Paul Sutton looks at the German Finance Ministry’s June 2023 update to its Administrative Principles on Transfer Pricing. The new version confirms some fundamental points that multinationals and transfer pricing professionals need to be aware of. Perhaps the most important is a very clear and specific position regarding ex ante price setting, and the need for intercompany agreements to be implemented in advance, not after the event.

Germany’s 2023 update to its Administrative Principles on transfer pricing confirm that the key point in time for the application of the arm’s length principle is the date of conclusion of the relevant intercompany agreement, not the date on which the relevant transaction is performed.

This is a crucial distinction, and of course presupposes that appropriate intercompany agreements have been put in place on an ex ante or price setting basis. Although this approach is consistent with the OECD Transfer Pricing Guidelines, it reflects a much clearer and more specific expression of the concept of risk allocation, price setting and the ‘playing out’ of risks and contractually delineated transactions.

Clearly this has big implications for MNEs who are active in Germany, as it’s simply impractical to take one approach there and a completely different one in other territories. Paul Sutton looks at both the technical aspects and what it means in practice.

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