August 22, 2024
Recent amendments to transfer pricing in Germany have brought significant changes to the country’s procedural law, particularly affecting transfer pricing documentation requirements.
These new regulations will take effect:
- For all tax periods beginning after December 31, 2024 and
- For all tax audits initiated after January 1, 2025
Given that prior tax periods, including those as far back as 2018, may still be subject to tax audits in 2025, these new regulations have a broad scope, making it imperative for taxpayers to be fully informed and prepared.
Key changes to transfer pricing in Germany
- On-demand transfer pricing documentation
Previously, transfer pricing documentation was generally requested only during tax audits, with a 60-day deadline (or 30 days for extraordinary transactions) following a tax auditor’s request. The new regulations empower tax authorities to request transfer pricing documentation at any time, even outside of a formal audit and without specific cause. German companies with cross-border transactions must now be prepared to provide transfer pricing documentation at any time.
- Reduced submission deadlines
The current 60-day deadline (30 days for extraordinary transactions) to submit requested transfer pricing documentation will be reduced to 30 days under the new rules.
- Mandatory submission during tax audits
During a tax audit, taxpayers will no longer receive a separate request for transfer pricing documentation. Instead, they must submit the documentation within 30 days of the tax audit announcement, which could be well before the auditor actually begins their review. This change necessitates that taxpayers prepare their documentation in advance, as the 30-day window is unlikely to allow sufficient time for adequate preparation. Extensions will only be granted in exceptional cases.
- Stricter penalties for non-compliance
The new regulations impose stricter penalties for delays or failures in submitting transfer pricing documentation. Previously, surcharges were rarely enforced due to auditor discretion. However, under the new rules, discretion is significantly reduced. If documentation is not submitted or is deemed unusable, surcharges of 5%-10% of the additional income (with a minimum of EUR 5,000) may apply. Late submissions may incur surcharges of up to EUR 1 million, with a minimum of EUR 100 for each day the deadline is exceeded. Furthermore, failure to provide documentation and unusable documentation could result in the tax authorities estimating the tax base, potentially leading to substantial additional tax liabilities.
Recommendation
We strongly advise reviewing the applicable thresholds in Germany for the preparation of transfer pricing documentation (including master and local files) if your German entities engage in cross-border transactions with related companies, especially for years not yet audited.
If these thresholds are exceeded, it is prudent to prepare the necessary documentation in advance to ensure compliance with the 30-day submission deadline once an audit order is issued after December 31, 2024.
| Master-file | Local-file | |
| German thresholds | Individual turnover of the German company > EUR 100 million | Total consideration for deliveries > EUR 6 million and/or total remuneration for other services (e.g. services, loan relationships, licenses, interests, etc.) > EUR 0.6 million Please note, the deliveries/services received and those provided must be added together. Only cross-border transactions with related parties are to be included in the thresholds. Transactions between domestic members of a group are not relevant. |
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