Every transaction between a German parent and its Indian subsidiary must be priced at arm's length for Indian tax. India has no small-company exemption: any international transaction with an associated enterprise needs an accountant's report in Form 48 (previously Form 3CEB), and detailed documentation is required above prescribed value thresholds. Germany adds its own documentation duties and a rule on moving functions abroad, which matters if India takes over work from a German site. The two sets of papers must agree.
← Back to the complete guide: How to Set Up a Subsidiary in India from Germany
Key facts
| Arm's length rule | Prices between related parties must match what independent parties would agree |
|---|---|
| Form 48 | Accountant's report (previously Form 3CEB) required for any international transaction with an associated enterprise, whatever its value |
| Local documentation | Required above prescribed value thresholds; confirm the current figures with your Indian adviser |
| Master file and CbC report | For large groups; prepared by the ultimate parent |
| German duty | Documentation of the facts and the arm's length basis under the Fiscal Code, producible on a tax audit within a short deadline |
| Function transfers | Moving a function with profit potential from Germany to India can trigger a German exit-type charge |
| Disputes | Mutual agreement procedure under Article 25 of the treaty; bilateral APA possible |
The Indian rules in short
- Methods: comparable uncontrolled price, resale price, cost plus, profit split and the transactional net margin method, which is the most used for service entities.
- Benchmarking: a search of independent comparables, updated each year, supports the margin earned by the Indian entity.
- Form 48: the accountant's report on international transactions, filed with the tax return. Under the Income-tax Act, 2025, form names and sections are new.
- Penalties: failure to keep documents or report transactions attracts a percentage of the transaction value, and adjustments attract penalty on the under-reported income.
- Secondary adjustment: an upward adjustment may require the excess money to be repatriated or treated as a deemed loan.
Common Germany-India intercompany flows
| Flow | Typical pricing | What India checks |
|---|---|---|
| Indian subsidiary provides engineering, software or support services to Germany | Cost plus a mark-up from the benchmarking | Margin in line with comparables; export of services conditions |
| Indian subsidiary buys components or machines from the German parent | Resale price or cost plus, supported by price lists | Comparable prices to third parties; customs value consistency |
| Germany provides management or IT services to India | Cost allocation or cost plus | Actual benefit; duplication; shareholder activity exclusion |
| Intercompany loan | Interest rate in line with credit rating and currency | Arm's length rate; ECB ceiling; interest limitation |
| Licence of brand, design or software | Royalty as a percentage of sales or fixed fee | Whether the brand adds value; benchmark; treaty rate |
| Secondment of German staff | Reimbursement with or without mark-up | PE risk and Withholding Tax on reimbursements |
The German rules in short
- Documentation: German tax law requires records of the facts of cross-border related-party dealings and a showing that prices are at arm's length. Thresholds and deadlines apply; the tax office can ask for the file during an audit and expects it quickly.
- Master file: large groups must also produce a master file; the thresholds are by revenue.
- Function transfers: if a German company transfers a function, with the profit potential that goes with it, to a foreign related party, German rules can require a charge for the transferred package, as if sold at arm's length. Moving procurement, engineering or services from a German site to India should be modelled before the decision, not after.
- Adjustments: German authorities can adjust prices, and the adjustment may not be matched in India without a mutual agreement case.
Where Germany and India differ
- No Indian safe haven for routine services: the Indian entity needs its own benchmarking even where Germany accepts a cost-plus charge.
- Transaction-by-transaction: India examines each type of international transaction, so a total margin that looks right can still fail on a line.
- Year end: Indian transfer pricing runs on a 31 March year end. Align the year or prepare a reconciliation.
- Customs and tax values: the price used for customs on goods shipped to India should be consistent with the transfer price.
Safe harbour, APAs and disputes
- India's safe harbour rules offer defined margins for certain transactions and sectors, but the conditions and rates have been changed over time. Check the current rules before relying on them.
- An advance pricing agreement fixes the method for up to several years. A bilateral agreement involves both competent authorities.
- If an adjustment leads to double tax, a mutual agreement case can be filed within three years of first notification under Article 25 of the treaty. The EU Arbitration Convention does not cover India.
A practical annual cycle
- Fix the intercompany agreements before the year starts.
- Review actual margins at half-year and adjust the billing to stay inside the range.
- Run the benchmarking study and update the file after year end.
- Prepare Form 48 and local documentation before the filing date.
- Align the German file with the Indian numbers.
- Keep invoices, time records and emails that show who did what.
Official sources
Check the rules at the primary sources: Income Tax Department (India), Reserve Bank of India, Ministry of Corporate Affairs, Federal Central Tax Office (BZSt), Handelsregister and the Deutsche Bundesbank.
Frequently asked questions
Does India have a small-company exemption from transfer pricing?
No. Form 48 is needed for any international transaction with an associated enterprise, whatever the value. Detailed documentation is required above prescribed value thresholds, which your Indian adviser should confirm each year.
What is Form 48?
The accountant's report on international transactions, previously Form 3CEB, filed with the tax return under the Income-tax Act, 2025.
What is a function transfer under German tax rules?
Moving a function with profit potential from a German company to a foreign related party, which can trigger a charge for the transferred package. Model it before moving work from Germany to India.
Can a German parent get an advance pricing agreement for India?
Yes. India has a unilateral and bilateral APA program, and a bilateral agreement involves both competent authorities.
Is a management fee from Germany deductible in India?
Only to the extent it is at arm's length and supported by proof that the Indian entity received a service it needed.
What happens if India makes a transfer pricing adjustment?
The Indian income rises, penalty may apply, and the German side may seek relief through the mutual agreement procedure within three years of first notice.
Related guides
The India-Germany Tax Treaty (DTAA), Article by Article: India as Source State, Germany as Residence State
The India-Germany double taxation agreement explained article by article from the German parent's point of view: the flat 10% rates table, permanent establishment, share gains, relief and how to claim.
Read the guide →Getting Money Out of India to Germany: Dividends, Service Fees, Royalties, Interest and Loan Repayments
How a German parent receives money from an Indian subsidiary: the flat 10% treaty rate, Section 393 withholding, Forms 41, 145 and 146, German 95% exemption, VAT on service fees and Indian GST reverse charge.
Read the guide →What a German Parent Company Owes at Home When It Owns an Indian Subsidiary
German-side duties for a parent with an Indian subsidiary: corporation and trade tax, the 95% participation exemption, notification of foreign holdings, Bundesbank reports, CFC rules, HGB consolidation, anti-bribery law and Pillar Two.
Read the guide →Setting Up a Global Capability Centre in India: A Guide for German Mittelstand and Large Groups
How German companies set up captive engineering, IT and shared service centres in India: entity choice, cost-plus transfer pricing, export of services, the works council on offshoring, data and build-operate-transfer.
Read the guide →Sources
Last updated 26 October 2026. General information only, not legal or tax advice. Indian and German rules change often; confirm current requirements before acting.