Seite 1www.dhpg.de | Transfer Pricing Aspects Of Business Restructurings ETG-Meeting, Milan, 1. October 2009 Thomas Rohler, Partner

Slide 2www.dhpg.de | Index Slide I.Business Restructuring Phenomenon3 II.German Regulations5 III.OECD Discussion Paper6 IV.Scope of the Regulations7 V.Definition of a Transfer8 VI.Evaluation of the Transfer9 VII.Price Adjustments10

Slide 3www.dhpg.de | Business Restructuring Phenomenon Business Restructuring in Multinational Enterprises (MNE) Global organisation Cross-border redeployment of functions Risk and profit allocation Difficult transfer pricing and treaty issues

Slide 4www.dhpg.de | OECD Discussion Draft Transfer Pricing Aspects of Business Restructurings Roundtable OECD 2005 Joint working group (MTC and TPG) Draft covers only the transactions between related parties Published in September 2008 (Comments until Feb. 2009) First consultation held in June 2009

Slide 5www.dhpg.de | German Company Tax Reform 2008 New rules for exit charges on the transfer of functions Regulations in the Company Tax Reform Act 2008 § 1 para. 3 Foreign Tax Act (Außensteuergesetz) Introduced for tax periods ending in 2008 Application rules introduced in August 2008 Draft decree of the Federal Ministry of Finance in July 2009

Slide 6www.dhpg.de | OECD Discussion Draft./. German Regulations Scope of the regulations Redeployment of functions, assets and/or risks in a MNE (typical cases) o Conversion of full-fledged to limited risk distributors or full-fledged to contract-manufacturers o Rationalisation/specialization o Transfer of IP-rights Renegotiation of existing arrangements May involve a cross-border transfer of: o valuable intangibles o ongoing concern of activity OECD Discussion Draft Transfer of business functions Including o Assets o Risks and opportunities o Other benefits o Services rendered German Law

Slide 7www.dhpg.de | OECD Discussion Draft./. German Regulations Transfer General acceptance of the MNE structure and decisions Commercial rationality Risk analysis based on o Documented contractual agreements o Conduct of the related parties o Arm’s length allocation of risk Importance of risk control o Decision making o Risk taking OECD Discussion Draft General acceptance of the MNE structure and decisions Transfer means o Elimination or o material restriction or o substitution within a o five-year-period Transfer of economical ownership Transfer of the rights to use German Law

Slide 8www.dhpg.de | OECD Discussion Draft./. German Regulations Evaluation of the transfer Generally valuation of isolated elements NPV as in acquisitions deals if a o bundle of assets and o goodwill o of an ongoing activity (concern) are transferred OECD Discussion Draft Transfer-Package-Concept Hypothetical arm’s length price Profit potential o Profit after taxes o Profit expectations transferor o Profit expectations transferee o Fully informed sound business men Valuation methods used in acquisition deals (NPV) Midpoint in a range of possible prices German Law

Slide 9www.dhpg.de | OECD Discussion Draft./. German Regulations Price adjustments For intangibles in uncertain situations Arm’s length adjustment clause No hindsight knowledge OECD Discussion Draft Correction of Package-Price is possible if o No regulation although o there is uncertainty about the development of the profit potential o Substantial intangibles have been transferred and o a material change occurs Correction period = 10 years Adjustment clause with a shorter period is possible Royalty = adjustment clause German Law

Slide 10www.dhpg.de | Your personal contact Thomas Rohler, Partner, Wirtschaftsprüfer, Steuerberater Tel: +49 (0) DHPG Dr. Harzem & Partner KG Wirtschaftsprüfungsgesellschaft Steuerberatungsgesellschaft D Bergisch Gladbach Buddestraße