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Transfer Pricing Aspects Of Business Restructurings
ETG-Meeting, Milan, 1. October 2009
Thomas Rohler, Partner
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Index
Slide
I. Business Restructuring Phenomenon 3
II. German Regulations 5
III. OECD Discussion Paper 6
IV. Scope of the Regulations 7
V. Definition of a Transfer 8
VI. Evaluation of the Transfer 9
VII. Price Adjustments 10
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Business Restructuring Phenomenon
Business Restructuring in Multinational Enterprises (MNE)
• Global organisation• Cross-border redeployment of functions• Risk and profit allocation• Difficult transfer pricing and treaty issues
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OECD Discussion Draft
Transfer Pricing Aspects of Business Restructurings
• Roundtable OECD 2005• Joint working group (MTC and TPG)• Draft covers only the transactions between related
parties• Published in September 2008 (Comments until Feb.
2009)• First consultation held in June 2009
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German Company Tax Reform 2008
New rules for exit charges on the transfer of functions
• Regulations in the Company Tax Reform Act 2008• § 1 para. 3 Foreign Tax Act (Außensteuergesetz)• Introduced for tax periods ending in 2008• Application rules introduced in August 2008• Draft decree of the Federal Ministry of Finance in
July 2009
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OECD Discussion Draft ./. German Regulations
Scope of the regulations
• Redeployment of functions, assets and/or risks in a MNE (typical cases)
o Conversion of full-fledged to limited risk distributors or full-fledged to contract-manufacturers
o Rationalisation/specialization
o Transfer of IP-rights
• Renegotiation of existing arrangements
• May involve a cross-border transfer of:
o valuable intangibles
o ongoing concern of activity
OECD Discussion Draft
• Transfer of business functions
• Includingo Assets
o Risks and opportunities
o Other benefits
o Services rendered
German Law
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OECD Discussion Draft ./. German Regulations
Transfer
• General acceptance of the MNE structure and decisions
• Commercial rationality
• Risk analysis based ono Documented contractual
agreements
o Conduct of the related parties
o Arm’s length allocation of risk
• Importance of risk control o Decision making
o Risk taking
OECD Discussion Draft
• General acceptance of the MNE structure and decisions
• Transfer meanso Elimination or
o material restriction or
o substitution within a
o five-year-period
• Transfer of economical ownership
• Transfer of the rights to use
German Law
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OECD Discussion Draft ./. German Regulations
Evaluation of the transfer
• Generally valuation of isolated elements
• NPV as in acquisitions deals if ao bundle of assets and
o goodwill
o of an ongoing activity (concern) are transferred
OECD Discussion Draft
• Transfer-Package-Concept
• Hypothetical arm’s length price
• Profit potentialo Profit after taxes
o Profit expectations transferor
o Profit expectations transferee
o Fully informed sound business men
• Valuation methods used in acquisition deals (NPV)
• Midpoint in a range of possible prices
German Law
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OECD Discussion Draft ./. German Regulations
Price adjustments
• For intangibles in uncertain situations
• Arm’s length adjustment clause
• No hindsight knowledge
OECD Discussion Draft
• Correction of Package-Price is possible if
o No regulation although
o there is uncertainty about the development of the profit potential
o Substantial intangibles have been transferred and
o a material change occurs
• Correction period = 10 years
• Adjustment clause with a shorter period is possible
• Royalty = adjustment clause
German Law
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Your personal contact
Thomas Rohler, Partner, Wirtschaftsprüfer, Steuerberater
Tel: +49 (0) 2204 7678-0 • E-Mail: [email protected]
DHPG Dr. Harzem & Partner KG Wirtschaftsprüfungsgesellschaft Steuerberatungsgesellschaft
D-51429 Bergisch Gladbach • Buddestraße 18-20 • www.dhpg.de