OECD rules to replace German Finance Ministry guidelines for internal agreements
German tax authorities have abolished their previous guidelines for the examination of internal agreements. Rules aligning with OECD's Base Erosion and Profit Shifting (BEPS) project principles will take effect from the start of 2019.
On August 2, 2018, German tax authorities announced that starting in 2019, internal agreements between internationally operating companies will be examined in accordance with the principles of the OECD's Transfer Pricing Guidelines. The previous guidelines from the German Federal Ministry of Finance (Bundesministerium der Finanzen) from 1999 will be repealed at the end of 2018.
The change affects agreements between companies where a group jointly develops, for example, intangible assets or procures services. Costs are typically allocated using a key representing the expected benefit for each member. Going forward, under the OECD's principles, the previous requirement for all parties to act in concert may no longer be strictly applied.
While the examination criteria differ only marginally, the change presents an opportunity to review existing agreements. Particularly for development agreements that generate intangible assets, it is important to consider the recent revisions within the OECD's BEPS project.
Consultancy firm dhpg notes that the change itself is not dramatic, as German tax authorities have already largely followed OECD principles. However, the new guidelines provide greater clarity and remove the requirement for "aligned interests" among all parties, which can simplify operations for international groups.