731 navis The German Move to Transfer Pricing Documentation, Penalties BY STEPhan RASCH AND ACHIM RoEDER decisions, no special documentation requirements exist hen Germany issued the first draft administra- for transfer pricing, and this lack of law precludes the tive principles on transfer pricing in April 2000, i German government from penalizing taxpayers for fail- business community imagined that the country within caused at least some problems for the German tax au tation and related penalties e cess the information they needed to correctly assess transfer pricing and threatened to undermine future Recent legislation proposed Nov, 4 and Nov. 20 transfer pricing adjustments. Second, the current bud ould establish documentation requirements and im pose penalties and fines for those who fail to turn over European Union Monetary Union reference value of the requested information. The Nov. 4 proposal calls for three percent of gross domestic product in 2002. As a penalties of 10 to 20 percent of a transfer pricing adjust- consequence, the German government has had to take ment if an adjustment is warranted and the taxpayer measures to increase the tax revenue. german tax au cannot produce contemporaneous documentation. The thorities likely fear losing revenue to countries that Nov 20 proposal allows tax examiners to impose penal ties of up to two million euros(approximately $2 mil- have transfer pricing documentation requirements in place, as taxpayers will tend to comply first with those lion) on taxpayers who fail to meet documentation re countries' requirements quests within 60 days. What led the German govern- Against this background, the authors describe the re- ment to introduce harsh documentation requirements cent german draft tax legislation and provide an analy into law and, even more surprising, to implement pen- sis of the rules that can be expected during the first half alties for non-compliance of200 First, tax authorities had to put earlier documenta tion guidelines on hold after the German Federal Tax transfer pricing provisions Nov, 20, but the proposed tax leg man documentation requirements. According to these German parliament before it becomes law. This process parliamentary process likely will lead to some changes Principles for the Audit of Income Allocation between In ternationally Affiliated Enterprises with Respect to Income Ad- justments, Procedures and Binding gs(administrative principles aung bill. However, the main transfer pricing ppear to be fairly settled es on procedures) ransfer Pricing Report 116, 3/22/00: for an analysis see 9 Documentation Requirements Transfer Pricing Report 122, 3/22/00; Kroppen, Heinz- Klaus nd Roeder. Ach Section 90 of the German General Tax Code gener see Institute of Certified Public Accountants (dW) dated April ing to the existing section 90 paragraph 1, the taxpayer 3, 2000, Wirtschaftsprufung 2000, pp 483 ff. is required to cooperate with the tax authorities in their 649,11/1302;11 Transt ivestigation of the facts necessary to determine its tax- ing Report 688, 11/27/0 able income. The existing section 90 paragraph 2 re- Federal Tax Court de ed May 10, 2001 s3/01, Der Betrieb 2001, pp. 1180 ff (10 Transfer lates to the scope of the requirements for cooperation ort 167, 7/27/01)and decision, dated October 17, 2001-I R when events occur outside the german territory. In .03/00, Der Betrieb 2001, pp 2474 ff. For coverage see inter these cases, the German taxpayer is obliged to clarify alia: Kroppen, Heinz-Klaus, Rasch, Stephan, and, Roeder lotes International, 2001, pp. 1111 ff; Kropper Heinz-Klaus, Rasch, Stephan, and, Roeder, Achim, Internatio Baumhoff, Hubertus, Internationales Steuerrecht 2001, pp 745 1737 Wr wabsetsheivefr. Frach. r utethlan doGr pp. 2465: Gisc, Dietmar. Die steer iche Betriebsprcufaung 2001. p:. 36 Kuckhoff, Harald and Schreiber, Rolf, Internationale See Kroppen, Heinz-Klaus. Rasch, Stephan, and,Roeder Wirtschaftsbriefe, Fach 3 Deutschland, Gruppe 1, pp. 1863 ff /02: Kropp Heinz-Klaus, and, Eigelshoven, Axel, International Transfer Dr. Stephan Rasch is a manager and Dr Pricing JournaL, 2001, pp 226 ff; Becker, Helmut, Internat Achim roeder, M.A., is a director with deloitte ale wirtschaftsbriefe, Fach 3 Deutschland, Gruppe l, pp 1765 Touches European Transfer Pricing Group 1749f in Dusseldorf. Unless otherwise noted, sections cited are from the ger- man General Tax Code TAX MANAGEMENT TRANSFER PRICING REPORT ISSN 1063-2069 BNA TAX 12-11-02