The BDI has actively participated in the discussion regarding the amendment of the administrative principles on transfer pricing pursuant to Section 1(3d) and (3e) of the Foreign Tax Act (AStG) as part of a joint statement issued by the eight leading organizations of the German business community. However, from the industry’s perspective, the new regulations on intra-group financing raise significant questions, particularly regarding their compatibility with international standards and their impact on Germany as a business location. While we welcome the early adjustment of the administrative interpretation and the clarifications provided in some areas, we still see room for improvement.

Alignment with the OECD Transfer Pricing Guidelines Is Essential

The amendments to Section 1 of the AStG aim to regulate intra-group financing relationships more strictly. We view these unilateral tightening measures critically, as they carry the risk of double taxation and increased administrative burdens.

In the joint statement by the eight leading business organizations, the BDI emphasized that the administrative interpretation could lead to significant practical challenges in some areas. In particular, the requirements for demonstrating that intra-group financing relationships are at arm’s length necessitate extensive documentation that is difficult to implement in practice. Companies could be forced to submit detailed analyses for every financing relationship, which would represent a significant administrative burden, even though companies already adhere to established international standards.

Furthermore, the regulations regarding proof that interest rates are at arm’s length and the requirements for financing relationships appear to be too far-reaching. The standard practice of relying on corporate credit ratings and bank credit ratings consistent with arm’s-length principles already serves this purpose and should be sufficient.

There is a risk that these stricter measures could lead to double taxation, as different countries assess arm’s-length status differently. This poses major challenges for international companies, particularly in coordinating their financing relationships.

Expert Commission Also Takes a Critical View of Section 1(3d) and (3e) of the AStG

In its final report, the “Simplified Corporate Tax” Expert Commission recommended against implementing the newly introduced provisions of Section 1(3d) and (3e) of the AStG. We share this view, as existing instruments, such as the interest deduction limitation, are already sufficient to limit tax planning opportunities. Additional regulations would significantly increase the bureaucratic burden without creating any discernible added value.

Furthermore, a one-sided interpretation of transfer pricing rules carries the risk of double taxation and imposes an unnecessary bureaucratic burden on companies. To avoid this, it is essential that Germany strictly adhere to the OECD Transfer Pricing Guidelines, which are globally recognized and established. Only in this way can a smooth and efficient transfer pricing system be ensured.