Arsene Taxand - Transfer Pricing

Germany: Taxation of transfers of functions

Alongside the transfer pricing regulations, the amended German Finance Act for 2008 has introduced a specific provision providing for the systematic taxation of crossborder transfers of functions between companies in the same group.

Transfers of this kind are not limited to the cases already defined by the German Act on the sale of ongoing business assets but a broader notion is applied of "business opportunities", such as, for example, the transfer of a risk to a foreign company or the delegation of provision of a service to such an entity.

In this way, when the transfer is made by a German company, it leads to a taxable capital gain being recognized. It is moreover the taxpayer's responsibility to document and evaluate such a transfer on the basis of an estimate of the loss of future profit. The tax authorities will subsequently have the possibility to update this estimate on the basis of actual data.

This new provision is a real innovation in the European transfer pricing landscape and the question can legitimately be raised as to whether France might not be tempted to implement a comparable system on the basis of the German model.