The number of foreign investors in Germany is quite important and many of them operate large businesses. Since not all of them are permanent residents in Germany, they have the right to transfer the profits or capital they make to their home countries. This also apply for foreign companies operating through subsidiaries
and branch offices.
In order to repatriate profits, foreign investors must respect certain rules and laws related to transfer pricing in Germany
. Below, our company formation specialists in Germany
explain these rules. You can rely on us for tailored support in such matters.
Laws governing transfer pricing in Germany
, profit transfers are made in accordance with the arm’s length principle which is comprised in the Foreign Tax Law. However, this is not the only law governing transfer prices
with operations in Germany
. The following also apply:
- the Corporate Income Tax Law through Article 8, Section 3 covering constructive dividends;
- Article 4, Section 1 in the Income Tax Law an Article 8, Section 1 in the Corporate Income Tax Law governing hidden capital contribution;
- Section 4 in the Income Tax Law governing capital contribution or withdrawal;
- other orders passed by the Ministry of Finance, such as the one on the relocation of functions or on the profit allocation of permanent establishments.
It should also be noted that in 2021, a new change in the legislation was passed with the intention of reducing the procedures associated with the reliefs for withholding taxes sand tax deductions for foreign taxpayers. Our German company formation officers
can offer more information on this subject.
Transfer pricing principles in Germany
Transfer pricing in Germany
following the OECD model applies to both local taxpayers and German branches
of foreign companies.
If you want to open a company in Germany and need support, our local advisors can assist you.
Transfer pricing under the arm’s length principle in Germany
Both the OECD Tax Model and the German Foreign Tax Law provide for the arm’s length principle when it comes to transfer pricing regulations that must be followed by both German and foreign taxpayers
. The principle refers to the cautiousness and due diligence the company manager would exercise during the transactions of the company. The principle also covers pricing adjustments which can be made if the parties in the contract are related, such is the case of the following situations:
- - a person or company owns at least 25% in a company in a direct or indirect way;
- - a person or company directly controls another party (such is the case of holding companies);
- - a third party has a minimum participation of 25% or has control over the taxpayer and the other contracting party;
- - one of the participants has a major influence during the negotiations of the agreement or has an interest in the earnings obtained by the other party.
It should be noted that transfer pricing in Germany
is also influenced by double tax treaties
and arbitration agreements.
In these cases, the incomes of German companies are adjusted so they respect the arm’s length principle.
If you want to set up a branch or subsidiary in Germany and need guidance, you can rely on our specialists in company registration.
Transfer pricing documentation in Germany
Transfer pricing in Germany
relies on specific documents that are prepared by the taxpayers
. In certain cases, the paperwork is less stringent, however, this only applies if:
- - the value of all transactions associated with goods and products is below 6 million euros per financial year;
- - the remuneration for the rest of the services is of maximum 600,000 euros per financial year.
Both conditions must be respected in such cases.
Companies must prepare master data documentation and documents that are usually prepared in the country of origin and internal papers of the enterprise.
When it comes to local files, the following information must be provided:
- - information on the shareholding percentages in the company, the structure of the organization and size of business operations;
- - documents related to the transactions with foreign enterprises;
- - functional and transfer pricing analyses.
We also have an experienced team of accountants who can help with specific services in such situations.
Do not hesitate to contact us
for more information on transfer pricing regulations in Germany