Report New German Draft Ordinance on Transfer Pricing Documentation by Heinz-Klaus Kroppen and Stephan Rasch -N six-page document that-based on new sections 90 an Heinz-Klaus Kroppen is an international tax 162, Code of Procedures specifies documentation partner and head of Deloitte s European Transfer requirements for the taxpayer. 6 Whereas the Documen- Pricing Group. Stephan Rasch is a senior manager tation Law and the Decree Law (hereinafter jointly with the European Transfer Pricing Group referred to as the "Documentation Law)are binding on Copyright o 2004 Deloitte Touche Tohmatsu. the tax authorities and the taxpayer the draft All rights reserved ordinance is only the tax authorities interpretation of the new legal requirements and is only binding on the tax authorities. We analyze some of the provisions in The german Ministry of Finance published a draft the draft ordinance below taking into account that it is ordinance on" the audit of the income allocation impossible to cover the 88 pages in detailin this article. between internationally related companies and related persons with cross-border transactions on . Overview income adjustments as well as investigation and coop- The draft ordinance is divided into seven chapters eration obligations and competent authority and arbi- (1)introduction; (2)obligation of the tax authorities; (3) tration procedures"on October 18, 2004. This 83-page cooperation duties of the taxpayer and others; (4)con- document is the last of a series of changes in the sequences of noncompliance; (5)performance of adjust German transfer pricing environment ments;(6)competent authority and arbitration 是 Tax Court decided on October 17, procedures; and(7)the replacement of 2001, that under German law there were no documen- The tax authorities have taken quite some time to tation requirements for the taxpayer and that the produce the draft ordinance under the lead of the 8 burden of proof was on the tax authorities. Then the Federal Ministry of Finance with the involvement of German legislature introduced documentation requirements into the Code of Procedures (Abgabenordnung), including penalties for noncompli- Nov. 12, 2003: Heinz-Klaus Kroppen and Stephan Rasch, 11 ance(section 90 and 162, Code of Procedures). The Transfer Pricing Report 885, Feb. 19, 2003; Heinz-Klaus Krorso documentation requirements were later regulated in and Stephan Rasch, Tax Notes Intl, Nov. 18, 2002, p. 66 more detail through the documentation Decree Law,. 731, December 1, 2002; see also 11 Transfer Pricing Report 1080 April 16, 2003. For further coverage with numerous reference see: Rasch, in: Becker/Kroppen(eds )Handbuch internationale JA first overview is provided by Heinz-Klaus Kroppen and number 5.2 note 4 Terrechnungspreise(Koln: Dr. Otto Schmidt Verlag, 1999), O ordinanceisavailableat:http://www.bundesfinanzministerium Verordnung zu Art, Inhalt und Umfang von Aufzeichnungen dAnlage27113/Entwurf_ x. pdf U. im Sinne des 8 90 Abs. 3 der Abgabenordnung-Gewinnabgren- 2German Federal tax Court decision. dated October 17.2001 zungsverordnung, "dated Oct. 17, 2003, Federal Council BR Drs I R 103/00, Der Betrieb 2001, p 2474 583/03 For coverage see inter alia: Heinz-Klaus Kroppen, Stephan Rasch, and Achim Roeder, Tax Notes Int'l, Dec. 10, 2001, p 1111 Stephan Rasch, 12 Transfer Pricing Report 642, Nov. 12, 2003 Heinz-Klaus Kroppen, Stephan Rasch, and Achi Internationale Wirtschaftsbriefe, Fach 3 Deutschland, Gruppe 1 Kuckhof, and Rolf schreiber internationale wirtschaisbreafe Rasch, Tax Notes Int'l, Nov. 18, 2002, p 666; Stephan Rasch and Achim Roeder, 11 Transfer Pricing Report 731, Dec. 1, 2002; Fach 3 Deutschland, Gruppe 1, p. 1863; Hubertus Baumhoff, also 11 Transfer Pricing R Internationales Steuerrecht 2001, P. 745: Wolf-Dieter Hoffmann Eigelshoven and Roman Dawid, Tax Notes Int'l, Jan. 12, 2004, p gmbh Rundschau 2001. 1163: Dietmar Gosch. Die Steuerlich 185; Franz Wassermeyer, Der Betrieb, 2003, p. 1535: Rolf Betriebspruifung 2001, p 360. Schreiber, Steuerberatung 2003, P. 474. Hahn/Suhrbier-Hahn Internationales Steuerrecht, 2003, p 84; Stephan Schnorberger English translation, see 11 Transfer Pricing Report Der Betrieb, 2003, p. 1241 1085, April 16, 2003; for an analysis, see, e.g., HeinzKlar ppen and Stephan Rasch, 12 Transfer Pricing Report 642, Heinz-Klaus Kroppen and Axel Eigelshoven in IBFD, Ta (Footnote continued in next column. pricing, Chapter 1, loose-leaf, Amsterdam as of June 2002 Tax Notes International January10,2005·197New German Draft Ordinance on Transfer Pricing Documentation by Heinz-Klaus Kroppen and Stephan Rasch The German Ministry of Finance published a draft ordinance on “the audit of the income allocation between internationally related companies and related persons with cross-border transactions on income adjustments as well as investigation and coop￾eration obligations and competent authority and arbi￾tration procedures” on October 18, 2004.1 This 83-page document is the last of a series of changes in the German transfer pricing environment. The Supreme Tax Court decided on October 17, 2001,2 that under German law there were no documen￾tation requirements for the taxpayer and that the burden of proof was on the tax authorities.3 Then the German legislature introduced documentation requirements into the Code of Procedures (Abgabenordnung), including penalties for noncompli￾ance (section 90 and 162, Code of Procedures).4 Those documentation requirements were later regulated in more detail through the Documentation Decree Law,5 a six-page document that — based on new sections 90 and 162, Code of Procedures — specifies documentation requirements for the taxpayer.6 Whereas the Documen￾tation Law and the Decree Law (hereinafter jointly referred to as the “Documentation Law”) are binding on the tax authorities and the taxpayer, the draft ordinance is only the tax authorities’ interpretation of the new legal requirements and is only binding on the tax authorities.7 We analyze some of the provisions in the draft ordinance below, taking into account that it is impossible to cover the 83 pages in detail in this article. I. Overview The draft ordinance is divided into seven chapters: (1) introduction;(2) obligation of the tax authorities;(3) cooperation duties of the taxpayer and others; (4) con￾sequences of noncompliance;(5) performance of adjust￾ments; (6) competent authority and arbitration procedures; and (7) the replacement of existing rules. The tax authorities have taken quite some time to produce the draft ordinance under the lead of the Federal Ministry of Finance with the involvement of Tax Notes International January 10, 2005 • 197 Special Reports Heinz-Klaus Kroppen is an international tax partner and head of Deloitte’s European Transfer Pricing Group. Stephan Rasch is a senior manager with the European Transfer Pricing Group. Copyright © 2004 Deloitte Touche Tohmatsu. All rights reserved. 1A first overview is provided by Heinz-Klaus Kroppen and Stephan Rasch, Tax Notes Int’l, Nov. 15, 2004, p. 591. The draft ordinance is available at: http://www.bundesfinanzministerium. de/Anlage27113/Entwurf__x.pdf U. 2German Federal Tax Court decision, dated October 17, 2001 — I R 103/00, Der Betrieb 2001, p. 2474. 3For coverage see inter alia: Heinz-Klaus Kroppen, Stephan Rasch, and Achim Roeder, Tax Notes Int’l, Dec. 10, 2001, p. 1111; Heinz-Klaus Kroppen, Stephan Rasch, and Achim Roeder, Internationale Wirtschaftsbriefe, Fach 3 Deutschland, Gruppe 1, p. 1787; Franz Wassermeyer, Der Betrieb 2001, p. 2465, Harald Kuckhoff, and Rolf Schreiber, Internationale Wirtschaftsbriefe, Fach 3 Deutschland, Gruppe 1, p. 1863; Hubertus Baumhoff, Internationales Steuerrecht 2001, p. 745; Wolf-Dieter Hoffmann, GmbH Rundschau 2001, 1163; Dietmar Gosch, Die Steuerliche Betriebsprüfung 2001, p. 360. 4For an English translation, see 11 Transfer Pricing Report 1085, April 16, 2003; for an analysis, see, e.g., Heinz-Klaus Kroppen and Stephan Rasch, 12 Transfer Pricing Report 642, (Footnote continued in next column.) Nov. 12, 2003; Heinz-Klaus Kroppen and Stephan Rasch, 11 Transfer Pricing Report 885, Feb. 19, 2003; Heinz-Klaus Kroppen and Stephan Rasch, Tax Notes Int’l, Nov. 18, 2002, p. 666; Stephan Rasch and Achim Roeder, 11 Transfer Pricing Report 731, December 1, 2002; see also 11 Transfer Pricing Report 1080, April 16, 2003. For further coverage with numerous references, see: Rasch, in: Becker/Kroppen (eds.) Handbuch Internationale Verrechnungspreise (Köln: Dr. Otto Schmidt Verlag, 1999), O number 5.2, note 4. 5“Verordnung zu Art, Inhalt und Umfang von Aufzeichnungen im Sinne des § 90 Abs. 3 der Abgabenordnung-Gewinnabgren￾zungsverordnung,” dated Oct. 17, 2003, Federal Council BR Drs. 583/03. 6For a detailed discussion, see cf. Heinz-Klaus Kroppen and Stephan Rasch, 12 Transfer Pricing Report 642, Nov. 12, 2003; Heinz-Klaus Kroppen and Stephan Rasch, 11 Transfer Pricing Report 885, Feb. 19, 2003; Heinz-Klaus Kroppen and Stephan Rasch, Tax Notes Int’l, Nov. 18, 2002, p. 666; Stephan Rasch and Achim Roeder, 11 Transfer Pricing Report 731, Dec. 1, 2002; see also 11 Transfer Pricing Report 1080, Apr. 16, 2003; Axel Eigelshoven and Roman Dawid, Tax Notes Int’l, Jan. 12, 2004, p. 185; Franz Wassermeyer, Der Betrieb, 2003, p. 1535; Rolf Schreiber, Steuerberatung 2003, p. 474.; Hahn/Suhrbier-Hahn, Internationales Steuerrecht, 2003, p. 84; Stephan Schnorberger, Der Betrieb, 2003, p. 1241. 7Heinz-Klaus Kroppen and Axel Eigelshoven in IBFD, Tax Treatment of Transfer Pricing, Commentary on German transfer pricing, Chapter 1, loose-leaf, Amsterdam as of June 2002. (C) Tax Analysts 2005. All rights reserved. Tax Analysts does not claim copyright in any public domain or third party content