transfer pricing in the crisis milan, october 2009
TRANSCRIPT
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Transfer Pricing in the crisisTransfer Pricing in the crisisMilan, October 2009Milan, October 2009
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Agenda
I. Current tax audit practice in Germany
II. The impact of the crisis
III. Outlook
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I. Current tax audit practice in Germany (1)
• Focus on the period 2003/4 – 2006/7• Tax auditor plus TP specialist• Main goals beside collecting tax revenue
– Receive a TP documentation in writing– Fix a mutual understanding between tax office and client
about allocation of risks / functions andmajor transactions, e. g. intercompany charges
– Use this as basis for the next audit– Enforce information sharing cross-boarder
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I. Current tax audit practice in Germany (2)
• Makes deals more difficult as the audit TP specialists needs to give his approval for the TP issues first (he is not involved nor interested in the national issues)
• Requires a defense team = Tax advisor plus TP specialist and close co-ordination in order to get the deal
• Deals are often driven by lack of documentation, especially for cost allocation schemes
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II. The impact of the crisis
• Restructuring costs• Adjustment payments• FX risks
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1. Restructuring costs
• No specific guidance available• Standard principles shall be followed• Functional analyses decisive
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T1-Corp T2-Corp
M-Corp
Toll manufacturer
Redundancy costs shall be born by M-Corp
Example
Contract manufacturer
Redundancy costs shall be splitted
Q – Payment for Intangibles at the start-up?
Cost +
Cost ++
Capacity redundancy
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2. Adjustment payments
• More frequent = higher risk• Set-offs only recognized by German tax authority
if agreed upfront and in writing• Waiver = generates taxable income• Any modification shall be supported by a business
case and economic substance
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3. FX risks
• Area of uncertainty due to lack of instructions• Discussion with German tax authorities highlights
importance of availability of a contract in writing including section regarding foreign exchange risk
• Agreement shall be overruled only in case of a permanent loss position for one of the parties
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III. Outlook (1)
TP audit = key element for collecting tax revenue
• Support for the client ensuring ongoing documentation process is crucial
• Focus on non-ordinary transactions, e. g.– driven by change of strategy
– market circumstances
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III. Outlook (2)
Intercompany cost allocation scheme
• Detailed documentation becomes more crucial
• Benchmarking analyses less important
• Focus on:– Specific benefits
– Involved resources
– Allocation keys
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III. Outlook (3)
Counter-correction process becomes important
• Avoid stand-alone solutions, which won't be accepted by the other countries tax authority
• Focus on tax audit reports with a detailed explanation of the circumstances underlying the tax correction
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Thanks for your attention
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Sten Günsel Professional background:
University of Halle/Wittenberg School of Law, Mandatory Legal Clerkship – Focus on Tax LawFrom 1995 – 2000 PwC Hanover, 1999 qualification as tax advisoraccording to German lawFrom 2000 – 2005 PwC Czech Republic, Brno/Prague, Leader of the German tax deskFrom 2005 – 2006 Leitner & Leitner, Czech Republic, PartnerSince 2006 Ebner Stolz Mönning Bachem, Stuttgart – works in his capacity as tax advisor and attorney
Main Areas of Focus:International taxation, Expatriate taxation, Tax structuring, Transfer pricing, Central and Eastern Europe
Business Sectors:Investment - Service - Distribution – Manufacturer - Automotive
German Tax advisor – Attorney at Law –
Certified Expert for International Tax
[email protected] +49 711 2049 1258Fax +49 711 2049 3258
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Ebner Stolz Mönning Bachem locations in Germany, over 700 employees
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Leipzig
Stuttgart
Frankfurt
Kiel
Hamburg
HannoverBerlin
München
Leipzig
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Frankfurt
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Düsseldorf
Bonn
Kiel *)
Hamburg *)
HannoverBerlin
München
Leipzig
Stuttgart
Frankfurt
SolingenKöln
Düsseldorf
Kiel *)
Hamburg *)
HannoverBerlin
München
Leipzig
Stuttgart
Frankfurt
Kiel
Hamburg
HannoverBerlin
München
Leipzig
Stuttgart
Reutlingen
Frankfurt
SolingenKöln
Düsseldorf
Bonn