The corporate tax rate can range approximately between 22.83-36.83% due to local trade tax rates. The overall income tax rate for corporations includes corporate income tax at a rate of 15%, a solidarity surcharge at a rate of 0.825% (5.5% of the corporate income tax), and local trade tax. The local trade tax generally varies between 7% and 21%.
The German legislation stipulates in Section 1 of the Foreign Tax Act the arm’s-length principle as the norm for related party transactions. Accordingly, the prices for those transactions have to be settled on these grounds applying, if possible, the traditional transfer pricing methods. The appropriateness of the transfer prices have to be laid out in a documentation, which is regularly requested as part of routine tax audits. The approach of the tax authorities to transfer pricing issues, in particular to acceptable pricing methodologies and competent authority proceedings, is undergoing continual change in response to international developments in these areas.
The Foreign Tax Act or Außensteuergesetz (AStG) is the main source for transfer pricing guidance. Section 1 AStG contains rules on:
In Germany the OECD TPG can be seen as interpretation aid if the specific topic is not governed by our domestic legislation or by administrative order. They also have practical relevance in MAPs and APAs.
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