Germany vs “X Sub GmbH”, December 2016, Münster Fiscal Court, Case No 13 K 4037/13 K,F

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X Sub GmbH is a German subsidiary of a multinational group. The parent company Y Par B.V. and the financial hub of the group Z Fin B.V. – a sister company to the German subsidiary – are both located in the Netherlands. In its function as a financial hub, Z Fin B.V granted several loans to X Sub GmbH. The interest rate on the loans had been determined by the group based on the CUP method.

The German tax authority considered that the amount of interest on the inter-company loans paid by X Sub GmbH to Z Fin B.V. was too high. An assessment was issued where the interest rate was instead determined based on the cost-plus method. The differences in the calculated interest amounts was added to the taxable income of the German GmbH as a hidden profit distribution (vGA).

X Sub GmbH filed a complaint to Münster Tax Court.

Ruling of the Tax Court

The tax court ruled in favour of the tax authorities.

According to the court there is no hierarchy between the transfer pricing methods. The choice is determine based on which method is most suitable for the case at hand.

The Court found that the cost plus method had been correctly chosen by the tax authority, as the external CUPs could not be used because of differences in conditions between the uncontrolled transactions and the controlled transactions. Hence, the Court dismissed the appeal of X Sub GmbH.


The decision has been appealed by X Sub GmbH to the German Federal Fiscal Court, ref. I R 4/17, where it is still pending.

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Finanzgericht Münster, 13 K 4037_13 K,ORG