opecia R e reports operational expenses between the companies involved by using the German Ministry of arms-length principle Contrary to the first draft, the Finance releases final final version not only defines the oncept of secondment, but also Regulations on Employee discusses cases in which mployee secondment should not Secondments be assumed. according to the new principles, an employee second ment exists if an employee reaches by Heinz-Klaus Kroppen, Stephan Rasch, and agreement with his current Achim roeder employer(the assigning company) to work for an affiliated company Dr. Heinz-Klaus Kroppen, LL.M, Dr. Rasch, and Dr. (the receiving company) for a Achim roeder. MA.. are with Deloitte limited period of time based on an usse Copyright o Deloitte Touche, 2002. All reserved employment contract between the receiving company and the mployer. Alternatively, an employee secondment is deemed exist if the receiving company acts as the employees economic and how costs should be allocated employer. ne German Federal Ministry between the assigning and of Finance recently released receiving companies. The analysis However, an employee second ment is not deemed to exist if an the final version of Principles for focuses primarily on changes that employee works for another enter. the audit of Income allocation arose after the first draft Between Internationally related prise to meet an obligation of the Companies in Cases of Employee assigning company to perform Secondments(Administrative I. The New Principles work services and his remunera- first draft of the regulations, which ie The principles first explain why the service or work. In that case Principles- Secondment). The is necessary to implement new had been distributed to various regulations on employee the transfer pricing issue is the business associations for comment, secondments Increasing globaliza- determination of an appropriate has been repeatedly analyzed in tion is seen as the most important tax literature. 1 The ministry, todays econ taking into consideration some of arm s-length principle is not those comments, has changed the relevant regarding the amount of final version. This article provides an employees wage because the Kroppen/Roeder, "Germany Tackles brief summary of the new relationship between an employer TMTP Vol 9(2000), No 14, p.434ff: ng," Secondments Issues and Transfer prie regulations and discusses the and an employee is, by its very underlying principles of employ Kroppen/Roeder, Internationale nature, at arms length. However, Wirtschaftsbriefe, Transfer Pricing News secondments(temporary tran the drafters' intent is to allocate No.20,p.979f Tax Notes International 4 February2002·511The German Federal Ministry of Finance recently released the final version of “Principles for the Audit of Income Allocation Between Internationall has been repeatedly analyzed in tax literature.The ministry,taking into consideration some of those comments,has changed the final version.This a receiving companies. y Related Companies in Cases of Employee Secondments (Administrative Principles — Secondment).”The first draft of the regulations,which was distr rticle provides a brief summary of the new regulations and discusses the underlying principles of employee secondments (temporary transfers) and how costs should be allocated between the assigning and ibuted to various business associations for comment, The German Federal Ministry of Finance recently released the final version of “Principles for the Audit of Income Allocation Between Internationally Related Companies in Cases of Employee Secondments (Administrative Principles — Secondment).” The first draft of the regulations, which had been distributed to various business associations for comment, has been repeatedly analyzed in tax literature.1 The ministry, taking into consideration some of those comments, has changed the final version. This article provides a brief summary of the new regulations and discusses the underlying principles of employee secondments (temporary transfers) and how costs should be allocated between the assigning and receiving companies. The analysis focuses primarily on changes that arose after the first draft. I. The New Principles The principles first explain why it is necessary to implement new regulations on employee secondments. Increasing globaliza￾tion is seen as the most important reason in today’s economy. The arm’s-length principle is not relevant regarding the amount of an employee’s wage because the relationship between an employer and an employee is, by its very nature, at arm’s length. However, the drafters’ intent is to allocate operational expenses between the companies involved by using the arm’s-length principle. Contrary to the first draft, the final version not only defines the concept of secondment, but also discusses cases in which an employee secondment should not be assumed. According to the new principles, an employee second￾ment exists if an employee reaches agreement with his current employer (the assigning company) to work for an affiliated company (the receiving company) for a limited period of time based on an employment contract between the receiving company and the employer. Alternatively, an employee secondment is deemed to exist if the receiving company acts as the employee’s economic employer. However, an employee second￾ment is not deemed to exist if an employee works for another enter￾prise to meet an obligation of the assigning company to perform work services and his remunera￾tion is a component of the price for the service or work. In that case, the transfer pricing issue is the determination of an appropriate Tax Notes International 4 February 2002 • 511 German Ministry of Finance Releases Final Regulations on Employee Secondments by Heinz-Klaus Kroppen, Stephan Rasch, and Achim Roeder Dr. Heinz-Klaus Kroppen, LL.M., Dr. Stephan Rasch, and Dr. Achim Roeder, M.A., are with Deloitte & Touche Düsseldorf. Copyright © Deloitte & Touche, 2002. All rights reserved. 1 Kroppen/Roeder, “Germany Tackles Secondments Issues and Transfer Pricing,” TMTP Vol. 9 (2000), No. 14, p. 434 ff; Kroppen/Roeder, Internationale Wirtschaftsbriefe, Transfer Pricing News No. 20, p. 979 f. Special Reports