Settlements within a group of companies with a foreign connection must comply with the arm’s length principle and take place as between third parties, to avoid suspicion of tax evasion.
Internationally active companies repeatedly come into the focus of the press when they are accused of tax avoidance through profit transfers to low-tax countries. However, financial administrations in Germany and abroad are now also paying more attention to this issue for small and medium-sized companies as soon as they have a foreign connection through affiliated companies or branches. Allocations within the group must then comply with the arm’s length principle, as is the case between external third parties, and must include all service relationships, starting with the delivery of goods, services, cost allocation, through to personnel and financing. Last but not least, the transfer of intangible assets such as trademarks, patents and know-how is becoming increasingly important.
Armin Weber, auditor and tax consultant at Ecovis in Munich
With the Amadeus database, we can determine realistic transfer prices for companies with foreign operations.
Refer to comparable data
The internal arm’s length comparison of similar business transactions of the company with third parties can serve as an external comparison yardstick in part. In many cases, however, external comparison by means of database analysis will come into play. There is currently no legal obligation to do so in Germany, explain the Ecovis experts. In other countries, however, this is already an integral part of transfer pricing documentation and is gaining in importance through the internationally accelerated BEPS project (base erosion and profit shifting).
The advantages of the Amadeus database
validation of arm’s length transfer prices
database applied and accepted EU-wide
access to financial data of more than 21 million companies in Europe
Most recently, the documentation requirements for internationally active companies in Germany were significantly extended to a three-stage documentation approach by the BEPS Implementation Act. Accordingly, transfer pricing documentation in the form of a country file is to be prepared for cross-border deliveries to related companies or branches of more than six million euros or services of more than 600,000 euros. If the other size characteristics are exceeded, the master file components and country-by-country reporting are added. However, even those corporate groups with a foreign link that do not exceed these size characteristics must provide information on how the transfer price was determined, even if no written documentation is required.
Create transfer pricing concepts
The significantly increased transparency and international requirements for the determination and documentation of transfer pricing in multinational companies make a globally uniform transfer pricing concept necessary. Ecovis can support companies from the outset in the development and documentation of the transfer pricing concept and in defense during the tax audit. If required, Ecovis offers an individual analysis, for example via the Amadeus database.