The recent ruling by the German Federal Fiscal Court (BFH) marks a turning point in the interpretation of transfer pricing by addressing a complex situation: the indirect benefit that a group company may receive from local marketing activities without explicit consideration.
What is the case about?
A German subsidiary of a pharmaceutical group acted as a limited-risk distributor, i.e., it had restricted functions, assumed little risk, and operated under controlled pricing policies. However, its marketing activities in Germany also benefited parallel importers-third parties who purchased the same product in other EU countries at a lower price and resold it in Germany.
The BFH concluded that, even if this indirect benefit was not contractually provided for or agreed upon, it could constitute a hidden distribution of profits (verdeckte Gewinnausschüttung or vGA) if an independent third party would have demanded compensation for this effect. Consequently, it ruled that the subsidiary should have received additional remuneration for this economic benefit that favored its parent company or the group.
Key points of the decision
- Economic recognition without contractual control: It does not matter that the subsidiary did not authorize the parallel imports. What is relevant is whether there was a benefit to the group without consideration.
- Market value assessment: It is necessary to analyze how an independent party would act under similar conditions.
- Suggested remuneration model: The BFH proposed a scheme based on a percentage of the sales team’s remuneration, weighted by the volume of parallel imports, plus a margin for functions assumed.
Why should this be of interest to Latin America?
Although this decision is a German jurisdiction, it sets a precedent that could influence future audits or case law in other regions. In countries such as Peru, where transfer pricing audits have become more sophisticated, this approach could inspire the tax administration to review whether local activities benefit other entities of the group economically without adequate compensation.
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