Related-party transfer pricing

Indeed, transfer pricing issues are almost always one of the most important components of tax
audits of German subsidiaries of multinational concerns. The German transfer
pricing rules are substantially in accordance with the OECD reports and
recommendations on the subject, although they are more detailed and more
specific. They are based on the premise that the German subsidiary should
trade at arm’s length with its parent, fellow subsidiaries and other related
parties as though each unit involved were an independent entity.

To demonstrate this, it is necessary that all important overall relationships and
each charge for services (anything other than the delivery of goods) be covered
by a prior written agreement. A prior verbal agreement will fail this test.