On 21 February 2017, the Federal Ministry of Finance presented the draft of a revised Profit Deferral Recording Ordinance (GAufzV-E) for further discussion. This draft incorporates the amendment of the statutory provisions in Section 90 (3) AO by the Act on the Implementation of the Amendments to the EU Mutual Assistance Directive and Further Measures against Base Erosion and Profit Shifting of 20 December 2016 into a revised Profit Accrual Recording Ordinance to further specify the content. This is the second step towards implementing the BEPS measure from action point 13 on transfer pricing documentation into national German law after it has been enshrined in law. The third element in the triad of law, regulation and BMF circular will be the BMF circular "Administrative principles - procedure", which also still needs to be revised.

The main content of the GAufzV-E in Section 4 GAufzV-E is the detailing of the information on the recording obligations as part of the country-specific, company-related documentation (local file) and the requirements for the master documentation (master file) in Section 5. An annex to Section 5 GAufzV-E describes a catalogue of 18 points that are to be recorded in the master file in future.

The Local File should, according to § 4 GAufzV-E, contain in particular

  1. Information on shareholdings, business operations, organisational structure
  2. Presentation of the taxpayer's business relationships
  3. Function and risk analysis
  4. Transfer pricing analysis
  5. Information on special circumstances such as benefit-sharing measures
  6. Apportionment agreements with annexes, appendices and supplementary agreements
  7. Information on mutual agreement or arbitration procedures
  8. Records of price adjustments made by the taxable person
  9. Records of causes of losses and measures taken to eliminate them
  10. Records of functional and risk changes in connection with Research projects and ongoing research activities
  11. If database studies are used, information on the search strategy, search criteria and selection process (search process)

The description of the value chain and presentation of the taxpayer's value added contributions (quantification) should be emphasised in section 4 subsection 3 GAufzV-E. It remains to be seen whether and to what extent the German legislator will follow the requirements of other countries, some of which require extensive value chain analyses (VCA), e.g. China.

The Masterfile According to § 5 GAufzV-E, it should in future contain information on the following 18 points in particular:

  1. Graphic representation of the organisational structure (legal and ownership structure)
  2. Overview of significant factors for the Group's overall profit
  3. Description of the supply chains for the five products with the highest sales revenue
  4. Description of the supply chains of all other products/services that each account for more than 5 per cent of revenue
  5. List and description of important service agreements
  6. Description of the most important geographical markets for products/services
  7. Summarising functional analysis,
  8. Summarised description of significant restructurings
  9. Description of the Group's overall strategy for intangible assets
  10. List of intangible assets or groups of intangible assets
  11. List of important agreements on intangible assets,
  12. Transfer pricing policy with regard to intangible assets
  13. General description of significant transfers of intangible assets
  14. General description of the Group's financing
  15. Information on financing, cash management or asset management functions
  16. Description of the transfer pricing strategy in relation to financing relationships
  17. Consolidated financial statements of the Group for the financial year in question
  18. List and brief description of existing unilateral advance agreements

The taxable person should also be able to use records created by another company in the same group for this purpose.

Contrary to the legislator's idea that companies would not incur any greater effort or higher costs than under the previous GAufzV requirements, there is nevertheless a recognisable increase in the amount of documentation and analysis required, particularly in the areas of functional and risk analysis, the requirements for intangible assets and group financing.

The further legislative process in terms of content and timing remains to be seen. The GAufzV-E is expected to enter into force on the day after its promulgation and apply from the 2017 assessment period.

Guest article by Carsten Schmid, Transfer Pricing & Friends GmbH, Stuttgart. Further information is available at www.tpa-global.com.