New reporting requirements from January 1, 2025

Content and submission of transfer pricing documentation

Legal situation until December 31, 2024

Transfer pricing documentation consists of a local file and, if applicable, a master file and is to be submitted only upon request during a tax audit, within 60 days (30 days in cases of extraordinary business transactions). Transfer pricing documentation covering the entire tax audit period (e.g. 3 years) is therefore possible.

Legal situation after December 31, 2024

Pursuant to Section 90 (4) AO [German Fiscal Code], the tax authorities may demand the submission of the records at any time, whereby the submission period has been reduced to 30 days and an extension of the deadline is only possible in justified exceptional cases.

If a tax audit has been announced by an audit order, the following records must be handed over within 30 days of the audit order without a separate request for submission:

1. Transaction Matrix with a detailed overview of the taxpayer's cross-border business relationships, containing information on:

• the subject and nature of the business transactions
• parties involved in the business transactions, identifying the recipient and provider of the service
• the volume and remuneration of the business transactions
• contractual basis
• transfer pricing method(s) applied
• tax jurisdictions involved and
• whether the business transactions are subject to the standard taxation in the relevant tax jurisdiction

In the event of non-submission of the Transaction Matrix, a penalty surcharge of €5,000 will be imposed.

2. Master File (if applicable)

3. Documentation of extraordinary business transactions

The new transfer pricing rules are applicable to taxes arising after December 31st, 2024 and to all open cases where the tax audit order was issued after December 31st, 2024.

Relevance in practice

The automatic obligation to submit transfer pricing documentation within 30 days upon receipt of the tax audit order does not cover a complete Local File, but only the Transaction Matrix. The transaction matrix shall help the tax authorities determine the focus of the audit. For the taxpayer this can mean relief in cases where, in the past, a complete set of transfer pricing documentation was requested even though the set-up was not very complex and the tax risks were limited. In the future, there is a theoretical possibility that the tax authorities will completely dispense with the submission of a local file. Taxpayers with complex cross-border business relationships with related parties should nevertheless proactively prepare a full set of transfer pricing documentation, since a detailed review by the tax authorities on the basis of the submitted transaction matrix is likely. Moreover, the documentation (master file and local file) should henceforth be prepared on an annual basis, as the requirement can also be made independently of a tax audit. This results in a necessity for timely preparation of the TP documentation components. If the master file is created at the foreign parent company, the group parent's stricter compliance obligations should be reported.