The Bundesrat, upper chamber of the German Parliament, gave its approval to the compromise proposal for the “Act aimed at Enhancing Growth Opportunities, Investment, and Innovation, while Simultaneously Simplifying Taxation and Ensuring Fairness” on 22 March, 2024.
As part of the legislation, German tax law now includes new rules that outline the “German approach” for interpreting the arm’s length principle in inbound financial transactions.
These rules establish requirements that taxpayers must consider in both their transfer pricing analysis and their transfer pricing documentation.
Key requirements
- Explanation of Deviations from Group Credit Rating:
- Any deviations from the group’s credit rating must be thoroughly explained.
- The credit rating analysis of the borrower should be linked to the group rating.
- Compulsory Debt Capacity Analysis: Conducting a debt capacity analysis is now mandatory.
- Detailed Factual and Functional Analysis: Cash pool leaders and financing companies earning a non-routine reward must prepare a detailed factual and functional analysis.
