Why has the obligation to submit transfer pricing documentation been tightened?
The Act on the Implementation of the EU's 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 also tightened in terms of content and time. Germany is thus following the global trend of expanding compliance obligations for companies. In addition to speeding up external audits, the main aim of the stricter requirements is to increase the transparency of intra-group business relationships between international companies and thus combat tax-motivated profit shifting more effectively.
![](https://img.ebnerstolz.de/image-articleWide-1b8ac312-9232.jpg)
For internationally active companies, these changes effectively mean an ongoing obligation to document their international cross-border business relationships within the group and thus additional compliance costs as well as an increased tax and sanction risk.
How the new submission requirement works
As a result of the new regulation, the deadline for submitting the required transfer pricing documentation will be shortened from 1 January 2025 and the scope of the documentation to be submitted unsolicited by taxable companies will be extended.
Until now, taxpayers have only been obliged to submit transfer pricing documentation consisting of country-specific company-related documentation (Local File) and master documentation (Master File) at the request of the tax authorities. SMEs do not have to prepare a Master File if their turnover is less than 100 million euro. The transfer pricing documentation should regularly only be requested as part of an external audit, whereby a period of 60 days must be granted. Records of extraordinary business transactions must be prepared promptly and submitted within 30 days upon request by the tax authorities.
However, following the amendment to the law, the tax authorities can request transfer pricing documentation at any time for taxes arising after 31 December 2024, e.g. as part of a preliminary consultation procedure. In the event of an external audit, the transfer pricing documentation must be submitted to the tax auditor without being requested. In addition, the documentation should previously only be requested for those business areas that are relevant for the respective tax audit (Section 2 (6) GAufzV). According to the new wording of the law, however, all records must be submitted at the beginning of the tax audit.
In the future, companies will only have 30 days (instead of the previous 60 days or 30 days for exceptional transactions) to submit transfer pricing documentation following a request from the tax authorities or after an external audit has been ordered. The halving of the submission deadline applies not only to taxes arising after 31 December 2024 but also to transfer pricing documentation that must be prepared for financial years before 1 January 2025 and submitted as part of an external audit for which the audit order is announced after 31 December 2024.
Note: As 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 completion of the audit of the consolidated financial statements or annual financial statements, e.g. in parallel with the tax returns for the respective assessment periods.If the documentation obligations are not or only insufficiently complied with, the German legislator has granted the tax authorities various sanction options. These range from penalties to the estimation of income at the expense of the domestic company. In addition, there is often a delay in the external audit, which may be associated with additional time and costs for the company. To avoid these consequences, companies should review their documentation obligations at an early stage and collate information and documents on cross-border intra-group transactions to ensure that transfer pricing documentation is prepared and updated promptly and completely.
How we support you
- We advise you on the conceptualisation, planning, and simulation of transfer pricing systems.
- We use database studies to support you in determining the arm's length values to be recognised for tax purposes.
- We also support you in preparing and updating the legally required transfer pricing documentation and in fulfilling the necessary information, documentation, and record-keeping obligations.
- In addition, we analyse the tax implications of cross-border transfers of functions.
- If the tax authorities question arm's length values in the course of tax audits, we will support you in their defence through to enforcement in appeal proceedings.