Transfer Pricing News Issue 33 - March 2020

Draft ATAD implementation act

In the area of transfer pricing, there has been a kind of tradition to give Christmas gifts to taxpayers since 1999. In keeping with that tradition, the German Ministry of Finance (BMF) published a draft law regarding the implementation of the Anti-Tax Avoidance Directive (“ATAD draft bill”) on 10 December 2019. What at first glance seemed to be a simple implementation of the corresponding EU directive turned out to be a comprehensive collection of ‘Christmas gifts’ for the world of transfer pricing.

EU council directive 2016/1164 as of 12 July 2016

The starting point is the EU Council Directive 2016/1164 of 12 July 2016, containing regulations countering tax avoidance practices. The ATAD draft bill implements Article 5 (exit taxation), Articles 9 and 9b (hybrid mismatches) of the EU Council Directive, and reforms the computation of controlled foreign income (Articles 7 and 8).

Furthermore, the regulations regarding a fair distribution of taxation rights for multinational companies (§ 90 Federal Fiscal Code (AO)), and § 1 Foreign Tax Act (AStG)) will receive a contemporary design. In addition, the legislator intends to implement a reliable legal basis for Advance Pricing Agreements (§ 89a AO).

It is not fully clear why these transfer pricing topics are part of the ATAD draft bill. However, the BMF expects the Bundestag to approve the ATAD draft bill; hence, it makes sense to include other legislative changes in the same ATAD draft bill.

In particular, the ATAD draft bill affects the following transfer pricing regulations:

Reform of the arm’s length principle

The arm's length principle is further specified and expanded: e.g. the ATAD draft bill standardises the price setting approach and abolishes the hierarchy of transfer pricing methods. Furthermore, the transfer pricing methods are defined. In future, the taxpayer will have to choose the most appropriate transfer pricing method.

Increased significance of economic analysis

The ATAD draft bill increases the importance of an economic analysis of the facts. The application of the interquartile range - being state of the art in today’s transfer pricing practice – becomes part of the German transfer pricing laws. Furthermore, the ATAD draft bill emphasises that a hypothetical transfer price should be based on economically recognised valuation methods.

Business restructurings and transfer packages

Transfer packages in the case of business restructurings and intangible assets are defined in more detail. The period for price adjustments of transfer packages is reduced from 10 to 7 years. In addition, if the price fluctuation of the transfer package does not exceed 20%, the taxpayer is not obliged to adjust the transfer price. The escape clauses regarding the possible valuation of each individual asset are removed.

The OECD’s DEMPE approach

Also included in the ATAD draft bill is the OECD’S DEMPE approach for intangible assets, which postulates that an analysis of the development, enhancement, maintenance, protection and exploitation of an intangible asset is conducted. For the taxpayer it will consequently become particularly important to check whether the existing allocation of intangible assets can also be applied under the new regulations.

Financial transactions

So far, countries have not been able to agree on a common approach regarding financial transactions on an OECD level. Therefore, the German legislator decided to include in the ATAD draft bill unilateral stipulations on whether and to what extent interest payments are deductible for transfer pricing purposes. Furthermore, the credit rating of a corporate group becomes the benchmark for the computation of the interest rate of intercompany financial transactions for inbound loans.

As a rule, the financing function within a corporate group will, under the ATAD draft bill, be treated as a low-risk and low-value-adding service that is usually remunerated at cost. This will make the implementation of economically meaningful cash pools difficult.

Advance pricing agreements

The ATAD draft bill introduces a new national legal basis for advance pricing agreements applicable to all international cases of potential double-taxation.

Master file threshold lowered to a turnover of EUR 50 million

The ATAD draft bill lowers the threshold for the compulsory creation of an overview documentation for transfer pricing (the so-called “Master File”) from EUR 100 million to EUR 50 million annual turnover per taxpayer. This is justified by corresponding regulations in neighbouring countries.

Electronic submission of the Master File at the end of the financial year

The Master File is supposed to be submitted electronically beginning with the financial year 2020. The deadline for submission is astonishing, because the Master File of the respective financial year must be submitted at the end of the respective financial year. In order not to miss the deadline, the taxpayer would have to update the Master File continuously. Furthermore, it remains an open question how the consolidated financial statements can be included in the Master File before the end of the fiscal year.


The ATAD draft bill currently provides that the essential regulations enter into force on 1 January 2020. However, the law was not passed before the 2019 year end. Currently, there doesn’t seem to be a political consensus regarding the legal changes to be implemented by the ATAD draft bill. Therefore, it remains to be seen to what extent the ATAD draft bill will change during the legislative process.

Required actions

Multinational groups should check for the possible impact of the current ATAD draft bill. Many companies which are engaged in cross-border intercompany transactions can be expected to be affected by the regulations to be implemented. Therefore, developments in the implementation process should be monitored.


Arwed Crüger