Transfer Pricing and Parallel Imports: A Silent Revolution by the German Federal Fiscal Court (BFH)
The BFH is bringing a breath of fresh air into transfer pricing: Local marketing efforts may trigger a hidden profit distribution (verdeckte Gewinnausschüttung or vGA) — even without a direct group connection. The court decision is a wake-up call for international tax departments.
The debate surrounding transfer pricing and hidden profit distributions has gained a remarkable new chapter. In its decision dated December 11, 2024 (Case I R 41/21), the BFH ruled that marketing effects, even without direct intercompany charging, can constitute a vGA — especially in the context of so called parallel imports, a practice in which wholesalers purchase original products in low-price EU markets (e.g., Romania) and resell to third-party importers who distribute them in high-price markets (like Germany).
What may initially appear to be a niche case in the pharmaceutical sector actually holds the potential to reshape many transfer pricing models used by international corporate groups.
The Core of the Case:
A German GmbH operates as a limited-risk distributor, selling original products of its foreign parent company. At the same time, identical products are sold in Germany by third parties via parallel imports. The German GmbH heavily advertises the products and bears the associated costs. At the same time, this strengthens the demand for parallel imports - and thus also generates demand for the parallel imported goods from which the parent company benefits.
The tax authorities argued that this constitutes an uncompensated benefit for the parent company—hence representing a hidden profit distribution. The BFH confirmed this view: Even unintended marketing effects that benefit the group can trigger a vGA, provided that an unrelated third party would demand compensation for such an effect.
What Does this Mean Strategically?
Transfer Pricing Must Rethink Marketing.
Not only classic IP usage or goods flows create value—spillover effects from local marketing efforts can also create group-wide benefits, which must be remunerated accordingly.
Economic Attribution Despite Lack of Control.
The fact that the local distributor has no contractual control over parallel imports does not exempt them from economic analysis. The key question is: Who benefits from the effort—and was this benefit adequately compensated?
Example Calculation for Arm’s Length Remuneration.
In its verdict, the BFH goes further and proposes a specific model for value determination: bonus payments to the field sales staff, weighted by the share of parallel imports, plus an arm’s length markup. This can be more than just a calculation example—it is an indicator of how granular German courts intend to capture economic benefits in the future.
Why is this more than a "Pharma Problem"?
The core of the ruling affects all industries with shared branding, centralized marketing strategies, or fragmented distribution channels, including but not limited to:
• Consumer goods with grey market import risks
• Luxury and electronics companies with third-party distribution
• Digital platforms with parallel product marketing
Our Perspective:
This court decision shifts the boundary between local efforts and global benefits. Tax departments and transfer pricing professionals should assess where local entities might be unintentionally generating group-wide benefits—and how these are reflected in their current transfer pricing models.
Conclusion:
The BFH compels us to reassess value creation—even where it was not explicitly intended. Ignoring this development risks not only violating formal requirements but also overlooks the core standards of the arm’s length principle.
