Until 2012, the German company G supplied materials at cost to its Bosnian sister company C, which processed these materials into finished products. G purchased the goods back and resold them to the third-party customer P. From 2013 onwards, C supplied P directly, as G was unable to offer competitive pricing if production were carried out in Germany.
The tax authorities assumed a hidden distribution of profits. The Federal Fiscal Court set aside the lower court’s decision and remitted the case for a renewed examination of whether the customer relationship with P had been transferred from G to C without appropriate remuneration.
Regarding the analysis of a potential transfer of functions, the court held that the activities performed for P—i.e., the production for a single customer—could not be regarded as independent and that there was no organic part of a company, which in turn is a prerequisite for the existence of a function.
The Federal Fiscal Court remitted the case to the lower court to assess whether a transfer of the customer relationship with P had occurred without adequate remuneration, which could indicate a hidden distribution of profits. The court also addressed methodological considerations, including the application of the cost‑plus method (excluding material costs supplied by G), the need for reliable benchmarking, and the allocation of location advantages. It further emphasized that § 1 AStG, applies only subsidiarily—at least for the years in dispute—if other income adjustment rules only permit adjustments to a lesser extent.
Leave a comment