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.
As part of a tax audit, the German tax authority considered that the interest on the inter-company loans paid by X Sub GmbH to Z Fin B.V. was too high.
In order to determine the arm’s length interest rate, X Sub GmbH had applied the CUP method.
The tax authority instead applied the cost plus method and issued an assessment.
X Sub GmbH filed an appeal to Münster Fiscal Court.
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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