Ranked the #1 Transfer Pricing Advisor globally by International Tax Review Deloitte Touche Tohmatsu Global Transfer Pricing Group 7尺 ANSFER PRICING ALERTD 30Apri2003 TP Alert 03-009 Germany Adopts Transfer Pricing Documentation Requirements and Penalties By: Heinz-Klaus Kroppen and Stephan Rasch, Dusseldorf After months of discussion, the German Parliament (Bundestag) and the Federal Council (Bundesrat) on 11 April finally approved the changes to the General Tax Code regarding transfer pricing documentation and penalties. Thus, German tax law now incorporates harsh transfer pricing documentation and penalty provisions. the nain features of the new transfer pricing law are summarized below Documentation Requirements The new documentation requirements are found in section 90, paragraph 3 of the General Tax Code, and include the following highlights Taxpayers must prepare documentation regarding the manner and content of their business relationships with related parties Documentation comprises all economic and legal information for the determination of an agreement that follows the arm's length principle and other terms of business agreed to with related parties Taxpayers must submit documents within 60 days after the tax authorities request. The submission period may be extended in exceptional cases; Any extraordinary transactions must be contemporaneously documented The tax authorities should request transfer pricing documentation only within the scope of a field audit; al Documentation requirements are applicable not only to transactions between parate legal entities, but also to the allocation of profits between head offices and permanent establishments The Federal Ministry of Finance will publish a decree-law(Rechtsverordnung) determine the manner, content and extent of required documentation It is important to distinguish between the documentation requirements set forth in section 90, paragraph 3 of the General Tax Code and the detailed description of documentation requirements that will be included in the pending decree-law. Section 90, paragraph 3, sentence 5 of the General Tax Code provides that the German Federal Ministry of Finance will issue this decree-law to ensure the consistent application of the General Tax Code provision a preliminary draft of the decree-law has already been discussed in the tax literature(see Kroppen/Rasch, Worldwide Tax Daily, 10 March 2003, WTD 46-6)30 April 2003 TP Alert 03-009 Germany Adopts Transfer Pricing Documentation Requirements and Penalties By: Heinz-Klaus Kroppen and Stephan Rasch, Düsseldorf After months of discussion, the German Parliament (Bundestag) and the Federal Council (Bundesrat) on 11 April finally approved the changes to the General Tax Code regarding transfer pricing documentation and penalties. Thus, German tax law now incorporates harsh transfer pricing documentation and penalty provisions. The main features of the new transfer pricing law are summarized below. Documentation Requirements The new documentation requirements are found in section 90, paragraph 3 of the General Tax Code, and include the following highlights: • Taxpayers must prepare documentation regarding the manner and content of their business relationships with related parties; • Documentation comprises all economic and legal information for the determination of an agreement that follows the arm's length principle and other terms of business agreed to with related parties; • Taxpayers must submit documents within 60 days after the tax authorities’ request. The submission period may be extended in exceptional cases; • Any extraordinary transactions must be contemporaneously documented; • The tax authorities should request transfer pricing documentation only within the scope of a field audit; and • Documentation requirements are applicable not only to transactions between separate legal entities, but also to the allocation of profits between head offices and permanent establishments. The Federal Ministry of Finance will publish a decree-law (Rechtsverordnung) to determine the manner, content and extent of required documentation. It is important to distinguish between the documentation requirements set forth in section 90, paragraph 3 of the General Tax Code and the detailed description of documentation requirements that will be included in the pending decree-law. Section 90, paragraph 3, sentence 5 of the General Tax Code provides that the German Federal Ministry of Finance will issue this decree-law to ensure the consistent application of the General Tax Code provision. A preliminary draft of the decree-law has already been discussed in the tax literature (see Kroppen/Rasch, Worldwide Tax Daily, 10 March 2003, WTD 46-6)