transfer of intangible assets. The new law introduces the appropriate calculation of transfer pricing in cases where intangible assets are part of a cross-border activity. In such cases, the law assumes – although it can be refuted by the taxpayer – that the parties to the transaction generally do not have full knowledge of the future development of the transactions related to the transferred intangible assets, and a prudent administrator will therefore insist on a price adjustment clause. It should be noted that this legal assumption only applies if the actual development of the cases deviates from the expected development. The Act also provides that transfer pricing adjustment must be made retroactively for the years ended if, in the first ten years of the contract term, no price adjustment clause is included in the transfer agreement or licensing agreement and substantial discrepancies occur. The existing cost-sharing agreements as of December 30, 1999 for the years ending December 31, 2019 or before December 31, 2019 are assessed in accordance with the guidelines published on December 30, 1999, until the circular is published in the Bundessteuerblatt. For fiscal years beginning after December 31, 2018, the principles set out in Chapter VIII of the OECD transfer pricing guidelines apply to multinational companies and tax administrations. OECD principles differ from previous German rules, particularly with regard to research and development contracts. Currently, costs (excluding premiums) are regularly distributed to participants based on expected benefits. In the future, the value of a contribution will always be measured by market price. Transfer of functions.
The new law also introduces a specific provision on the relocation of entrepreneurial functions, including opportunities and risks. It would apply, for example, to the German legislator`s recent proposal to tax the relocation of manufacturing functions from Germany to countries where labour costs are lower. On July 5, the Federal Ministry of Finance updated its transfer pricing guidelines for cost-contribution agreements between associated companies. An intergovernmental agreement should have an effective duration of three to five years. On request and authorization from the foreign tax authority, the duration of the APA may be extended. A fee of 15,000 euros will be due, which could be reduced to 7,500 euros. In the German context, the people`s understanding of an APA cannot be translated into German law. As mentioned above, the law does not allow for agreement between the taxpayer and the tax authorities.