The world of transfer pricing – why this topic is becoming a top priority for you.
Transfer pricing is widely considered one of the most complex topics in international tax law. At the same time, it plays a crucial role in determining where profits are taxed within your group – and what risks you face during tax audits.
Our article "The World of Transfer Pricing – The Basics" is aimed precisely at companies that operate across borders and are looking for clear, practical guidance. On this page, we give you an overview of the content – and show you why downloading the full version is worthwhile.
Transfer pricing: the price for internal services – and a key area of risk.
As soon as affiliated companies supply goods, provide services, or use intangible assets (e.g., brands, technology, know-how) across borders, prices must be set for this: transfer prices.
Unlike transactions with independent third parties, there is no genuine conflict of interest within the group. This is precisely where legislators see the risk of profits being shifted to countries with lower taxes.
Therefore, the arm's length principle or the arm's length principle applies internationally:
Their intra-group business relationships must be structured and priced as if they were between independent market participants.
In the whitepaper we show:
- For which corporate groups are transfer prices absolutely relevant?
- why documentation obligations and transparency requirements have increased significantly in recent years and
- This is why a well-thought-out transfer pricing strategy is now an important part of your tax and financial planning – and not just a mandatory exercise for the next tax audit.
The legal framework: from the Foreign Tax Act to the administrative principles
One focus of the article is on the question of which regulations you actually need to be aware of in Germany – and how they interact.
The article explains clearly:
- Foreign Tax Act (AStG) as the central material basis for transfer prices, in particular Section 1 AStG with the statutory anchoring of the arm's length principle.
- Tax Code (AO) as a procedural framework, in particular
- Section 90 AO with the general and special obligations to cooperate in foreign matters as well as
- Section 162 AO on the estimation of tax bases in cases of insufficient cooperation.
- Profit Allocation Recording Ordinance (GAufzV) as a specification of the type, content and scope of the required records.
Furthermore, the article presents the role of Administrative principles Transfer pricing This includes the current administrative principles for 2024. They are binding for the tax authorities and clearly show how tax auditors proceed in practice – and what requirements are placed on evidence of appropriateness and documentation.
Another building block is the OECD Transfer Pricing Guidelines, which serve as an international reference framework and indirectly influence administrative principles in Germany. This article shows,
- why these guidelines were introduced
- how they should reduce double taxation risks and
- to what extent they have now been incorporated into German law and administrative practice.
This gives you a compact overview of the entire set of standards – without having to work through individual sources.
Transfer pricing documentation: from mandatory topic to management tool
Another focus of the whitepaper is transfer pricing documentation as the core of your tax compliance in the area of transfer pricing.
Based on Section 90 of the German Fiscal Code (AO) and the German Ordinance on the Record of Taxpayers (GAufzV), we explain:
- which Objectives the documentation is followed (risk assessment by the tax authorities, proof of the arm's length principle, avoidance of estimates and surcharges),
- how the documentation must be structured so that an expert third party can understand your value creation and pricing logic "within a reasonable timeframe",
- why the “serious effort” to use arm's length transfer prices is now a key audit criterion.
You will receive a structured overview of the three-stage documentation approach:
- Master File (Master Documentation) – global overview of group structure, business models, value creation, intangible assets and financing structure.
- Local File (Individual Documentation) – Detailed presentation of the key local transactions, including functional and risk analysis as well as appropriateness analysis.
- Country-by-Country Report (CbCR) – country-specific report on the global distribution of sales, profits, taxes and economic indicators.
The article also shows,
- from which Thresholds Master File and CbCR are mandatory,
- wie sich Documentation of the facts and Documentation of appropriateness distinguish and complement
- which is why, given shortened submission deadlines, forward-looking documentation prepared "in advance" is practically indispensable today.
Also the current developments regarding Transaction matrix and the changed submission deadlines are categorized – with a clear focus on what this specifically means for your organization.
Proof of suitability: from functional analysis to the appropriate method
Besides the question "What do we need to document?", the article primarily answers the question:
"How do we prove that our transfer prices are actually at arm's length?"
He describes the typical three-step process of an appropriateness analysis:
- Company characterization
– not abstractly for the entire company, but transaction-related: Who acts as an entrepreneur or strategy leader, and who as a routine unit? - Methodological discussion
– Which transfer pricing method is appropriate given the functional and risk profile, and which methods are unsuitable? - Application of the chosen method
– How are benchmark values determined, which key figures are relevant, how are results documented?
Based on this, the article presents the common Transfer pricing methods presented in a structured manner:
- Standard methods
- Price comparison method
- Resale price method
- Cost-plus method
- Gewinnmethoden
- Profit split method (including residual profit split)
- Transaction-based net margin method (TNMM)
This is explicitly not about mathematical details, but about a practical understanding:
Which method is suitable for typical constellations in medium-sized businesses – such as sales companies, production sites, intra-group services or jointly developed intangible assets?
This article helps to translate the sometimes abstract OECD terms into the reality of your business model.
Deadlines and tax audits: what you should have prepared
A separate chapter is dedicated to the question of when You need to submit your transfer pricing documentation – and how the legal situation has changed in recent years.
The article shows, among other things:
- the difference between “regular” cases and exceptional business transactions,
- which deadlines apply for the submission of the documentation (including shortened deadlines in special cases),
- why the changes in tax procedure law and the Bureaucracy Relief Act IV, despite some mitigations, actually lead to a greater need for timely documentation.
This will give you a realistic assessment of how much lead time you should plan internally to avoid being under time pressure in the event of an audit.
What you will specifically take away from the full article
The download "The World of Transfer Pricing – The Basics" includes, among other things:
- a compact but thorough overview of all essential German transfer pricing regulations and their interrelationships,
- an understandable classification of the OECD Transfer Pricing Guidelines and the Administrative Principles on Transfer Pricing 2024,
- a practical presentation of the three-stage documentation approach including Master File, Local File and CbCR,
- a clear structure for how to get from functional and risk analysis to selecting the appropriate transfer pricing method,
- This provides guidance on the requirements you should realistically expect regarding submission deadlines, audits, and proof of appropriateness.
Our goal is to provide you with a working document that you can use internally to raise awareness among management, tax department and controlling – and which also serves as a basis for the concrete design of your transfer pricing compliance.
Who is behind this post – and how we support you
This article was prepared by the transfer pricing experts at TPC Transfer Pricing Compliance StB GmbH. TPC is a tax consultancy specializing in tax-related transfer pricing and international tax law. The team has been advising medium-sized corporate groups and international corporations for many years on this topic.
- the design and implementation of transfer pricing structures,
- the preparation of transfer pricing documentation in accordance with German law and OECD standards,
- the preparation and support of tax audits as well as
- the creation of reliable evidence of appropriateness.
Awards such as “Best Tax Advisors 2024” (Handelsblatt) and “Top Tax Advisors 2024” (Focus Money) underline this professional focus.
If you want to review, update, or systematically set up your transfer pricing structures for the first time, the full article provides a sound introduction – and a good basis for a discussion with us.
Simply download "The World of Transfer Pricing – The Basics" to gain a comprehensive overview. We are happy to assist you personally with any further questions.
