Changes to transfer pricing documentation requirements - surprising changes in local regulations

Companies obliged to document transfer prices

Companies that maintain cross-border business relationships with associated enterprises (e.g. supplies of goods, services, licences or loans to other group companies) must prepare transfer pricing documentation, although there are certain simplifications for smaller companies. The tax authorities use the transfer pricing documentation to verify that the transfer prices are at arm’s length.

Extension of the documentation requirement

At the end of 2022, the legislator tightened the transfer pricing documentation requirements considerably (see Insight from 16 December 2022 for details). In particular, a new subsection 4 was added to Section 90 of the Fiscal Code (Abgabenordnung – AO), according to which the transfer pricing documentation is to be submitted without being requested to do so, within 30 days of being notified of a tax audit. It was irrelevant to this duty whether the complete transfer pricing documentation was actually required for the tax audit or not. This regulation was subject to considerable criticism. The legislator has now responded to this with two amendments (Fourth Bureaucracy Reduction Act (Viertes Bürokratieentlastungsgesetz – BEG IV), Federal Law Gazette 2024 I no. 323 of 29 October 2024).

Firstly, the duty to keep records, which used to consist of factual documentation and documentation on appropriateness, was expanded to include an overview of the transactions (transaction matrix). Secondly, the duty to submit the documentation without being requested to do so after being notified of the tax audit was limited to:

• the transaction matrix
• the master file (as applicable) and
• the records of extraordinary transactions (as applicable).

This second step makes things a little easier for taxpayers because the local file must now only be submitted at the tax auditor’s express request.

Compiling a transaction matrix

The contents of the transaction matrix are to be specified in more detail in the Regulation on Recording Profit Allocations (Gewinnabgrenzungsaufzeichnungsverordnung – GAufzV). But the required components are already listed in the legislation and include the following points:

a) the subject and nature of the transactions

b) the parties involved in the transactions, identifying the service recipient and service provider,

c) the volume and remuneration of the business transactions,

d) the contractual basis,

e) the transfer pricing methods applied,

f) the tax jurisdictions concerned and

g) whether transactions are not subject to standard taxation in the relevant tax jurisdiction.

If the transaction matrix is not submitted, a surcharge (fine) of at least 5,000 euros is charged. The new rules thus put not submitting the transaction matrix on the same level as not submitting records for a transaction or submitting unusable records.

Application brought forward

In addition to these changes, application of the new changes has been brought forward. While the stricter rules introduced at the end of 2022 would only have applied to assessment periods from 2025 onwards, and would therefore only have generally been relevant to tax audits in 2028 or later, the new version of Section 90 of the Fiscal Code applies from 1 January 2025. The original restriction of application to taxes arising after 31 December 2024 has been deleted. Consequently, the new rules will apply to tax audits that are notified from 1 January 2025.

This means that:

• the transaction matrix
• the master file as applicable, and
• where applicable, the documentation of extraordinary business transactions

are to be submitted within 30 days of being notified of a tax audit without being requested to do so. Therefore, companies expecting a tax audit at the beginning of 2025 and which do not yet have these documents should start compiling them as soon as possible.

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