Globally active. Transfer Pricing Issues in Practice International Aspects and German Approaches Michael Scharf, Helsinki

Transcription

1 Globally active Transfer Pricing Issues in Practice International Aspects and German Approaches Michael Scharf, Helsinki

2 Transfer Pricing Determination Methodologies International Issue 2

3 Transfer Pricing Determination Methodologies German Approach German Methods By Law Accepted by Admin. Principles CUP Resale-Minus Cost-plus Hypothetical Comparison Net Margin Profit Split Range of application? In line with OECD No best-method-rule Characterization of entities involved Experience shows CUP hardly utillized Cost-plus still very popular for German production entities although often not suitable Tax Audit Experiences Clear understanding of appropriate method Utilization of Comparable Profits Methods Utilzation of TNMM Utilization of Profit Split Net Margin Method not feasible for TP determination 3

4 Transfer Pricing Determination Comparables I Internal arm s length comparison Comparison with prices, which the taxpayer or a related person arranged with independent parties Parent Subsidiary Y External arm s length comparison Comparison with prices, which were agreed between independent parties Parent Subsidiary X Y 4

5 Transfer Pricing Determination Comparables II Database Studies Benchmarking for Gross Profit Margin Cost Plus Mark-up Net Margin (within TNMM) Net Margin (within CPM) Royalties Updating according OECD Totally (Peergroup) all 3 years Financials annually Acceptance Nearly worldwide Royalties limited Acceptance of Search Criteria different Region Status of Affiliateness Minimum Amount of comparables Depth of verification arm slength range EBIT upper range median lower range 5

6 Transfer Pricing Determination Comparables II German Approach Database Studies Benchmarking generally accepted Legally not obligatory Doing is important Different opions towards Royalties Updating No legal rules Presumably as OECD Comparability factors Region (not obligatory linked only to state of tested party) Status of Affiliateness: max. 25 % No minimum Amount of comparables, below 10 to 15 is crucial Verification of identified comparables based on homepage information arm slength range EBIT upper range 1st quartile median 2nd quartile lower range Different approaches for different situations, depending on Availability of comparabilities Extent of comparability Compliance with documentation obligation 6

7 Price Setting Approach Outcome Testing Approach Transfer Pricing Determination Timing Issues Pricing at the time of closing of business Comparable data from previous periods Utilization of budgets Total actual result of tested party may be not in range of of actual figures of comparables Arm s-length-test wtih hintsight (regularily on annual basis) Comparable data of same period Reduced impact of budgets Regularily comparison of total annual result Year-end Adjustments 7

8 Transfer Pricing Determination Timing Issues Year End Adjustments EBIT actual result adjustment to upper range arm slength range Issues to be considered Customs Comparability? Arm s-length-behavior? adjustment to lower range actual result 8

9 Transfer Pricing Determination Timing Issues German Approach Price Setting vs. Outcome Testing Legal Tendency: Price Setting Experience in Tax Audits Outcome testing (TNMM; CUP) Price Setting accepted if reasonable budgeting and time of budgeting can be proved Dispute resolution often based on Outcome testing Year End Adjustments Accepted if contractual agreed upfront in written form Adjustment calculated based on a formula (no arbitrariness of adjustment) Own opinion: Not an arm s-length-behaviour, except some adjustments towards specific aspects, e.g. Cost developments Capacity use Minimum requirement should be a consideration of single business transactions not the profit in total 9

10 Transfer Pricing Documentation Notification and Documentation Term to submit Time of establishment 10

11 Transfer Pricing Documentation Latest Development at OECD level New Wording of OECD Guidelines Chapter V Three Tier Approach consisting of Masterfile Local file Country by Country reporting Main Targets of that approach Taxpayer s assessment of its compliance with the arm s-length principle Risk assessment by fiscal authorities Transfer pricing audit EU Masterfile Concept (published 2005) Masterfile Local file Not used by many taxpayers 11

12 Transfer Pricing Documentation EU Masterfile Concept Masterfiles Consistend standardized information important for all EU-based group companies Useful for all European financial authorities and MNEs Local files Country-specific information Much more detailed information on the individual group entity Supplements the Masterfile An entity s transfer price documentation consists of both 12

13 Transfer Pricing Documentation German Approach General Informationen Organization Charts Operative Groupstructure Activities of Taxpayer Description of Business Relation Business Relations Kind and Volume of Transactions List of Contracts List of Intangibles Transactionsbased Function- and Risk Analysis Functions performed and Risks borne Tangible and Intangible Assets Contributed Value Chain and Analysis of Contributions Market and Competition, Business Strategies Description of Method used TP Analysis Justification of Method used Explanation of Implementationof Method used Comparables 13

14 Transfer Pricing Documentation German Approach Burden of proof is with Fiscal Authorities No notification obligation Time of Establishment Generally none Extraordinary business relations need to be documented within 6 month after FY in which they were realized Time to submit 60 days on request by Fiscal Authorities 30 days on request by Fiscal Authorities for extraordinary business relations Language Generally German Other languages could be applied for in advance 14

15 Transfer Pricing Documentation German Approach Sec 162 para. 3 f. AO Non-compliance with documentation obligations Delayed submission Submission of incomplete documentation Minimum EUR EUR 100 per day of delay Maximum EUR None Range 5 to 10% of Adjustment 5 to 10% of adjustment Deniable assumption of profit shift by law Yes Yes, in some circumstances None Range of arm s-length conditions could be used in disfavour for taxpayer Yes Yes None 15

16 Your Contact Michael Scharf Partner Bild Rödl & Partner Äußere Sulzbacher Str. 100 D Nürnberg Phone +49 (911) Fax +49 (911) Jeder Einzelne zählt bei den Castellers und bei uns. Menschentürme symbolisieren in einzigartiger Weise die Unternehmenskultur von Rödl & Partner. Sie verkörpern unsere Philosophie von Zusammenhalt, Gleichgewicht, Mut und Mannschaftsgeist. Sie veranschaulichen das Wachstum aus eigener Kraft, das Rödl & Partner zu dem gemacht hat, was es heute ist. Força, Equilibri, Valor i Seny (Kraft, Balance, Mut und Verstand) ist der katalanische Wahlspruch aller Castellers und beschreibt deren Grundwerte sehr pointiert. Das gefällt uns und entspricht unserer Mentalität. Deshalb ist Rödl & Partner eine Kooperation mit Repräsentanten dieser langen Tradition der Menschentürme, den Castellers de Barcelona, im Mai 2011 eingegangen. Der Verein aus Barcelona verkörpert neben vielen anderen dieses immaterielle Kulturerbe. 16