If, for example, goods or services are exchanged between different parts of a business, so-called transfer prices must be determined. If the exchange takes place internationally, the tax authorities of the countries involved can audit the transfer prices and adjust them as necessary. This can lead to double taxation. In order to avoid this, an Advance Mutual Agreement Procedures can be useful.

With an Advance Mutual Agreement Procedure, countries agree in advance how, for example, transfer prices between internationally active and affiliated companies are to be regulated. In doing so, the states determine transfer pricing methods for the parts of a business applicable for a certain period of time. The objectives of the procedure are legal certainty and the avoidance of double taxation for the business. The authority responsible in Germany for the Advance Mutual Agreement Procedure is the Bundeszentralamt für Steuern (BZSt– in English: Federal Central Tax Office, FCTO).

In order to apply for an Advance Mutual Agreement Procedure in a transfer pricing case, you must meet the following requirements:

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

As a rule, you should submit the application not only in Germany through the part of the business concerned here. At the same time, you should also file an application abroad through the affected part of the business with the competent authority of the other country.

The Advance Mutual Agreement Procedure is not only possible to conclude Advance Pricing Agreements (APA) in transfer pricing cases, but also in other cross-border situations. This is done as an Advance Mutual Agreement (AMA) if the other state agrees.

What types of Advance Mutual Agreement Procedures are there?

You can apply for an Advance Mutual Agreement Procedure between Germany and

• one other state (Bilateral Advance Mutual Agreement Procedure), or
• several other states (Multilateral Advance Mutual Agreement Procedure)

If your case has already been the subject of a successfully completed Coordinated Bilateral or Multilateral Tax Audit (Joint Audit), you can submit your application on the basis of the results of this tax audit at a reduced application fee.

If you are one of several taxpayers affected by a matter, you must jointly apply for the Advance Mutual Agreement Procedure. You are then obliged to appoint a joint authorized person to receive all administrative acts and notices.

How long is the Advance Mutual Agreement Procedure valid?

The Advance Mutual Agreement Procedure is future-oriented. Therefore, the validity period usually starts at the beginning of the business year in which you submitted the application. The validity period should not exceed 5 years.

Under certain conditions, you can also request that assessment periods preceding the requested term of your Advance Mutual Agreement Procedure be included retroactively (roll back).

Is there a preliminary discussion?

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 prospect of success of your application.

If your application is successfully examined in the course of the procedure and the negotiations between the states are also successful, then the states involved sign an Advance Mutual Agreement. This regulates how double taxation is avoided. However, it cannot be implemented in Germany until you have agreed to its contents and declared a waiver of appeal with regard to its correct implementation.