International Tax Review is part of the Delinian Group, Delinian Limited, 8 Bouverie Street, London, EC4Y 8AX, Registered in England & Wales, Company number 00954730
Copyright © Delinian Limited and its affiliated companies 2023

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

New transfer pricing rules could lead to conflicts


Ludger Wellens and Irina Gerner of PricewaterhouseCoopers, TP Week’s correspondent in Germany, see potential disputes emerging

Germany has recently introduced new legislation on transfer pricing that leads to potential conflicts with foreign countries. In addition, German tax authorities are considered to be the second toughest on transfer pricing issues. These developments increase the importance of conflict resolution.

Two approaches of international conflict resolution are available to taxpayers in Germany:

  • retroactive approach for resolving double taxation (MAP/AP)

  • proactive approach for avoiding double taxation (APA)



In order to resolve double taxation the taxpayer can apply for a mutual agreement procedure (MAP). In most of the double tax treaties (DTT) Germany has concluded provisions on MAP similar to article 25 OECD-MC. Since MAP generally does not require an actual agreement, some cases remain unresolved. For these reasons the EU member states signed the EU Arbitration Convention on January 1 1995 to implement the EU arbitration procedure (AP).

Contrary to the MAP on basis of DTT, the EU Arbitration Convention obliges the signing EU members states to resolve double taxation and determines that the AP has to be finalised within of period of three years.

On July 13 2006, the German Ministry of Finance issued guidance clarifying the steps to be taken in a MAP or AP. The guidance outlines among other things:

the German competent authority is organised within the Federal Tax Office;

  • the request is free of charge and can be filed in free-form;

  • filing date: four years (after the first tax assessment that leads to double taxation) unless the relevant tax treaty fixes another filing date.

In an AP two phases can be differentiated: the mutual agreement phase (Verständigungsverfahren) with duration of two years and the arbitration phase (Schiedsverfahren) with duration of six months. After the end of the arbitration phase, the countries have another six months to reach final agreement. If no agreement can be achieved, then the decision of the Arbitration Committee becomes effective.

However, especially in Germany the specified period of three years is generally extended. German guidance imposes no time-limit for the submission of information and documents requested by the competent authorities. However the tax administration can reject the application in case of a significant delay.

Additionally, the MAP as well as the AP is time-consuming and always retroactive. Years may pass in between the respective business transaction and the initiation of an arbitration procedure.


An advance pricing agreement (APA) is an agreement between a taxpayer and one or more tax administrations on an appropriate transfer pricing methodology regarding defined transactions. On October 5 2006, the Germany finance ministry released a guidance note for bilateral and multilateral APAs (German tax authorities officially do not conclude unilateral APAs), which was designed to facilitate the APA process and to establish more certainty for taxpayer. The guidance states among others:

  • pre-filing meeting can be conducted;

  • statutory charge of 20.000 € for a taxpayer;

  • generally a five year term from the filing is applied;

  • roll-back for the business years open to tax audits under certain conditions possible.

An APA is a cost-effective mean to address transfer pricing in a less adversarial environment. It also provides a degree of certainty for taxpayers in terms of future tax bills and for tax authorities in terms of future tax revenue. Additionally, the disadvantages related to solution enforcement or double taxation because of unresolved international tax disputes are less likely.

Ludger Wellens is a partner in PricewaterhouseCoopers’ transfer pricing group, Irina Gerner is associate in this group.

more across site & bottom lb ros

More from across our site

Governments now have the final OECD guidance on how to implement the 15% global minimum corporate tax rate.
The Indian company, which is contesting the bill, has a family connection to UK Prime Minister Rishi Sunak – whose government has just been hit by a tax scandal.
Developments included calls for tax reform in Malaysia and the US, concerns about the level of the VAT threshold in the UK, Ukraine’s preparations for EU accession, and more.
A steady stream of countries has announced steps towards implementing pillar two, but Korea has got there first. Ralph Cunningham finds out what tax executives should do next.
The BEPS Monitoring Group has found a rare point of agreement with business bodies advocating an EU-wide one-stop-shop for compliance under BEFIT.
Former PwC partner Peter-John Collins has been banned from serving as a tax agent in Australia, while Brazil reports its best-ever year of tax collection on record.
Industry groups are concerned about the shift away from the ALP towards formulary apportionment as part of a common consolidated corporate tax base across the EU.
The former tax official in Italy will take up her post in April.
With marked economic disruption matched by a frenetic rate of regulatory upheaval, ITR partnered with Asia’s leading legal minds to navigate the continent’s growing complexity.
Lawmakers seem more reticent than ever to make ambitious tax proposals since the disastrous ‘mini-budget’ last September, but the country needs serious change.