The German Ministry of Finance (BMF) recently issued the final version of the Administrative Principles on the Profit Attribution to Permanent Establishments (Administrative Principles), which includes details and clarifications concerning the application of the Authorized Organisation for Economic Co-operation and Development (OECD) Approach (AOA) as required by the Foreign Tax Act (FTA) and the Regulation for the Profit Attribution to Permanent Establishments (PE Regulations). German tax authorities will now require an auxiliary (supplementary) calculation to be made in order to demonstrate the profits attributable to a German branch are consistent with the FTA. This requirement is for all tax years beginning on or after December 31, 2014 (i.e., calendar year-end 2015 and forward). Note that this new requirement should be considered in addition to the regular transfer pricing documentation requirements for international law firms with German legal entities, branches and partnerships. Furthermore, the German transfer pricing documentation requirements have been expanded to now require the rationale for the auxiliary (supplemental) calculation to be included going forward.

A Tax Alert prepared by Ernst & Young Germany provides details.

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