If, for example, economic goods or services are exchanged between different parts of a company, so-called transfer prices must be determined. If the exchange takes place internationally, the tax authorities of the countries involved can check the transfer prices and correct them if necessary. This can lead to double taxation. To avoid this, it makes sense to carry out a preliminary consultation procedure.

With a pre-agreement procedure, countries agree in advance how, for example, transfer prices between internationally active and affiliated companies will be regulated. The states determine transfer pricing methods for the parts of the company within a certain period of time. The aims of the procedure are legal certainty and the avoidance of double taxation for the company. The authority responsible for the advance pricing procedure in Germany is the Federal Central Tax Office (BZSt).

If you as a company would like to apply for the advance ruling procedure in a transfer pricing case, you must meet the following requirements:

• Your company is based in Germany or
• Your company has a permanent establishment in Germany and is based in a country with which Germany has concluded a double taxation agreement (DTA).

As a rule, you do not only have to submit the application in Germany through the part of the company concerned here. You should also submit an application to the competent authority abroad at the same time.

The advance mutual agreement procedure is not only possible for transfer pricing as an Advance Pricing Agreement (APA), but also for other cross-border situations. This is done as an Advance Mutual Agreement (AMA) if the other state agrees.

What types of advance agreement procedure are there?

You can use the advance mutual agreement procedure between Germany and

• another state (bilateral advance mutual agreement procedure), or
• several other countries (multilateral prior notification procedure)

apply.

If your case has already been the subject of a successfully completed and coordinated bilateral or multilateral tax audit (joint audit), you can submit your application at a reduced rate on the basis of the results of this tax audit.

If you are one or one of several taxpayers affected by a case, you must apply jointly for the advance ruling procedure. You then appoint a jointly authorized person who may receive all administrative acts and notifications.

How long is the advance ruling procedure valid for?

The advance ruling procedure is forward-looking. The term therefore generally begins at the start of the financial year in which you submitted the application. The validity period should not exceed 5 years.

Under certain conditions, you can also apply for the retroactive inclusion of assessment periods that precede the requested term of your advance ruling procedure (roll back).

Is there a preliminary meeting?

You have the option of arranging a preliminary meeting (prefiling) at the BZSt. During the prefiling, you will discuss detailed information about the procedure, such as the required documents and the prospects of success of your application.

If your application is successfully examined and the negotiations between the countries are also successful, the countries involved will sign a preliminary agreement. This regulates how double taxation is to be avoided. However, it can only be implemented in Germany once you have agreed to its content and declared a waiver of appeal with regard to its correct implementation.