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Transfer pricing and cross-border business relationships
On August 14, 2024, the German Ministry of Finance (BMF) introduced a draft to amend the transfer pricing guidelines issued on June 6, 2023. This draft focuses on new regulations concerning financing relationships, following the revision of Section 1 of the German Foreign Tax Act (AStG) and the introduction of Sec. 1 para. 3 lit d and para. 3 lit. e AStG as part of the Growth Opportunities Act. These changes significantly impact companies subject to taxation in Germany that engage in cross-border financing relationships.
Almost every company today has foreign relationships. While the free movement of capital gives companies more and more opportunities to structure their taxes, the collection of taxes poses a major challenge for countries. The disclosure of income tax information through pCbCR is intended to counteract this tax avoidance and create more transparency.
The draft bill for the Growth Opportunities Act originally provided for the introduction of an interest rate cap to limit the amount of interest deducted by a company. However, this was removed from the law. Instead, special regulations have been introduced in Section 1 (3d) and (3e) AStG, which specify the arm's length comparison for financing relationships.
As part of the Business Europe Framework for Income Taxation (“BEFIT”) package, published on September 12th, 2023, a proposal for issuing a European Directive, aimed at harmonising the EU regulatory framework on transfer pricing (“TP Directive”), was issued by the European Commission.
Transfer Pricing - Legal requirements for international supply and service relationships between related group entities.