Germany – Updated Administrative Principles on Transfer Pricing 2024

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12 December 2024, the German Federal Ministry of Finance published updated administrative principles on transfer pricing 2024 (VWG VP 2024).

The updates mainly concern the chapter on financial transactions, where paragraphs 3d and 3e have recently been added to the AStG. Paragraph 3d concerns the determination of arm’s length interest rates, group or stand-alone rating and whether capital should be treated as a loan or equity, and paragraph 3e concerns the treatment of financing arrangements, i.e. cash pools, hedging, etc.

New guidance is also provided on the application of OECD Pillar 1 – Amount B.

 

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Related Guidelines

  1. TPG2022 Chapter X paragraph 10.82Where this is the case, the credit rating of the MNE group may also be used for the purpose of pricing the accurately delineated loan where the facts so indicate, particularly in situations such as where the MNE is important to the group...
  2. TPG2022 Chapter X paragraph 10.81It is also important to note that although there are established approaches to estimate a credit rating for a particular group member or debt issuance, the considerations detailed above mean that a pricing approach based on the separate entity credit ratings that are...
  3. TPG2022 Chapter X paragraph 10.85Maintenance covenants refer typically to financial indicators which have to be met at regular, predetermined intervals during the life of a covenanted loan. Maintenance covenants can act as an early warning system so that in the event of financial underperformance by the borrower,...
  4. TPG2022 Chapter X paragraph 10.84Incurrence covenants require or prohibit certain actions by the borrower without the consent of the lender. Incurrence covenants may, for example, prohibit the borrower from taking on additional debt, creating any charge on the assets of the entity or disposing of particular assets...
  5. TPG2022 Chapter X paragraph 10.83The purpose of covenants in a loan agreement is generally to provide a degree of protection to the lender and so limit its risk. That protection may be in the form of incurrence covenants or maintenance covenants....
  6. TPG2022 Chapter X paragraph 10.72Publicly available financial tools are designed to calculate credit ratings. Broadly, these tools depend on approaches such as calculating the probability of default and of the likely loss should default occur to arrive at an implied rating for the borrowing. This can then...
  1. September 2017: Transfer Pricing Risk Assessment in the Mining IndustryThe African Tax Administration Forum (ATAF) and the German Federal Ministry for Economic Cooperation and Development (BMZ), through the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH, have developed this toolkit for African tax authorities seeking to assess transfer pricing risk in the mining...
  2. July 2017: ATO guidance on related party financing arrangementsThe Practical Compliance Guideline (Guideline) from the ATO outlines the compliance approach to the taxation outcomes associated with a ‘financing arrangement’, as defined in section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997), or a related transaction or contract, entered into...

Related Case Law

  1. Belgium vs R.B. NV, June 2023, Court of First Instance, Case No. 2021/2991/AR.B. NV had entered into a loan agreement with a group company in Switzerland. The interest rate on the loan had been determined by applying the method used by the credit agency, Standard & Poor’s. Moreover, it had been concluded that R.B. NV...
  2. Spain vs “TW XZ SA”, October 2023, TEAC, Case No 00-03317-2020; 00-03316-2020“TW XZ SA” was subject to an assessment in relation to intra-group loans and cash pools for Fiscal Year 2013 – 2016. The tax authorities found that the credit rating used by the company (BBB) in determining the interest rate was incorrect as...
  3. Finland vs A Oyj, May 2021, Supreme Administrative Court, Case No. KHO:2021:66A Oyj was the parent company of the A-group, and responsible for the group’s centralised financial activities. It owned the entire share capital of D Oy and B Oy. D Oy in turn owned the entire share capital of ZAO C, a Russian...
  4. Netherlands vs “Lux Credit B.V.”, July 2023, Court of Hague, Case No AWB – 21_4016 (ECLI:NL:RBDHA:2023:12061)“Lux Credit B.V.” took out various credit facilities from related parties [company name 2] s.a.r.l. and [company name 3] s.a.r.l. – both resident in Luxembourg. These were financings whereby “Lux Credit facility B.V.” could draw funds (facilities) up to a pre-agreed maximum amount....
  5. Austria vs “Health & Beauty AG”, February 2025, Bundesfinanzgericht, Case No GZ RV/7100946/2016“Health & Beauty AG” acted as a holding company within a larger international group. It had acquired 51% of the shares in I-GmbH in 2003 and the remaining 49% in 2009 from two Irish investment companies. The acquisition of the remaining shares was...