On 3 December 2020, the Federal Ministry of Finance (BMF) has published the Administrative Principles 2020, which contain updated guidelines on audits / reviews of transfer prices between related parties and the responsibility of taxpayers to cooperate in accordance General Tax Code (GTC). The guidelines partially replaces its previous guidance.
The new guideline includes the updated transfer pricing documentation requirements as per Section 90(3) of the GTC. This includes the requirements for taxpayers with cross-border transactions with related parties to prepare a Master file and Local file as per the 2017 OECD Transfer Pricing Guidelines. A company that is part of an MNE group and turnover in the previous year is at least EUR 100 million including from domestic and foreign sales with related and third parties is required to prepare Master file.
If the tax authorities conclude that the taxpayer’s documentations are inadequate, they must inform the taxpayer accordingly and enable him to improve the data. If a taxpayer still fails to meet its obligation to cooperate and if the tax authorities have no further options to obtain information and check the facts and circumstances, German law gives the tax authorities the opportunity to estimate the relevant tax base. In making the estimate, the result must reflect the true nature of the facts and circumstances as well as possible. Thus, the estimate must be “coherent, economically possible and reasonable.
