126o.9,No.4) ANALYSIS costly form of an account receivable or an account pay the case of an initial deemed contribution an ad- able, provided the other jurisdiction in the transfer pric ditional repayment of equity capital will be deemed These qualifications might lead to combined tax effects ment according to Article 9 of the OECD Model Treaty that are worse than leaving the original deemed divi of 1992. Any adjustment must be attributed to the year dend as it was in which the non-arm's-length price influenced the tax- ble income Taxation of an adjustment would be based on the V. Conclusion type of income subject to the adjustment(Sec. 1. 2. 1.) This rule would generally apply to taxpayers with dif- ferent types of income. As far as corporations are con cerned, the rules governing trading income should usu- identified that are likely to be contained in the final ver ally be applicable. If the adjustment would lead to double taxation the relevant rules on the avoidance of sion of the guidelines, Probably the most significant fea double taxation would be applicable as we ture for German taxpayers is the emphasis on detailed and contemporaneous documentation. This new focus The guidelines also would confirm the German tax on contemporaneous documentation, affects large authorities policy of rejecting adjusting payments. If groups of the intermational business community with di. non-arms length prices are adjusted by payments that do not qualify under the strict rules for set-off pay rect investments in Germany. In the past, many German ments, taxation would be based on the two gross pay taxpayers with multinational operations neglected pre- aring even basic transfer pricing documentation. nents, rather than on their net effect. In practice this may, for example, affect year-end compensation pay German documentation practice is about to change ments that are often referred to as"marketing contribu both dramatically and broadly. But it still remains to tions seen if the german tax auditors will view the wealth of These payments are admissible in some jurisdictions detailed documentation material specified in the draft even if they are not clearly agreed to beforehand. From be carefully assessed on its own merits the German tax authorities point of view, such pay- audit situation. It would not be helpful if, based on the ments would lead to a double violation of the arms begin routinely request iary, for example, is that instead of curing a deemed ing documentation that is not available in a taxpayer,'s dividend the German subsidiary may end up with an ad- ditional deemed contribution as well 61400 Copyright o 2000 TAX MANAGEMENT INC, a subsidiary of The Bureau of National Affairs, Inc, TMTR ISSN.2069