In this article for the leading German economic magazine Der Betrieb, NERA Special Consultant Dr. Alexander Voegele discusses the new components of the German Federal Ministry of Finance’s guidelines for documenting transfer prices. The main focus of the new principles is on the documentation of comparable transfer prices of independent companies—specifically what and when to document, when documentation is deemed insufficient, and the consequences of non-compliance. New emphasis is also placed on the economics and economic analysis the taxpayer has to summon.

Dr. Alexander Voegele points out Germany’s unique rules for documenting facts (compilation of documents), as well as the arm’s length documentation (documentation of comparables). He examines how to use risk analysis, explains the non-routine functions of the entrepreneur, and the so-called routine functions of others. He describes the substantial tangibles/intangibles used for the non-routine functions of the entrepreneur and discusses the documentation of routine functions where prices and margins are compared primarily on the basis of external data banks.

Dr. Voegele concludes that documentation of transfer prices requires detailed economic analyses, which can also be helpful in strategic planning.

This article from the 20 May 2005 issue of DER BETRIEB has been reprinted with permission from the publisher. All rights reserved. Copyright DER BETRIEB, Verlagsgruppe Handelsblatt GmbH 2005.

The article is available in German, by request only.