07.05.2025Updated transfer pricing guidance issued on intercompany financial transactions, OECD Amount B, and employee secondments
Updated guidance aligns more closely with international standards
The German Ministry of Finance published on 12 December 2024 an updated decree on “Administrative Principles regarding Transfer Pricing,” with a particular focus on intercompany financial transactions, Amount B under the OECD Pillar One rules, and cross-border employee secondments. The updated decree replaces previous guidance dated 6 June 2023.
The updated decree applies beginning with the 2024 fiscal year. However, the provisions regarding Amount B apply beginning with the 2025 fiscal year.
Below is a summary of the key takeaways from the updated decree that are relevant to multinational enterprise (MNE) groups.
Intercompany financial transactions
Debt capacity test
Taxpayers must demonstrate their ability to service the debt over the full term of the arrangement. The financing must be economically necessary and used in line with the company’s purpose. Particular emphasis is placed on debt sustainability and the purpose of the funding. Fixed repayment terms and mandatory interest payments are considered relevant indicators. Positively, the updated decree recognizes an investment-grade rating (BBB- or higher) as sufficient evidence of debt service capacity. For short-term arrangements, such as cash pooling, the ability to service debt is generally presumed.
Rating approach
The updated decree endorses the rating methodology outlined in chapter X of the OECD transfer pricing guidelines, asserting that arm’s length interest rates should be based on the group credit rating. Publicly available agency ratings take precedence. However, internal or software-generated ratings may also be accepted if qualitative factors are properly documented. Where no group credit rating exists, it may be inferred from the group’s external financing costs or Deutsche Bundesbank credit assessments. This represents a more flexible approach than the restrictive statutory language, which favors beginning with a group credit rating.
Remuneration for financing companies
The updated decree aligns broadly with the OECD’s guidance on characterizing and compensating financing companies. Intragroup financing services are typically regarded as low-risk activities. The preferred transfer pricing method is the comparable uncontrolled price method, regardless of the financing company's specific role. Exceptions may apply, particularly for banks and insurance companies.
Amount B
The updated decree confirms Germany’s commitment to accepting Amount B (which is a new approach for transfer pricing baseline marketing and distribution activities that seeks to streamline and simplify the application of the arm’s length principle) in jurisdictions covered by a tax treaty. Notably, the only two covered jurisdictions classified as tax havens—Samoa and Fiji—are unlikely to have practical significance.
Given that the German tax authorities may use Amount B as a reference point, taxpayers should conduct a sensitivity analysis to determine whether existing benchmarks diverge significantly from Amount B outcomes.
Cross-border employee secondments
The arm’s length principle continues to apply to cross-border employee secondments. No markup should be added when recharging total costs between associated enterprises. The appropriate allocation is determined by analyzing which entity should bear the costs under the arm’s length standard, rather than by simply identifying the party that incurred the costs.
The updated decree provides further clarity on identifying the economic employer in the case of leadership-level secondments. It also includes guidance on applying anti-abuse rules in such contexts.
Deloitte Germany’s comments
While the structure and general content of the updated decree remain similar to the 2023 version, the updated guidance offers clearer interpretations and aligns more closely with international standards, particularly the OECD transfer pricing guidelines.
Taxpayers should reassess existing financing arrangements (even those established before 2024) to determine how the updated guidance may affect arm’s length evaluations.
The initial clarification regarding the application Amount B, along with new insights into the treatment of cross-border employee secondments under the arm’s length principle, provides useful direction for MNE groups.
While the decree is not legally binding on taxpayers, it is binding on the tax authorities. Nonetheless, taxpayers should follow the interpretations set out in the decree or clearly explain any deviations in their tax filings. This approach supports both planning certainty and compliance.
The updated guidance represents a positive step toward aligning German transfer pricing practice with evolving global standards, although it remains to be seen whether it will achieve the intended goals of simplification and reduced audit controversy.
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