From 2025, stricter submission requirements for transfer pricing documentation will apply in Germany, both in terms of content and timing. These effectively require the documentation to be updated on an ongoing basis.
Why has the obligation to submit transfer pricing documentation been tightened?
The law implementing the EU DAC 7 Directive (DAC 7 Implementation Act) introduced procedural changes to the framework conditions for external audits. As part of these changes, the submission requirements for transfer pricing documentation were tightened in terms of content and timing. Germany is thus following the global trend of expanding compliance obligations for companies. In addition to speeding up external audits, the tightening of the rules is primarily aimed at increasing the transparency of intra-group business relationships of international companies and thus combating tax-motivated profit shifting more effectively.
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For internationally active companies, these changes effectively mean an ongoing obligation to document their cross-border business relationships within the group and thus additional compliance effort as well as an increased tax or sanction risk.
How the new submission requirement works
As of January 1, 2025, the new regulation will shorten the deadline for submitting the required transfer pricing documentation and will also expand the scope of documentation that taxable companies must submit without being asked to do so.
To date, taxpayers have only been required to submit transfer pricing documentation, consisting of country-specific company-related documentation (local file) and master documentation (master file), upon request from the tax authorities. SMEs do not have to create a master file if their turnover is less than 100 million euros. Transfer pricing documentation should only be requested as part of an external audit, with a deadline of 60 days being granted. Records of exceptional business transactions must be created promptly and submitted within 30 days upon request from the tax authorities.
Following the change in the law, however, the tax authorities can request transfer pricing documentation at any time for taxes arising after December 31, 2024, e.g. as part of an advance agreement procedure. In the event of an external audit, the transfer pricing documentation must in future be presented to the auditor without being asked to do so. In addition, the documentation was previously only to be requested for those business areas that are relevant to the respective audit (Section 2 Paragraph 6 GAufzV). According to the new wording of the law, however, all records must be presented at the start of the audit.
After being requested by the tax authorities or after an external audit has been ordered, companies will in future generally only have 30 days (instead of the previous 60 days or 30 days in the case of exceptional business transactions) to submit transfer pricing documentation. The halving of the submission deadline applies not only to taxes arising after December 31, 2024, but also to transfer pricing documentation that must be prepared for financial years before January 1, 2025 and submitted as part of an external audit for which the audit order is announced after December 31, 2024.
Hinweis: Since it will hardly be possible to prepare proper and complete transfer pricing documentation within 30 days in most cases, we generally recommend keeping up-to-date documentation. Ideally, this should be prepared after the consolidated financial statements or annual financial statements have been audited, for example, in parallel with the tax returns for the respective assessment periods.
In the event that documentation obligations are not met or are met inadequately, the German legislator has granted the tax authorities various sanctions. These range from penalty surcharges to estimating income at the expense of the domestic company. In addition, there is often a delay in the external audit, which often involves additional time and costs for the company. To avoid these consequences, companies should review their documentation obligations at an early stage and collect information and documents on cross-border intra-group business transactions in order to ensure that timely and complete transfer pricing documentation is created or updated.
How we support you
- We advise you on the conception, planning and simulation of transfer pricing systems.
- Through database studies, we support you in determining arm’s length values that are acceptable for tax purposes.
- We also support you in preparing or updating the legally required transfer pricing documentation and in fulfilling the necessary information, documentation and recording obligations.
- We also examine the tax implications of cross-border relocations of functions.
- If the tax authorities question arm’s length values during tax audits, we will support you in defending them and even enforcing them in legal proceedings.
