The Bundesfinanzhof confirmed that losses incurred by a simpel distribution entity over a longer period of time trigger a rebuttable presumption in Germany that transfer prices have not been at arm’s length.
A German company, Loss Distributor GmbH, imported goods from their Swiss sister company S-AG and had made continious losses over a period of time.
The tax authorities found that the purchase prices paid to the S-AG had increased since 1989 and that the German company could not fully pass on the increased purchase price to its customers. Since at the same time the price of the Swiss franc had fallen since 1989, the purchase prices paid to the S-AG in the years of the dispute had been inflated and currency gains had been transferred to Switzerland in this way. A tax assessment was therefor issued.
The German company appeal the assessment to the Bundesfinanzhof.
The Federal Tax Court ruled in favor of the tax authorities.
Bundesfinanzhof I R 22-04