Survey results of German transfer pricing audits.

• Author: Dehnen, Peter H.

At Tax Executives Institute's 1995 Midyear Conference, I was pleased to discuss transfer pricing developments in Germany and other European countries. In preparing for the conference session, I prepared a questionnaire that was circulated to members of TEI's International Tax Committee. The following article is a summary of the responses to two areas that were explored in the survey: awareness of German transfer pricing rules and audit experiences. The conference materials, including an article on German transfer pricing as well as an English translation of Germany's General Administrative Principles are available upon request.

Familiarity with German Legal Provisions

1. Awareness of German Transfer Pricing Rules

   Of the total number of respondents (15), 11 stated that they are aware of the German rules regarding transfer pricing (generally referred to as the "General Administrative Principles" or "GAP"). Of these 11 respondents, 6 stated that their company's transfer pricing policies were developed on the basis of the U.S. regulations, as well as the regulations of other individual countries; only 4 stated that the GAP was consulted in developing the company's transfer pricing policies.

2. Awareness of the Availability of Binding Rulings

   Of the 15 respondents, 11 stated that they are aware of the possibility of obtaining binding rulings from the German tax authorities; only 2 companies have attempted to obtain such rulings.

3. Awareness of German Rules Regarding Provision of Information and Duty

   to Cooperate

   Of the 15 respondents, 8 stated that they are aware of the German rules regarding the provision of information and the duty to cooperate, but only 2 of the companies responded that such rules are consulted on a regular basis (or at all).

4. Summary and Conclusions

   From the limited number of responses, it is difficult to draw any correlations between a company's awareness of the various German legal provisions regarding transfer pricing and its experiences with German audits. While some companies that are unaware of the GAP and the other German legal provisions have not been subject to an audit investigation in which transfer pricing was an issue, other respondents who noted that the GAP were consulted in developing the company's transfer policy have been subject to such audits.

   It is possible to conclude, however, that, while most companies are aware of the GAP and the German legal provisions regarding the provision of information and the...