Tighter rules on transfer pricing in Germany

Given the fact that many Czech tax entities have their parent companies or other related parties in Germany, we would like to draw your attention to the stricter rules for submitting transfer pricing documents to the tax authorities in Germany, effective from 1 January 2025.

As of that date, the deadline for submitting documentation will be reduced from the current 60 days from the time of the request by the tax office to 30 days.

In addition to the shortened time limit, the scope of documents that must be sent to the tax administrator is also newly defined:

• the so-called transaction matrix (a table that identifies individual transactions, parties to the transaction, transaction values, determination of transfer pricing method, etc.);
• Masterfile (group transfer pricing documentation that entities with revenues above EUR 100 million will have to submit) and
• documentation relating to extraordinary business transactions (e.g. group restructuring).

The conditions for the processing of local documentation, or the limits for individual transaction types, remain unchanged.

In this context, we consider it important to mention that the new deadline for submitting documentation will also apply to all tax periods open for tax audit before 1 January 2025. Therefore, if the German tax authority initiates an audit for several tax periods, the transaction matrix submitted must contain a summary of transactions for all these periods.

Another change is the introduction of penalties for failure to submit the required documents. From 1 January 2025, a fine of at least EUR 5,000 will be imposed for failure to submit the transaction matrix. If the documents are submitted after the deadline, the tax office may impose a late submission penalty of up to EUR 1 million.

The new shortened deadline and expanded scope of required transfer pricing documents, combined with the severe penalties for non-compliance, represent a major change for German taxpayers and will likely lead to a rethinking of the approach to the preparation of group transfer pricing documentation at all levels (Masterfile, local documentation including the preparation of the transaction matrix) so that it is prepared in advance and readily available for submission to the tax authorities when requested.