the Federal Ministry of Finance ccordance with ional analysis and internal financial planning; the range of he Federal Council, will be authorized to determine details potential agreement will be determined by the profit expec concerning the application of the arm,s length principle in tations (profit potentials) terms of para. 1 and sentence 1 to 12 in a decree-law. TAX MANAGEMENT TRANSFER P REPORT ISSN 1063-2069 BNA TAX 3-21-07

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《税法——转移定价》英文参考文献：01 General_17 Germany's Draft Law on Business Restructurings