On 14 July 2021, the Ministry of Finance (MoF) has issued new administrative principles on transfer pricing. The administrative principles include extensive references to the OECD Transfer Pricing Guidelines and provide further details clarifying the application of the OECD Guidelines.

The new administrative principles replace, among other things, the administrative principles from 1983 and parts of the administrative principles from 2005 that were outside of an update from December 2020 and guidelines on the use of names within a group of companies from 7 April 2017, as well as guidelines on the principles for examining the distribution of income in cost-sharing agreements between international affiliated companies as of 5 July 2018.

The administrative principles refer to the transfer pricing guidelines of the OECD, which are now part of the administrative guidelines, and thus also reflect the interpretation of German tax law by the German tax authorities in the area of transfer pricing.

The principles emphasize that the application of the ALP applies not only to the transfer price itself but also to the exact delimitation and the underlying conditions (e.g. price adjustment clauses) of an intra-group transaction. The administrative principles also deal, among other subjects, with principles of income correction, guidelines, and other general principles.

With regard to transfer pricing methods, the German administrative principles for transfer pricing are characteristic in that they place a strong emphasis on the so-called hypothetical arm’s length test, i.e. the application of economic valuation techniques, such as discounted cash flow approaches.