Global Transfer Pricing Update: February 2019 - Tax and Legal blog


Since BEPS, multinational companies are operating in an environment of unprecedented complexity. The rising volume and variety of intercompany transactions and transfer pricing regulations, coupled with increased tax authority collaboration across borders present both risks and opportunities. Our transfer pricing updates will provide you with the latest transfer pricing issues and developments worldwide that may affect your business.

Germany issues new administrative guidance on deviations from arm’s length principle in specific restructuring situations

On 6 December 2018, Germany’s Federal Ministry of Finance released a two-page circular with new administrative guidance that allows German taxpayers to justify a deviation from the arm’s length principle under specific circumstances.
The scope of the circular is limited to cases in which an intercompany transaction within the EU is directly related to a “financial recovery measure” taken by the taxpayer to support the corporate group or a specific company within that group. If a German taxpayer can prove that a financial recovery measure is required and that there is a possibility of a successful recovery, then the taxpayer can justify a deviation from the arm’s length principle with regard to its cross-border intercompany transactions (that are related to the financial recovery measure within the EU). In those cases, the German tax authorities will not impose an income adjustment despite the non-arm’s length pricing.
This circular is the first administrative reaction in Germany to the European Court of Justice’s (ECJ’s) 31 May 2018 ruling in the Hornbach-Baumarkt case (C 382/16, Hornbach-Baumarkt). The court had ruled that one of the core German transfer pricing laws (sec. 1 of the German Foreign Tax Code (FTC)) must include an option for taxpayers to justify potential deviations from the arm’s length principle with “economic reasons”.

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Bulgaria proposes first-ever mandatory transfer pricing documentation requirements

Bulgaria’s Ministry of Finance on 5 November 2018 proposed mandatory transfer pricing documentation requirements. The draft law provides that:

  • Taxpayers would be obligated to prepare a local file if (i) net sales revenue exceeds BGN 16 million, or (ii) the net book value of assets as of 31 December of the prior year exceeds BGN 8 million;
  • The local file would be prepared for transactions exceeding certain annual monetary thresholds;
  •  Entities that are part of a multinational group would be obligated to prepare a master file; and
  •  Transfer pricing documentation should be provided to tax authorities upon request.

The proposed documentation requirements would impose an additional administrative burden on taxpayers, which can also expect higher scrutiny during transfer pricing audits. Preparation of the transfer pricing files will help businesses to manage the risk of transfer pricing adjustments and consequently, reduce the risk of penalty interest and sanctions.

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Australia issues draft guidance on inbound distribution arrangements

The Australian Taxation Office (ATO) on 23 November 2018 released draft Practical Compliance Guideline (PCG) 2018/D8 on inbound distribution arrangements. The draft PCG sets out “profit markers” the ATO will use under its compliance approach to assess the transfer pricing risk of inbound distribution arrangements. The ATO provides profit markers for the following industry sectors:

  • Life sciences;
  • Information and communication technology ;
  • Motor vehicles; and
  • A catch-all segment called “general distributors.

The term “inbound distribution arrangement” covers entities that distribute goods purchased from related foreign entities for resale or distribute digital products or services where the intellectual property in those products or services is owned by related foreign entities.

The risk zones determined by the PCG are low (green), medium (yellow), and high (red) – the higher the risk rating, the more ATO scrutiny taxpayers can expect. Being in the red zone also precludes taxpayers from requesting a unilateral advance pricing agreement (APA).

The ATO’s profit markers (i.e. an EBIT/sales ratio) are generally quite high compared to the results of our recent benchmarking experience. Taxpayers may therefore find themselves in the “red zone,” notwithstanding the fact that their arrangements may be commercial and supported by appropriate transfer pricing documentation.

Taxpayers who may be affected by the draft PCG should consider reviewing their transfer pricing arrangements against the formulaic ATO risk assessment framework. Based on a preliminary assessment, it may be appropriate to approach the ATO to obtain certainty.

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Egypt released revised transfer pricing guidelines

The Egyptian Tax Authority (“ETA”) on 23 October 2018 released an updated version of its transfer pricing guidelines. The update is intended to refresh the Egyptian guidelines, initially issued in 2010, in light of the work conducted by the OECD on the base erosion and profit shifting (“BEPS”) project, and to provide an important source of guidance for how the ETA is likely to interpret Egyptian transfer pricing rules.

The key changes for multinational groups operating in Egypt under the updated guidelines include:

  • The introduction of the three-tiered approach to transfer pricing documentation (master file, local file, and country-by-country report) for the first time in Egypt effective FY 2018; and
  • Introduction of an APA program from FY 2020.

The updated transfer pricing guidelines provide greater clarity to taxpayers on the application of the arm’s length principle, the choice of transfer pricing methods, and general compliance requirements. However, additional guidance is needed in some areas, such as filing mechanism of the local and master files. It is also noted that there are currently no materiality thresholds in respect of the local file and master file requirements, which should increase the compliance burden even for small-scale business operations.

Taxpayers with operations in Egypt are advised to review their existing transfer pricing practices in light of the updated transfer pricing guidelines to avoid a high-risk rating and increased risk of audit.

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By Jonathan Belet– Manager, Transfer pricing 

If you would like to discuss more on this topic, please do reach out to our key contact below.

Sponsoring Partners

Raoul Stocker_BLOG

Raoul Stocker - Partner, International Tax

Raoul Stocker is a tax partner with more than 15 years’ experience specifically in international tax litigation such as mutual agreement procedures and advanced pricing agreements. His focus lies on corporate tax planning, cross-border structuring of corporate transactions and businesses, transfer pricing as well as taxation of financial institutions. Raoul is also a lecturer of transfer pricing and tax law at the University of St. Gallen.



Hans Rudolf Habermacher - Partner, Transfer Pricing 

Hans Rudolf has over 17 years’ of experience in advising clients in Transfer Pricing concepts. He successfully engages with MNCs in various industries in the planning, implementation, documentation & defence of TP concepts. Further he has significant experience in the design and implementation of principal & licensing structures. He is also highly successful in filing and negotiating bilateral APA's (Advanced Pricing Agreements) and mitigating double taxation issues through MAP procedures.


Key contact


Jonathan Belet - Manager, Transfer Pricing

Jonathan is a Manager within the Transfer Pricing team of Deloitte in Geneva. He works on Swiss and international engagements covering both compliance and advisory issues. Jonathan also specialises in operational transfer pricing projects related to facilitating and overseeing the implementation of transfer pricing policies.




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