Germany’s Federal Ministry of Finance (BMF) has issued a draft version of the Administrative Principles for Transfer Pricing 2023 (VWG VP), on 14 August 2024. This revision incorporates the new regulations found in Section 1, Paragraphs 3d and 3e of the German Foreign Tax Act (AStG).
Under the Growth Opportunities Act, effective from 1 January 2024, new regulations have been introduced for arm’s length comparisons in financing transactions between related parties in the Foreign Transactions Tax Act (FTTA). On 14 August 2024, the Federal Ministry of Finance (BMF) released a draft revising administrative regulations to address these new legal standards. The revisions extend to the deductibility of interest expenses and the classification of routine financial services. According to Section 1 (3d) FTTA, interest on cross-border financial transactions is deductible only if the domestic taxpayer can show both the ability to service the debt and that the financing is essential for business purposes. Additionally, interest rates must align with those available from external third parties based on group credit ratings, with specific adjustments for arm’s length compliance.
The draft has been circulated to select associations, who have the opportunity to provide feedback on the changes until 6 September, 2024.
