24.4 Acceptable Methods in Germany 24-13 tion of the German tax authorities contradicts the practical relevance of the CPM on audit (i) Profit Comparison Data. The tax office often uses a profit comparison, in most cases operating margin or return on assets, to test whether transfer prices should be further investigated when they begin an audit. If the taxpayer does not provide the tax auditors with arms length justification forits transfer prices, the tax ffice might use the existence of low profits or losses as prima facie evidence show that the transfer prices are not at arm,s length. The tax office may shift the burden of proof to the taxpayer. The tax authorities may use the operating margin or the return on capital to estimate an income adjustment if the burden of proof has been shifted to the taxpayer and the taxpayer fails to convince the tax office or the court, respectively, of the arms length character of its pricing policy (ii) Nondisclosure of Data. For tax-planning purposes, one main obstacle of the use of extermal profit comparisons is data availability. Potentially, German commercial law requires German private and public limited companies as well as certain limited partnerships to publish their balance sheets and income statements ifthey exceed a certain size or are listed at a stock exchange hOwever, in the past, private limited companies in particular have been extremely reluctant to com ply with their legal obligations. As a consequence, financial data are available for only 10,000 to 15,000 companies This trend for nondisclosure was supported by the lack of sufficient sanction should change in the future because the ger- man legislation recently introduced new sanctions for not disclosing financial re sults and at the same time increased the scope of the disclosure rules. These sand tions are now also applicable to limited partnerships without an unlimited partner a very popular legal form, especially among nonaffiliated medium-sized Germa enterprises. Therefore, one may reasonably expect an increase in the quantity of vailable data in future that might be even better than in the United States. Even though quantitative data may be available, it will still be more difficult than in the United States to find qualitative company information(e. g, a profile of the prod ucts, functions, and risks of the company). (iv) European-Based Data. Following the German data availability prob- lem, taxpayers and the tax authorities discuss whether comparable companies from other European countries could be used for transfer pricing purposes. The use of European comparables might be appropriate since transactional costs between the markets have decreased because customs duties are not levied within the European Union and currency risk does also not exist within the Euro countries any longer Moreover, the European countries also try to harmonize competitive conditions See Kroppen/Eigelshoven, Transfer Pricing Report, June 17, 1998, P. 107 4See, for example, German Commercial Code(Handelsgesetzbuch) 267