Reassessment of CCAs in Germany

Reassessment of cost contribution agreements in Germany

On 5 July 2018 the German Federal Ministry of Finance (Bundesministerium der Finanzen, BMF) published a statement on their reassessment of cost contribution agreements (CCAs) concluded among members of international groups. The new assessment has been aligned with Chapter VIII of the 2017 OECD Transfer Pricing Guidelines. The 1999 BMF-statement on CCAs will be abrogated on 31 December 2018. CCAs existing at the time the new BMF-statement is published in the Bundessteuerblatt (German federal gazette) will still be assessed under the former principles as set out in the 1999 BMF-statement for a transitional period covering business years ending before or on 31 December 2019.

A CCA is a contractual arrangement among business enterprises concluded for the purpose of sharing contributions and risks related to

  • the joint development, production or the obtaining of intangibles, tangible assets ("development CCAs") or
  • services ("services CCAs")

with the understanding that such intangibles, tangible assets and services are expected to create benefits for the business of each of the participants.

As before, an enterprise is eligible to participate in a CCA if it is expected to benefit from the transactions covered by the CCA. As a result of the alignment with the OECD Guidelines each participant must now also be in a position to exercise control over the risks involved in the CCA.

Also the valuation of the contributions under CCAs has changed as a result of the alignment with the OECD Guidelines: So far cost (without a mark-up) has been shared in proportion to the benefit expected for each participant. In future the value of a contribution is to be based on market prices. This new treatment is particularly relevant to development CCAs while for most services CCAs it is likely that cost-based valuations will also be accepted in future, at least as regards transactions with low value creation.

PKF commentary: In cases where a German enterprise is participating in a CCA, the CCA should be reviewed and adjusted to meet the new German requirements, where necessary. In order to determine whether an enterprise is eligible to participate in a CCA, it will now be necessary to analyse apart from its function also its control over the risks assumed. Furthermore, particularly development CCAs need to be examined as to whether and to what extent the participants' contributions are based on market prices or whether any of the exceptions to this principle that are granted by the OECD may apply. Finally, you should take the opportunity to check whether your CCA documentation complies with the provisions of the OECD Guidelines.