On 5 July 2022, the Federal Ministry of Finance in Germany published draft legislation regarding application of the arm’s length principle to cross-border relocation of functions. According to the general provisions A function is a business activity that consists of a grouping of similar operational tasks performed by specific units or departments of an enterprise. It is an organic part of an enterprise, without the need for a sub-operation in the tax sense. A transfer of functions within the meaning of section 1(3b) of the Foreign Tax Act occurs if a function, including the associated opportunities and risks as well as any assets or other benefits that may have been transferred or left along with it, is transferred or left in whole or in part so that the acquiring company can perform this function or expand an existing function. The function transferred as a whole in accordance with sentence 1 constitutes the transfer package. Business transactions that are realised within ... Read more

In 2008 German legislation on business restructurings was updated to align with the new chapter XI in the OECD Transfer Pricing Guidelines. § 1 para. 3 AStG and the “Regulation on the application of the arm’s length principle according to §1 para. 1 AStG in cases of cross-border relocation of functions” of 12.8.2008 (Function Relocation Regulation, in short: FVerlV). Guidance was subsequently issued by the tax authorities in BMF letter of 13 October 2010, IV B 5 – S 1341/08/10003, BStBl 2010 I p. 774; in short: VWGFVerl. Click here for unofficial English translation Click here for other translation ... Read more

In 2008 German legislation on business restructurings was updated to align with the new chapter XI in the OECD Transfer Pricing Guidelines. § 1 para. 3 AStG and the “Regulation on the application of the arm’s length principle according to §1 para. 1 AStG in cases of cross-border relocation of functions” of 12.8.2008 (Function Relocation Regulation, in short: FVerlV). Guidance was subsequently issued by the tax authorities in BMF letter of 13 October 2010, IV B 5 – S 1341/08/10003, BStBl 2010 I p. 774; in short: VWGFVerl. Click here for unofficial English translation ... Read more