Master Thesis
International Financial Management:
The Regulation of Transfer Pricing – A Case Study on the implementation
of the OECD’s Base Erosion Profit Shifting Project
University of Groningen Author:
Faculty of Economics and Business Student number: s3232441
Date: July 14th, 2017 Name: Pascal Yesilyaprak
Supervisor: W. Westerman Study Program: MSc IFM
Abstract:
This study investigates the practical implementation of the OECD’s Base Erosion Profit Shifting project and its differences to the preexisting German regulation of transfer pricing. The research is conducted as a case study in a French-German MNE within the industrial sector. By comparing the different regulations and conducting several interviews, this study this study utilizes the strengths of a case study in order to identifies the differences and similarities of the new regulation compared to the preexisting German regulation and also generates insights on the practical usage of transfer pricing.
Table of Content
1. Introduction ... 1
2. Literature Review ... 2
2.1. General Concept of Transfer Pricing ... 2
2.1.1. Definition of Transfer Pricing ... 3
2.1.2. Motives of the Usage of Transfer Pricing ... 3
2.1.3. Practical Approaches in Determining Transfer Prices ... 4
2.1.4. The Problems of Transfer Pricing ... 5
2.2. Regulations for Transfer Pricing ... 6
2.2.1. Previous OECD Regulations ... 6
2.2.2. The Arm’s Length Principle ... 7
2.2.3. Transfer Pricing Methods ... 8
2.2.4. German Regulations ... 9
2.2.5. The Base Erosion and Profit Shifting Project (BEPS) ... 10
2.3. Conceptual Framework ... 12
2.3.1. Cluster 1: Evaluation of the BEPS Project ... 12
2.3.2. Cluster 2: Practical Usage of Transfer Pricing ... 14
3. Methodology ... 17 3.1. Methodical approach ... 17 3.1.1. Diagnosis Stage ... 18 3.1.2. Design Stage ... 18 3.2. Data sources ... 18 3.2.1. Documentation ... 19 3.2.2. Interview Method ... 19 3.2.3. Direct Observations ... 20
4. The Case – “Industry GmbH” ... 21
5. Implementation – Diagnosis Stage ... 22
5.1.1. General approach ... 22
5.1.2. Structure of the documentation ... 22
5.2. Transfer pricing documentation – OECD Regulation ... 31
5.2.1. General approach ... 32
5.2.2. Structure of the documentation – Master file ... 32
5.2.3. Structure of the documentation – Local file ... 35
5.3. Comparison of the Regulations ... 37
6. Comparison – Design Stage ... 38
6.1. Cluster 1: BEPS Regulation ... 38
6.2. Cluster 2: Practical Use of Transfer Pricing ... 43
7. Discussion ... 47
8. Conclusion ... 48
9. References ... 51
1 1. Introduction
In times of globalization, it is almost inevitable for big companies to not trade outside of their domestic market or at least to not have cross-border ties with other corporations. One of those ties is the intercompany trade within a multinational enterprise (e.g. between its subunits), be it downstream, upstream or between two subsidiaries.
While there are plenty of possible advantages coming with those international relationships, there are also controversies attached to them. One of these is the debate about diversion versus convergence of accounting practices around the world and the need for global
regulations. This study focuses especially on the use of transfer pricing in this context and the regulations coming with it. More specific, this study aims to analyze an international
regulation approach regarding the use of transfer pricing issued by the OECD in comparison to the preexisting regulations and the consequences of its implementation. This has a global relevance because of the wide spread use of transfer pricing and the corresponding regulations around the world, especially for multinational enterprises (MNEs), which would all be
affected by this new regulation, as well as for the different governments planning on adopting these new OECD guidelines.
The underlying theoretic foundation is based on the basic principles of transfer pricing (e.g. see Doupnik and Perera, 2015) and the published regulations of tax authorities. Since the regulation of transfer pricing is a current issue and the specific OECD regulation was just published about a year ago (see OECD, 2015), there are still many question about how to comply with them, while also being consistent with regards to the local authorities. This is especially important, since the required transfer pricing documentation is the main regulatory instrument to engage corporate misbehavior with regards to transfer pricing (see Lohse and Riedel, 2013).
Therefore, this paper analyzes this new regulation in form of a case study within a French-German MNE, focusing on the differences between the new regulation and the previous German regulations according to German law. This will also generate practical insights on the usage of transfer pricing, which will constitute the second aim of this research.
2 The expectations of this study are to identify the differences and similarities between the regulations to evaluate the new OECD regulation in terms of its practical implementation and also to generate practical insights on the usage of transfer pricing.
Structure wise this study will firstly establish a theoretical foundation by discussing the basics of transfer pricing and the corresponding regulations, resulting in the conceptual framework. Afterwards the methodology approach will be explained with regards to the used methods and the sources of data before heading to the actual case. The obtained results will be discussed and then summarized in a corresponding conclusion.
2. Literature Review
This section will focus on the literature related to transfer pricing and can be split into three parts. The first part will cover the basics of transfer pricing, including its definition, motives for its usage, commonly used approaches in practice and the corresponding problems. The second will present a brief history of transfer pricing regulations before describing the local regulations in Germany, followed by the OECD’s most recent publication from 2015, namely the “Base Erosion and Profit Shifting Project” (BEPS). The literature review will provide the cornerstones of the conceptual framework’s foundation which will be used to analyze the differences between the two regulations. This framework constitutes the third part of this section and consists of the top ten most important aspects regarding transfer pricing and its new regulation arising from the literature review.
2.1. General Concept of Transfer Pricing
The concept of transfer pricing itself is well documented across literature, since it is an
3 2.1.1. Definition of Transfer Pricing
According to Doupnik and Perera (2015) it refers to the determination of the price at which transactions between related parties are carried out. Those transactions can occur in multiple forms, may it be upstream (from a subsidiary to its parent), downstream (from the parent to one of its subsidiaries) or between two separate subsidiaries of the same parent. Those transactions are also commonly referred to as intercompany transactions. However the actual relevance of the usage of transfer pricing can only be seen, if we take a look at its magnitude. According to the Ad Hoc Group of Experts – AHGE (2001) intercompany trade makes up over 60 percent of international trade. But even though the size of this trade volume is already speaking for itself, the question arises, how relevant the usage of transfer pricing really is from a practical view for individual firms for example on a day to day basis.
2.1.2. Motives of the Usage of Transfer Pricing
In order to understand the need of regulations regarding transfer pricing, we need to look at the reasoning behind the use of transfer pricing from a company’s perspective.
According to Doupnik and Perera (2015), there are two main objectives a MNE might have in mind while designing their use of transfer pricing. The first one is concerned with
performance evaluation as a tool of management control, while the second one aims at the minimization of the global taxes paid by the MNE. The latter can be achieved by shifting the group’s profit into lower income tax countries by selecting low (high) prices for outbound (inbound) relations (see Gabrielsen and Schjelderup, 1999). Outbound relations are
transactions aimed outwards of the regard firm (e.g. the firm sells products to a subsidiary), while inbound relations are transactions going into the regarded firm (e.g. the firm buys from a subsidiary). Transfer pricing as a management control tool focuses on the retrospective evaluation of the different entities of the group. Cost-based transfer prices of manufacturing facilities for example enable a comparison of those subsidiaries since they include all the relevant information in terms of production. This is in line with the survey conducted by Cravens (1997), which found that transfer pricing influences measures of performance. However this needs to be used carefully because of the possibility of transferring the
4 Based on previous research, this study also includes the aspect of strategic management into the conceptual framework. Alles and Datar (1998) argue, that the final product prices are based on the firm’s transfer prices, which communicate manufacturing costs to marketing departments. Firms can then use this information in order to improve their decision making. This motive is similar to the usage of transfer pricing as an evaluation tool, since both utilize the information provided by the prices. However, the strategic aspect rather focusses on future decisions instead of a retrospective evaluation.
2.1.3. Practical Approaches in Determining Transfer Prices
There are three practical approaches in terms of determining transfer prices; cost-based transfer prices, market-based transfer prices and negotiated prices, which will be each elaborated below (see Doupnik and Perera, 2015).
Cost-based prices are based on the production costs of goods and services. These costs can be determined in many ways. For example variable costs, variable plus fixed production costs, or full costs. Often these costs also include a certain profit margin. However, there are two main problems arising with this approach. The first is the measurement of the underlying costs and the second is the transfer of inefficiency of one unit to another when using the actual costs.
Market-based transfer prices try to match with prices used between unrelated customers in the market. Therefore, this approach avoids the problems associated with the use of cost-based transfer prices and ensure divisional autonomy. However, in order to be able to use such an approach, there must be an already existing market for each specific transaction, which is not always the case.
The third approach, negotiated prices, determines the prices via the use of negotiation between buyer and seller. This can be helpful in strengthening the freedom of subsidiary managers to bargain with each other. Nevertheless an external market is still necessary as a basis in order to determine an appropriate price. The main disadvantages of this method are the great expenditure of time and also the dependence on the managers’ skills of negotiation.
5 the above presented approaches can be found across literature, which thus raises the question of which of these is actually the most relevant for practice.
2.1.4. The Problems of Transfer Pricing
There are two main problems with the usage of transfer pricing. The first is the possibility of arbitrage prices in terms of their determination (see Mehafdi, 2000). Since the trading parties are related to each other, they might settle on a price that is violating market terms in order to get competitive advantages or to shift profits from one country to another. Especially the latter gave rise to the need of a global regulation, since companies are enabled to circumvent local taxes by shifting their profits to subsidiaries abroad to countries with lower corporate tax rates in order to minimize their overall taxes paid. This can be seen as one of the most important tax issues in the world, since intercompany trade makes up over 60 percent of international trade, as mentioned above already (see AHGE, 2001). Additionally, this might not only have economic impacts on the corresponding countries, but also a moral aspect in terms of “paying its fair share” (see e.g.: Mehafdi, 2000; Thomas, 1971).
In the past, the OECD already published officially accepted methods for firms, to verify that their prices are in line with the market terms to reduce the arbitrariness. Nevertheless, as the world is getting more and more interconnected, it can be challenging for tax authorities to identify the different intercompany connections in a big MNE (i.e. not enough transparency). Additionally, tax problems arising from transfer pricing usually involve multiple
governments, depending on where the firms operate. And because these different states often also have different rules and regulations on transfer pricing, it can be difficult to settle tax disputes.
6 2.2. Regulations for Transfer Pricing
As mentioned above, firms need to verify that their intercompany prices are in line with the market terms. This is done by providing a transfer pricing documentation to the local
authorities. This documentation has no explicit formal requirement but is usually created as a text document. The content of this documentation changed multiple times over the past, as the OECD published new guidelines and regulations. This will be presented in the following.
2.2.1. Previous OECD Regulations
Transfer pricing has been a global issue ever since the past century, with the governments’ main concern being the shifting of taxable income to different countries. As a result, the so-called “dealing at arm’s length” principle was introduced after World War I (see AHGE, 2001), which will be discussed in more detail below. From there on, several governments, especially the U.S. government, and other international organizations put in more effort to regulate the use of transfer pricing. According to the Ad Hoc Group of Experts (2001), the reasons for that were the on-going (re)location of production abroad, the increasing
concentration of service functions within MNEs, and the impacts of globalization in terms of 24 hours per day trading and the innovation of financial instruments. However, the political issue of income taxation was still one of the main drivers.
There was not much administrative guidance before 1979, even though the elaborate
regulations issued by the US Treasury in 1968 influenced the discussions in the OECD in the seventies. However, because of the increasing number of MNEs, combined with an increase of transactions within MNEs, the OECD saw the need to provide their member states’ tax administrations with guidelines on how to deal with transfer pricing (see AHGE, 2001). This resulted in the 1979 OECD Report “Transfer Pricing and Multinational Enterprises”, which was intended to present the issues and the corresponding considerations of transfer pricing, rather than establishing a detailed standard (see OECD, 1979). These considerations included for example the arm’s length principle as the only appropriate approach for the usage of transfer pricing, guidance with regard to the applicable methods, and also the introduction of a functional analysis as a basis for the price determination. Although the 1979 Report was just intended to be a recommendation for the member states and had no immediate legal force, it was quickly accepted by several countries, since otherwise there would have been no
7 three main points: the mutual agreement procedure, transfer pricing in the banking sector, and the allocation of central costs (see OECD, 1984).
This was followed by several U.S. regulations, especially the White Paper in 1988 (see AHGE, 2001). It is important to know that these regulations caused the problem of double taxation and therefore, created the need for a more unified, global regulation (see AHGE, 2001). In October 1995, the OECD updated and consolidated its 1979 and 1984 Reports as a respond to the developments of international trade, but also to close the gap between the United States and other OECD member countries, which arose since the publication of the U.S. regulations. These newly issued update of OECD guidelines encompasses the following (see OECD, 1995): The Arm’s Length Principle (Chapter I), traditional methods (Chapter II), other methods (Chapter III), administrative approaches (Chapter IV), and documentation (Chapter V). A second part was issued in 1996, containing Intangible Property (Chapter VI), and services (Chapter VII), followed by Chapter VIII in 1997 dealing with Cost Contribution Methods (see AHGE, 2001).
After covering those previous publications, the following will discuss their most important aspects relevant for this thesis, namely the arm’s length principle and the officially accepted methods, in more detail below.
2.2.2. The Arm’s Length Principle
As mentioned earlier, the arm’s length principal has been the commonly accepted approach for rightful transfer prices on a global basis. Doupnik and Perera (2015, p. 597) defined it as “the price which would have been agreed upon between unrelated parties engaged in the
same or similar transactions under the same or similar conditions in the open market”.
8 2.2.3. Transfer Pricing Methods
There are two main groups of transfer pricing methods which can be used in order to verify appropriate interfirm prices. The first encompasses the so called “traditional transaction methods” and the second the so called “transactional profit methods”. In general, the
traditional transaction methods are preferred in order to prove existing market prices between intercompany entities, since they are more reliant with respect to the arm’s length principle (see OECD, 2010).
The officially accepted traditional transaction methods compromise of the comparable uncontrolled price method (“CUP” method), the resale price method, and the cost plus method. The transactional profit methods comprise of the profit split method and the
9 2.2.4. German Regulations
10 Now the OECD published its new regulation effort, the BEPS project, which Germany is also about to adopt as well. However, they have not been explicitly implemented into the German law so far, which is expected to happen in the future. Therefore the need of a comparison arises in order to see what would change with an adoption of the BEPS regulation. This could also generate insights for other countries, which also plan on adopting the new regulation and therefore results in a global relevance.
In Germany, the according regulations are issued by the Federal Central Tax Office
(“Bundeszentralamt für Steuern”), which further distributes its authority to local tax offices (“Finanzämter”). The relevant law passage regarding transfer pricing and its regulation can be found in § 90 Section 3 of the AO (“Abgabenordnung” – tax code). The main elements of this paragraph are the “Sachverhaltsdokumentation” (facts documentation), which requires the tax payer to state all the relevant business transactions and presenting the corresponding data and the “Angemessenheitsdokumentation” (adequacy documentation), which requires the tax payer to verify that his chosen transfer prices are in line with the market terms according to the arm’s length principle.
2.2.5. The Base Erosion and Profit Shifting Project (BEPS)
The OECD has identified the increasing integration of national economies and markets in the past years as one of the main reasons for the need for an update of international tax rules, since “weaknesses in the current rules create opportunities for base erosion and profit
shifting” (see OECD, 2015, p. 3).
In February 2013, the OECD therefore released its report “Addressing Base Erosion and Profit Shifting” and in less than a year, the OECD and G20 countries quickly adopted a 15-point Action Plan in September 2013. The Action Plan is constructed around three key pillars, namely, the introduction of coherence in the domestic rules that affect cross-border activities, the reinforcement of substance requirements in existing regulations, and the improvement of transparency and certainty, and consists of 15 actions (see OECD, 2015). However, this study will only focus on action 13, which refers to the use of transfer pricing.
The OECD rightfully describes this new package of regulations as the “first substantial
renovation of the international tax rules in almost a century” (see OECD, 2015, p. 3), with
the expectations that “profits will be reported where the economic activities that generate
11 to achieve these expectations, the OECD also stresses the importance of the appropriate implementation of these new rules and highlights that “a better understanding of how the
BEPS recommendations are implemented in practice could reduce misunderstandings and disputes between governments” (see OECD, 2015, p. 4).
Action 13 of BEPS Action Plan requires the development of “rules regarding transfer pricing
documentation to enhance transparency for tax administration, taking into consideration the compliance costs for business. The Rules to be developed will include a requirement that MNEs provide all relevant governments with needed information on their global allocation of the income, economic activity and taxes paid among countries according to a common
template” (see OECD, 2015, p. 9).
According to this, the OECD developed a three-tiered standardized approach, consisting of the following elements. First, MNEs are required to “provide tax administrations with
high-level information regarding their global business operations and transfer pricing policies in a
master file that is to be available to all relevant tax administrations” (see OECD, 2015, p. 9). Second, MNEs are required to provide a “detailed transactional transfer pricing
documentation in a local file specific to each country, identifying material related party transactions, the amounts involved in those transactions, and the company’s analysis of the transfer pricing determinations they have made with regard to those transactions” (see
OECD, 2015, p. 9). Lastly, large MNEs, with a consolidated group revenue of at least EUR 750 million need to file a Country-by-Country Report, that “will provide annually and for
each tax jurisdiction in which they do business the amount of revenue, profit before income tax and income tax paid and accrued” (see OECD, 2015, p. 9). Additionally, MNEs need to
report “their number of employees, stated capital, retained earnings and tangible assets in
each tax jurisdiction” and also “identify each entity within the group doing business in a particular tax jurisdiction and to provide an indication of the business activities each entity engages in” (see OECD, 2015, p. 9).
The overall aim of this three-parted approach is that taxpayers are required “to articulate
consistent transfer pricing positions” and to “provide tax administrations with useful
information to assess transfer pricing risks, make determinations about where audit resources can most effectively be deployed”, and in the case of audits, “provide information to
commence and target audit enquiries” (see OECD, 2015, p. 9).
It should be noted that the OECD puts emphasis on the effort to “balance tax administration
12
costs and burdens imposed on business” (see OECD, 2015, p. 10), which also stresses the
importance of a rightful implementation as mentioned above.
These new requirements have been implemented for fiscal years beginning on or after 1st January 2016 with an already scheduled review in 2020. It should be noted that the country-by-country report will not be covered in this research, since the case’s company falls under the EUR 750 million requirement. This issue will be addressed again in the limitation section.
All in all, the new regulation tries to address the key issues of profit shifting through cross border subsidiaries, and overall lacking transparency.
2.3. Conceptual Framework
Based on the above, this study applies a conceptual framework consisting of the top ten most important aspects regarding transfer pricing. These aspects will be listed below accompanied by a description of its contribution to the overall framework. They are grouped into two clusters to enhance transparency. The first cluster is focused on the evaluation of the BEPS regulation, while the second one is dealing with the practical use of transfer pricing.
2.3.1. Cluster 1: Evaluation of the BEPS Project
The first cluster focuses on the BEPS project in particular. It consists of a historical
development, the aspect of profit shifting, transparency, the treatment of subsidiaries and its estimated future. It aims to assess the consequences of the differences of the BEPS project to the previous regulations, which will be generated by a direct comparison in the following case. This procedure will be elaborated in more detail in the methodology section.
Historical Development
This aspect focuses on the comparison of previous regulations and the newly issued BEPS regulation. According to Lohse and Riedel (2013), the required transfer pricing
documentation is the main regulatory instrument to engage corporate misbehavior with
13 has been the first new regulation issued by the OECD regarding the usage of transfer pricing in several years (see OECD, 2015).
Profit Shifting
This aspect is highly relevant, since it is one of the main reasons for the OECD’s need to publish a new regulation. Profit shifting of taxable income into low income tax countries has already been identified as a major tax issue (see Vicard, 2014). It can result in substantial corporate tax reductions for firms and corresponding losses for the involved governments. Combined with the high magnitude of the usage of transfer pricing, it is believed that $ billions worth of tax revenues have already been lost (see Mehafdi, 2000).
By including this aspect in the conceptual framework, this study aims to assess the possibility of the BEPS regulation to reduce the likelihood of profit shifting (i.e. if the differences to the previous regulation will impact the occurrence of profit shifting).
Transparency
The BEPS regulation also aims at enhancing transparency (see OECD, 2015). This aspect is highly connected with the previous one, because it is believed that a lack of transparency facilitates profit shifting (see Evers et al., 2014). This is also reflected by the government’s efforts to implement more requirements of transfer pricing documentations in order to increase transparency (see Lohse and Riedel, 2013).
Therefore, this aspect is also crucial for this conceptual framework, since it is important to analyze if, and how, this newly issued regulation will be able to accomplish this goal.
Subsidiaries
14 Additionally, Paz-Vega (2009) predicts rising agency and transaction costs as another
consequence of managers’ misbehavior.
By including this aspect in its conceptual framework, this study aims to analyze if and how the treatment of subsidiaries changed with the issue of the BEPS regulation.
Future
Lastly, this study also tries to evaluate if the BEPS regulation accomplished its goals and how its future perspective might look like. This includes some of the above listed aspects like “profit shifting” or “transparency”, however this aspect aims to assess the holistic impact of the BEPS regulation, instead of just looking at one of the sub-aspects. Is the BEPS regulation going to converge the different transfer pricing regulations across the world? Or is it still lacking certain aspects, and if yes, which ones? These questions are especially important with regards to the required transfer pricing documentation being the main regulatory instrument to reduce corporate mispricing behavior (see Lohse and Riedel, 2013).
This aspect can be seen as a concluding aspect of the first cluster that aims to evaluate the overall impact of the BEPS regulation in terms of its implementation and goal achievement.
2.3.2. Cluster 2: Practical Usage of Transfer Pricing
The second cluster includes the aspects of general approaches in the determination of transfer pricing, the different possible motives for its usage and the general relevance of transfer pricing in practice. It should be noted however, that all practical insights generated in this work are all based on the case of one particular MNE. Therefore further research might have to be done with a bigger sample in order to assure a certain degree of generalization.
General Approaches in Determining Transfer Prices
15 is inconsistent and rather theoretical orientated (see e.g.: Baldenius et al., 1998; Heath et al., 2009).
By including this aspect in the conceptual framework, this study aims on getting practical insights on the overall use of transfer pricing regarding the determination of the corresponding prices.
Strategic Management
This aspect focused on the context of strategic management. In other words, are transfer prices considered in strategic management decisions in practice, and if yes, to what extent? This refers to previous research, which showed possible profit maximizations via the strategic determination and usage of intercompany prices (see Alles and Datar, 1998). According to Cravens (1997), MNE can use transfer pricing policies to assist in achieving competitive advantages or similar corporate objectives.
Therefore, this study aims to assess the degree to which transfer pricing is included in the strategic management decisions within the MNE at hand.
Management Control
As mentioned in the literature section, there are different motives for the use of transfer pricing. One of them is the utilization of transfer pricing as a management control tool, which focuses on the retrospective evaluation of the different entities of the group. As the literature provides possible advantages (e.g.: see Cravens, 1997), the argument of transferring the inefficiencies of one subsidiary through transfer prices to another might reduce the
effectiveness of transfer pricing as a control tool (e.g.: see Gabrielsen and Schjelderup, 1999; Mehafdi, 2000). This study aims to analyze how important this aspect really is in practice, and if there are any other special considerations in that regard.
Tax Management
16 (see OECD, 2015). Even though, the tax aspect of transfer pricing is always seen as a
problem, especially with regards to profit shifting and tax evasion (see Vicard, 2014;
Mehafdi, 2000), there are still completely legal considerations for companies to structure their transfer pricing policies to optimize their taxes (i.e. tax avoidance).
This study aims to identify if such considerations are present in the MNE at hand, and if yes, how these look like.
General Relevance of Transfer Pricing
Even though intercompany trade makes up 60% of all global trade, as mentioned above, it is still unclear how important the usage of transfer pricing really is in practice. For example, if it is included in firm’s day to day business, or how much effort and resources within the firm are being allocated to the area of transfer pricing.
17 3. Methodology
In this section, the methodical approach will be elaborated as well as, the relevant data sources.
3.1. Methodical approach
The paper will use a case study approach as a methodology framework in order to
successfully compare the international and local regulation and at the same time, ensure a practical application.
According to Yin (2009, p. 18) a case study is “an empirical inquiry that investigates a
contemporary phenomenon in depth and within its real-life context, especially when the boundaries between phenomenon and context are not clearly evident. The case study inquiry copes with the technically distinctive situation in which there will be many more variables of interest than data points, and as one result relies on multiple sources of evidence, with data needing to converge in a triangulating fashion, and as another result benefits from the prior development of theoretical propositions to guide data collection and analysis”.
This approach will ensure an appropriate investigation while retaining the holistic and meaningful characteristics of the organizational process of transfer pricing. More detailed, a case study is more suited than other approaches, since it focuses on “how” the new regulation can be compared to the preexisting one, and “how” transfer pricing is used in practice. At the same time it does not require the control of behavioral events, but rather focuses on
contemporary events, in this case the publication of the new OECD regulations (see Yin, 2009).
More specifically, a single-case design is used with two embedded units of analysis, which will be defined in the following. Since this paper highly values a practical reference, it will discuss the different regulations in the context of a German-French MNE, which is planning on adopting the newly issued OECD regulations voluntarily. Therefore a transfer pricing documentation of this MNE will be presented in both forms, according to the preexisting German regulation as well as, according to the BEPS regulation.
18 European market. Therefore the “case” itself will be the MNE’s situation, while the two units of analysis will be the local German and the international OECD regulation.
The overall structure of the case study will be split into two parts. The diagnosis stage and the design stage. Both will be elaborated in detail below.
3.1.1. Diagnosis Stage
The diagnosis stage will be the first part of the analysis, during which the two different transfer pricing documentations will be compared. This is done mainly focusing on the content and structure of the documentations, without applying the conceptual framework yet. The aim of this stage is to analyze the differences and similarities without having any bias or evaluation involved. It tries to identify possible differences or aspects of interest relevant for the second stage, which will then use the established framework to assess the consequences of these differences. In terms of the data sources, the most relevant ones for this part will be the use of documentation and direct observation within the MNE with regards to their transfer pricing documentations.
3.1.2. Design Stage
During the second part, the design stage, the above mentioned identified differences of the two regulations will be used, while applying the conceptual framework. The aim is to find the reasons of these differences as well as, assessing their possible consequences for the firm. At the same time, this study utilizes the opportunity of real life experiences within a MNE in order to generate practical insights on the use of transfer pricing, as a secondary research aim. This will be done by mainly using direct observations, and by conducting multiple interviews. In order to clarify this further, the different data sources will be described below, which should complete the overview of the methodical approach, before heading to the actual case.
3.2. Data sources
19 The main data sources for the regulations itself will be the corresponding authorities
mentioned in the theory section, which will also provide the information necessary for the theoretical foundation. In addition to that, previous evaluations of the local regulations might provide insights about already identified weaknesses. Correspondingly to the chosen method of a case study, relevant internal information will be provided by the previous mentioned MNE. Part of this internal data will be obtained by conduction several interviews with officials of the MNE to seize their practical view. Those will rather be focused interviews instead of in-depth interviews, as this case study does not rely on the interviews as its only source of data (see Yin, 2009). Nevertheless, these interviews will be crucial for assessing the practical perception of transfer pricing.
Lastly, direct observations, as well as participant-observations will be made, which strengthen the practical relevance even further and, according to Yin (2009), might provide useful
additional information. All of these data sources will be elaborated in more detail below.
3.2.1. Documentation
As mentioned above, the main data source regarding the content of each regulation will be the documentations published by the corresponding authorities. However, Yin (2009) points out that these kinds of documentations are not always accurate and might have a possible bias. Therefore, this study will try to limit the usage of these documentations in order to increase the overall quality of possible results. Additionally, various other data sources will be used, in order to best utilize the strengths of a case study approach. This includes internal data sources, as for example the actual transfer pricing documentation of the MNE.
3.2.2. Interview Method
Yin (2009, p. 106) regards interviews as “one of the most important sources of case study
information”. By conducting these interviews, essential internal information can be obtained,
which underlines the practical relevance of this research since it shifts it focus from a theoretical to a practical approach.
20 remain flexible with regards to the different expertise and knowledge of the individuals, these questions are only used as leading questions, and a deviation from the initial question in form of follow up questions is possible. Therefore, the overall structure of the interviews will be rather unstructured. There will be three different interviews. Two of them will be conducted with officials of the MNE in order to assess their current state, as well as their view on transfer pricing in general and their internal aims regarding the implementation. In order to have the highest possible validity, these interviews are conducted with the CEO and CFO of said MNE. In contrast, the third interview will be conducted with the firm’s tax consultant who is also a certified public accountant (CPA). This will utilize his professional expertise regarding the evaluation of the different regulatory approaches. Every interview will consist of 12 leading questions and will be conducted over a duration of approximately 30 minutes.
3.2.3. Direct Observations
Nearly all of the data obtained regarding the actual implementation of the different regulations will be originated from direct observations.
This research is conducted in combination with an internship in the finance division in the above mentioned MNE. During this internship, the author had the opportunity to be directly and extensively involved in the process of the implementation of the different transfer pricing regulations, and the creation of corresponding transfer pricing documentations. This balances the earlier mentioned weaknesses of documentations as data sources, since direct observations assure a sufficient level of accuracy and relinquishes the possible biases. Additionally, by taking part in the actual implementation, a natural setting is being created which further increases the quality of case studies, according to Yin (2009).
21 4. The Case – “Industry GmbH”
22 5. Implementation – Diagnosis Stage
This section is the first part of the actual case study, the diagnosis stage. It will present the implementation of a transfer price documentation under each regulation. First, a transfer pricing documentation under the current German regulation will be conducted. After that, the OECD’s new BEPS – Action 13 will be implemented, before comparing both of them, and then heading to the second stage to assess the consequences of these differences.
5.1. Transfer pricing Documentation According to the German Regulation
The implementation will be documented in several steps. First of all, the general approach will be stated. This refers to the firm’s considerations when approaching the implementation in the beginning. Second, the overall structure of the documentation will be described regarding the content of each section, as well as, the internal data used as data sources.
5.1.1. General approach
The main consideration a firm has to keep in mind when conducting a transfer pricing documentation is, that they have to balance the degree of disclosure. If the firm presents too little information, it might not be regarded as sufficient by the authorities and if they present too much, they risk making themselves vulnerable. A good rule of thumb is to provide all the necessary information requested by the authorities, and other relevant information even if not officially required, while sensitive data is only presented if explicitly requested. Therefore, there are some sections in the following transfer pricing documentation, which are not officially required but rather included on a voluntary basis in order to provide additional information to tax authorities.
5.1.2. Structure of the documentation
The main aim of the documentation is to verify that the company’s transactions are all in line with the market terms according to the arm’s length principle. Therefore, the overall structure of the documentation should narrow down to this, section by section.
23 structure is fairly common and was provided as a template by the firm’s tax consultant. It can be viewed at as a construction of different levels, which start of very broadly and then
narrows down towards the specific transactions with each level. This is being illustrated by the following figure (see figure 1).
Figure 1: Different Levels of a Transfer Pricing Documentation
Core of this is the functional and risk analysis. Based on this analysis, an auditor can assess the different entities’ function and risk profiles. These profiles are then used to determine the appropriateness of chosen margins and transaction methods regarding transfer pricing. The following will describe each section focusing on a presentation of each section, followed by a description of the specific content with regards to Industry GmbH. This section will present all the elements of the documentation’s structure one by one, including the content, and also the used sources for each part. However, it should be noted that all of the following transfer pricing documentations include basic components like a table of content, a list of figures, tables, and abbreviations at the beginning, which are not covered in this analysis in any more detail.
“Aim & Scope”
24 description of the following structure. It might not be included in the actual requirements, but nevertheless it is important to give the reader said information right in the beginning in order to assure the appropriateness of the documentation.
In the case at hand, this means a reference to § 90 Abs. 3 AO needs to be included, since the documentation is done for the German entity and therefore, according to German law. This is accompanied by a description of the aim, which is the verification that the chosen
intercompany prices are in line with market terms according to the arm’s length principle. Additionally, it is stated that the documentation at hand is conducted for German GmbH for the fiscal year of 2016.
“Market Analysis”
The next level is the market analysis, since it is important to understand the companies’ market environment in order to assess their transactions correctly. In this section, the scope narrows down from first describing the overall world economy in the corresponding period, to the development of the corresponding company’s industry, to the companies specific
competitive position. Latter can be done by simply naming the key competitors and providing a short list of characteristics. However, analog to the first section, this is not explicitly
required by the German law, but has been added based on the firm’s tax consultants’ proposal.
With regards to Industry GmbH this is done using three different sources. The development of the global economy is stated based on annual reports issued by the International Monetary Fund. Information of the industry development is obtained from quarterly reports of corresponding trade association for steel and metal processing. Lastly, a description of the main competitors is based on internal data. In case external data is used, as it has been done with regards to the market development, a corresponding reference in the transfer pricing documentation is needed, as well as attaching said data in the appendix.
“Company Analysis”
25 overall general information. This can for example also include an image brochure, since, as mentioned above, there are no formal requirements on the documentation. The next part is presenting the economic situation of company by presenting some key figures like revenue, net income, EBIT, and EBITDA. This information is very important, in order to assess the intercompany transactions and even though it can also be found in the company’s financial statements, which would be provided in case of an audit anyways, it is crucial to present these figures before elaborating the actual intercompany transactions themselves. Analog to that, the company’s overall business strategy is presented to provide as much context to the transaction’s circumstances. Of course companies are not asked to reveal any of their strategical business secrets, but just to give an overview of how they conduct their business. Tied to that, the next part presents the company’s product structure, which includes the overall groups of products, as well as a list of the most important ones. Afterwards, the company’s distribution, customer, and supply structure is being described. Again, the
companies are not ask to disclose vulnerable or valuable information, but to give an overview of where and with whom they conduct business. After having described the different
structures in the company, the last sections of the company analysis describe the overall assumed risks, the company’s core competences, as well as their intangible assets. However, this is still just to give an overview about the firm’s overall situation and a more in-depth analysis of its assumed functions and risks is provided in a later stage of the documentation.
Industry GmbH provides the above based on internal information, including an image brochure and by extracting key figures from the financial statements. Most of the data is illustrated by a figure or table accompanied by a corresponding description. With regards to core competences, it should be noted that the firm’s main competence is its production know-how, which also constitutes its only significant intangible asset. Since Industry GmbH is an industrial company, it does most of it business by producing and selling finished goods, without relying on derivates or other intangibles. Additionally, each of the group’s entities has its own brand and therefore, brands are not involved in intercompany transactions.
“The Group’s Structure”
26 regarded firm within its group. Afterwards, the group’s development is described analog to the historical background of the company in the previous section, as well as an organigram. Also analog to the company analysis section, the economic situation of the whole group is described by presenting key figures like revenue, net income, EBIT, and EBITDA. However, in contrast to the company analysis, this section also includes a more in-depth presentation about the groups revenue structure in terms of intercompany revenue versus revenue generated through third parties. This is very important, because if the ratio of intercompany revenue is above average, it might already indicate an inappropriate usage of transfer pricing. Next off, the individual entities of the group are being presented, while distinguishing
between production, sales, and hybrid facilities. This is important underlying information for the upcoming function and risk analysis, since it highly, if not solely, depend on the role each entity plays within the group.
Since the transfer pricing documentation is being created for the German entity, German GmbH, its position within the group is being described. As mentioned above, it is one of the group’s dominant entities, coordinating most of the group’s business, as well as conducting several intercompany services for the remaining entities. All of this information is based on internal data. With regards to the group’s revenue structure, Industry GmbH generates approximately 10% of its revenue through intercompany trade, which has been more or less constant over the past years. Even though there is no official threshold, this can be regarded as non-significant, according to the firm’s tax consultant. It would be problematic however, if the intercompany trade would make up more than just 10%, or if it would spike during individual years, as it would open up a possibility of misconducted transfer prices.
“Controlled Transactions”
27 x-axis, while the other associated entities are on the y-axis. Then for each group of
transaction, the transactions with an associated entity, are displayed as a relation of the overall sum of the corresponding transaction group including all entities. In the next step, these relations are replaced and represented by stars. One star indicates a low extent of transactions, two indicate a medium extent, and three stars indicate a high extent. The star-chart gives a nice overview of the relative extent of each transaction compared to the other transactions within its group. This is especially considerable if the auditing period is exceeding one year, since such a matrix is required in a later stage of the documentation anyways, only in a more precise way by giving the exact absolute values of each transaction. However, a star-chart is more appropriate to present the overall ties of a group on average, while a transactional matrix is only regarding one year. This is being illustrated by the figure below (see figure 2). It should be noted however, that all the following figures are just exemplary with fictive values.
Figure 2: Star-Chart of the Outbound Relations between German GmbH and Associated Entitites in 2016
Figure 3: Transaction Matrix of the Outbound Relations between German GmbH and Associated Entities in 2016
28 matrices based on just one year (see figure 3). In addition to that, intercompany credit
relations are being presented, in order to present the basis of the arising interest payments (see figure 4).
The relevant transaction groups for German GmbH are: finished goods, semi-finished goods, raw material, tools, spare parts for tools, machines, services, and interest payments. The underlying data for their transaction matrices, star-charts, and illustration of credit relations is obtained from internal sources.
Figure 4: Credit Relations within Industry GmbH for the Fiscal Year of 2016 in TEUR
“Function & Risk Analysis”
As mentioned before, this section can be regarded as one of the core components of every transfer pricing documentation. It will present all the assumed risks, functions, and also used assets of the involved associated entities, again, without any formal requirements. Therefore, depending on the group’s size and the number of risks etc., it is considerable to present said information in a table. The extent of each adopted function and risk is stated by stars, similar to the star-chart in the previous section. Analog, one star indicates a low extent of
29 based on this analysis, an auditor can assess the different entities’ function and risk profiles, which are then used to determine the appropriateness of chosen margins and transaction methods regarding transfer pricing. It is important to note that the determination of each extent of functions and risks is not based on specific numbers, but rather chosen by the group’s management. Of course, it needs to reflect reality, which prevents arbitrary behavior, but there is still some degree of freedom in terms of assessing each extent.
In order to best illustrate the efforts of German GmbH with regards to the function and risk analysis, the according figure can be found below (see figure 5). It should be noted, that the function- and risk analysis below is done for the R&D division to illustrate the overall
presentation. However, in practice all the relevant divisions need to be included, depending on the MNEs industry.
Figure 5: Function- and Risk Analysis of Industry GmbH for the Fiscal Year of 2016
“Adequacy Analysis”
30 in line with the practical determination of the intercompany prices. Instead, the method that verifies market terms the best is chosen. This means, that for example, even though in reality the intercompany prices for finished goods have been determined based on their costs, the comparable uncontrolled price method might still be better suited to verify market terms according to the arm’s length principle, since it is relatively easy to find an active markets for finished goods and therefore to establish comparables. Additionally, not all intercompany prices need to be verified. Only the transactions, which exceed a certain materiality threshold are regarded as significant need to be allocated to a corresponding method. This threshold can be chosen by the company, but needs to be economical reasonable, depending on the overall transaction volumes.
“German Inc” chose to use both, a relative and an absolute materiality. Only transactions that exceed a value of € 50.000, and also have a relative share of at least 25% of the overall transaction group are regarded as significant and therefore, allocated to a corresponding transfer pricing method. With regards to the specific method chosen for the individual transaction groups, German GmbH uses the resale-price-method to verify market terms for their finished goods. This method is especially condensable for finished goods, since they are only traded within the group to be sold again and have an active market as a comparable. However, sometimes it is not necessary to choose one of the official methods, if the
circumstances allow for it. This is the case for the group’s raw material transactions. German GmbH buys the raw materials on the market and then sells it to the Czech subsidiary, in order for them to produce goods, which are then being sold back to German GmbH The raw
31 to the raw materials. Industry GmbH conducts two intercompany services for the rest of the group. These consist of a management fee and services of the data processing center. In terms of verifying market terms, German GmbH argues that this centralization of services provides an overall cost reduction in terms of a resource pool, as it would be more expensive for the overall group, each entity had its own data processing center. Therefore, the according context is being described in detail, as well as, the corresponding allocation formula. Said allocation is done based on the individual amounts of services made use of by the single entities. Lastly, German GmbH presents the transactions with regards to interest payments arising from intercompany loans. The financing of Industry GmbH is based on individual contractual arrangements in line with prevailing market terms. All financing activities related to the banks are conducted with German Inc, which then forwards these loans to other entities of the group, if necessary. This is done, based on the bank’s request of having a German entity as their contractual partner because of reasons of liability, contract law, and German GmbH being the group’s largest entity. The interest rate when forwarding is the same, as the one given by the banks. Any kind of markup or premium is unacceptable. This constitutes a standard group financing, since individual financing would not be affordable. The arising collateral costs are distributed to all involved entities via an allocation formula. This formula is based on total assets for each entity in order to assure enough financial means according to the corresponding needs, represented by the total assets. All of the above stated methods have been approved by the German authorities, after auditing German GmbH.
5.2. Transfer pricing documentation – OECD Regulation
After describing the implementation of a transfer pricing documentation according to the German law, the implementation of the new BEPS regulation will be done analog. First, the general approach will be stated again, followed by the overall structure of the documentation. However, since part of the information is overlapping, this implementation will be less detailed on sections that have already been covered above, and more focused on the
32 5.2.1. General approach
In terms of disclosing information, the same considerations apply as for the previous regulation. However, now the firm also needs to distinguish between a master and several local files, instead of just having one document. Therefore, the following section will be divided into two, one for the master, and one for the local file.
5.2.2. Structure of the documentation – Master file
In general, the master file contains all the information relevant on the group level. This means all the circumstances and information that is true for all, or at least most entities across the group. The entity specific transactions are therefore included in the corresponding local files.
“Aim & Scope”
The structure starts off similar to the previous documentation by stating the aim and the scope of the documentation. It contains more or less the same information, however since this is the group’s master file, the regarded entity is not an individual company, but rather the whole group.
Therefore, in the case at hand the regarded company is Industry GmbH instead of German GmbH. The law reference stays the same, since the OECD regulations have been
implemented in the same section as previous transfer pricing regulations, namely § 90 Abs. 3 AO. Also, since Industry GmbH is implementing the concept of master and local files
voluntarily, an according note has been added in this section.
“Market Analysis”
The following is more or less identical to the previous market analysis. It’s conducted on a global and industrial level and again, it is not an explicit requirement, but rather a voluntary section to provide more contextual information.
33 “Organizational Structure”
The section of the organizational structure is similar to the group’s structure section in the previous documentation. However, analog to the aim and scope section, since this is the group’s master file, it does not favor the view of an individual entity, but rather states the overall structure from a neutral group perspective. It includes a historical development of the group, its current structure, as well as, description of the operating entities.
Again, Industry GmbH conducts this the same way it did in the previous documentation, using an organigram and other graphical illustrations accompanied by an according description.
“Description of the Group’s Business”
The description of the group’s business includes the overall business strategy, the group’s product structure, intercompany service arrangements, main geographic markets, key competitors, as well as, a functional and risk analysis. However, in contrast to the previous regulation, the BEPS regulations puts more emphasis on a detailed presentation of the group’s product structure by including more detailed requirements.
34 “The Group’s Intangibles”
In contrast to the previous documentation, the group’s intangibles now have an own section, which shows the OECD’s emphasis on intangible assets. It not only includes a list of all the group’s intangibles, but also a description of the group’s overall strategy with regards to intangibles, and also transfer pricing policies regarding intangibles.
However, as mentioned above, Industry GmbH does not really rely on intangibles. Therefore, this section does not include much besides statements with regards to production know-how, each entity having its own brand, and the corresponding non-existing of related transfer pricing policies.
“The Group’s Intercompany Financial Activities”
The next passage provides information on how the group is financed, as well as intercompany credit relations. Similar to the intercompany service arrangements, this information has been included in the corresponding transaction group of interest payments, because of its ties to the financing and intercompany credit relations. However, with regards to the BEPS regulation, this is now being stated in the group’s master file in its own section.
The financing of Industry GmbH is based on individual contractual arrangements in line with prevailing market terms, as already described above. The illustration of the corresponding intercompany credit relations is done analog to the previous documentation.
“The Group’s Financial and Tax Positions”
The following segment resembles the group’s economic situation, showing key figures as previously done in the group’s structure section. Additionally, the consolidated statement is referred to with a corresponding reference to the appendix.
35 “APAs and Tax Rulings”
In case of existing APAs (advanced pricing agreements) or other tax rulings related to the allocation of income among countries, a corresponding statement needs to be included in this section.
However, this is not the case for Industry Inc and therefore only the non-existing of said APAs and tax rulings is stated.
5.2.3. Structure of the documentation – Local file
The following will present the requirements of a local file according to the BEPS regulation. However, it should be noted that the master and local files complement each other, therefore some sections of the local file only contain a corresponding cross-reference to the group’s master file, if no entity specific information is required. With regards to Industry GmbH, the local file at hand has been created for German GmbH and therefore assures the comparability of both regulations in the upcoming design stage of this study.
“Aim & Scope”
The only difference to the aim & scope section of the master file is the change of the regarded company, since it is no longer Industry GmbH, but German GmbH.
“Market Analysis”
36 “Local Entity – German GmbH”
This section provides an overview of the corresponding entity of the local file. It contains a presentation of the entity’s management structure, business strategy, and key competitors.
However, since German GmbH does not conduct any individual business on its own, and also does not have any major competitors besides the ones already listed in the master file, a corresponding cross-reference is regarded as sufficient. The local management structure however, has not been included in the group’s master file and therefore has been presented in this section. This is done by illustrating it with an according organigram, accompanied by a corresponding description.
“Controlled Transactions”
The controlled transaction section is very similar to the controlled transaction section in the previous documentation. The different transaction groups are being defined, accompanied by a corresponding transaction matrix, as well as, a star-chart in case of a multi-year analysis. An analysis of the adopted functions and risks also needs to be included in this section, however since it already has been done in the group’s master file, a cross-reference is regarded as sufficient. In contrast to the previous documentation, the description and allocation of the specific transfer pricing methods is also included in this section, instead of having an own section.
Therefore, German GmbH conducts the analysis of its controlled transaction the same way it did in the previous documentation and only has to adjust the structure.
“Financial Information”
This section gives an overview of the entity’s financial situation by presenting key figures like EBIT, revenue, net income, etc..
37 5.3. Comparison of the Regulations
Content-wise, the BEPS regulation did not add much to the previous German regulation, while also not reducing the overall scope of the documentation. The underlying arm’s length principle and the officially accepted methods did not change. Additionally, the main
components are still the same, namely the function and risk analysis to create profiles for each entity, the establishment of transaction groups, and the corresponding allocation of transfer pricing methods. Needless to say, the voluntarily included chapters like “aim & scope” and “market analysis” are also unchanged. However, there are some differences in terms of the content-related focus. Products need to be described in more detail, as well as, intangibles and the overall financial activities of the group. In addition to that, local organizational structures have to be described, which was not required before, as this was only requested on the group level.
The biggest change in terms of the documentation’s structure is obviously the breakdown in master and local files. This drastically increases the overall transparency, since it casts more light on the separate entities, as well as, activities conducted on a group level. This is
especially important with regards to the individual perspectives of each entity, which is now represented in the corresponding local file. Additionally, the concept of master and local files adds a certain level of guidance in terms of structure to the documentation, compared to the previous German regulation. Besides that, the creation of separate sections, with regards to intangibles for example, reflect the shift in focus regarding the content. This also increases the overall transparency, especially with regards to intangibles, which are generally harder to assess, compared to tangible transactions.
38 6. Comparison – Design Stage
This section is the second stage of this study, namely the design stage. Now the previously established conceptual framework will be applied based on the comparison of the regulation and the conducted interviews, in order to analyze the implications of the new BEPS
regulation, and to generate general insights on the practical use of transfer pricing. As already presented above, the framework is being divided into two clusters, with each of them aiming to generate different insights. Based on the previous comparison of the two regulations, and the conducted interviews, each of the identified aspects will be elaborated in the following.
6.1. Cluster 1: BEPS Regulation
The first cluster tries to assess the consequences of the above identified differences of the BEPS regulation to the German regulation.
Historical Development
Since the BEPS project enqueues in a long row of transfer pricing regulations, it is interesting to see how the topic of transfer prices changed with the publication of the most current regulation. In the past, the OECD was focused on content requirements (e.g. the different “Chapters” presented in the above literature section), while the BEPS program is more
focused on structural changes. The overall process of OECD regulations can be seen as a step by step refinement, as in the beginning, the OECD identified problems, then addressed them one by one in the different reports, and now the important aspects are being highlighted (e.g. more detailed requirements for intangibles) and the structure is being optimized to enhance transparency and also to provide more guidance for companies that try to comply with the regulations.
39 the set requirements of an annual revenue of at least € 100 Million. This is due, to the
increasing interest in transfer pricing in the Czech Republic, where the local officials requested documentations for the Czech subsidiary, but also the consideration of future
development under the Trump administration in the United States. For the group’s CFO this is not a surprising development, since the matter of transfer pricing is getting overall more attention across the globe. However, he also states that this is not due to the new BEPS regulation. For him, BEPS is rather a result than a cause, that tries to unify the corresponding regulations. The CEO is confirming the rising relevance, since he experienced an increase in terms of dealing with local authorities of different countries. However, he also addresses the problem, that said countries have different, yet the same interests, namely the highest possible taxable income within their boundaries. Which, in his opinion, gives rise to the need of approaching this matter as transparent and as fair as possible in order to meet the demands of local authorities. He could relate to his situation as “being between fronts” and stretches the importance of governments balancing their objectives among them in order to have a
successful global transfer pricing regulation.
The group’s tax consultant and CPA also experienced a massive increase of relevance of the topic of transfer pricing and sees the broad consensus of the different nations as the main driver of this increase, and described the topic as “indispensable for the future”. For him personally, BEPS had a grave impact on his field of activity, with regards to Germany being part of the BEPS project and part of the G20 group. In line with the CEO, he assumes an increase in terms of the coordination of international actions, and expect the German
legislature to concretize the corresponding German laws. Therefore, he needs to assure proper consultation for his clients, in terms of examining previous situations, but also in terms of the appropriate handling of arising situations.
Profit Shifting
