Authorized OECD approach (AOA) under German law

The allocation of profts between a German
company and a foreign permanent establishment, and between
a foreign company and a German permanent establishment, is
therefore performed in the same way as between independent
companies. In 2014, the Federal Ministry of Finance issued a
statutory regulation to specify the application of the arm’s length
principle in cross-border cases of permanent establishments
(Decree on the Attribution of Profts to Permanent Establish-
ments, Betriebsstättengewinnaufteilungsverordnung), which is
to be applied to business years beginning after December 31
2014.

The standard transfer pricing methods confrmed by the legisla-
ture are the comparable uncontrolled price method, the resale
price method, and the cost-plus method. The transactional net
margin method and the proft split method are also accepted
transfer pricing methods, subject to certain conditions. In the
event that only a range of arm’s length transfer prices can be
determined, the resulting range is narrowed in accordance with
applicable regulations. If the transfer price chosen by the tax-
payer is outside of the narrowed range, a correction is generally
made to the median value in the range.

A hypothetical arm’s
length test is applied when it is not possible to determine arm’s
length transfer prices on the basis of an accepted transfer pricing
method.