Germany has tightened submission rules for transfer pricing documentation in § 90 General Tax Code

In the future, taxpayers will be required to submit their transfer pricing documentation without a request within 30 days of being notified of the audit order. On December 16, 2022, the German Bundesrat approved the so-called DAC7 Implementation Act, which aims, among other things, to modernize tax procedure law.

Aim of the legislation

The Act aims to shorten tax audits and therefore amends, among other things, Section 90 of the German Tax Code (Abgabenordnung – AO), which contains general provisions on the obligations of the parties involved to cooperate in taxation proceedings. Up to now, a tax authority has generally only requested the submission of transfer pricing documentation for the purpose of conducting an external audit (Sec. 90 (3) Sentence 5 AO). In the future, taxpayers will have to submit their transfer pricing documentation without a request within 30 days of notification of the audit order. Furthermore, the tax authorities will be able to request this documentation at any time – even without an external audit.

What has changed?

The provision is initially restructured for clarification purposes. In paragraph 3, sentences 5 to 11 are supplemented by the following addition: “Records of extraordinary business transactions shall be prepared in a timely manner. The records referred to in this paragraph shall be supplemented at the request of the tax authority.” Here, the legislator now clarifies that the sentence refers to all records mentioned in paragraph 3 and not only to those concerning extraordinary business transactions.

The new paragraph 4 regulates details on the submission of records pursuant to paragraph 3. According to the new paragraph 4.

• a tax authority may – as has already been the case – demand transfer pricing documentation records pursuant to subsection 3 at any time (e.g. when applying for a preliminary assessment procedure), and
• in the event of an external audit, there will no longer be a need for a separate request for the submission of transfer pricing documentation records, and it will be possible to
• the now uniform submission deadline of 30 days is intended to accelerate the external audit. Previously, the deadline was 60 days.

A new paragraph 5 authorizes the German Ministry of Finance (BMF) to issue a statutory order with the consent of the Bundesrat to determine further details; this authorization was previously contained in Section 90 (3) sentence 11 AO.

When is the new regulation applicable?

The temporal applicability of Section 90 (3) sentences 5 and 6 and (4) and (5) AO (new version) is provided as follows:

• The new version is applicable for the first time for taxes arising after December 31, 2024.
• The new version will continue to apply to taxes arising before Jan. 1, 2025, provided, however, that an audit order pursuant to Sec. 196 of the German Fiscal Code (AO) is not announced for these periods until after Dec. 31, 2024.
• The old version of Section 90 (3) shall continue to apply to taxes arising before January 1, 2025, and for which an audit order pursuant to Section 196 of the German Fiscal Code (AO) is announced before December 31, 2024.

Takeaways and recommendations

• In the future, the new regulation will tighten the submission deadlines for transfer pricing documentation by shortening them from 60 to 30 days.
• The taxpayer must submit TP documentation within 30 days of notification of an audit order. The usual practice of playing for time or waiting until the kick-off meeting and any request for TP documentation within 60 days will no longer apply in the future.
• The tax authorities may require additions to the content for all types of business transactions, not only for extraordinary business transactions.
• Depending on the time frame (i.e. audit order is issued before or after December 31, 2024), it is possible that the old or the new regulation, i.e. the previous 60-day submission period or the new 30-day submission period, will apply for a fiscal year to be audited.
• The legislator is again increasing the pressure toward a timely preparation of transfer pricing documentation. No active submission, e.g. together with the tax return or a timely upload into the system of the tax administration, is yet required as in other countries, but the request for submission at any time already comes very close to this.

Although the first application in 2025 sounds far away, we recommend aligning the processes for the preparation of the transfer pricing documentation (master file and local files) in the group with the currently tightest deadlines (e.g. Italy or China) and preparing the documentation also for Germany (local file) at an early stage.

Author: Carsten Schmid, Transfer Pricing & Friends GmbH, a German member of TPA Global