Increase of the Documentation Obligations for Cross-Border Transactions in Germany

For companies with cross-border transactions, there have been documentation and cooperation obligations for many years in Germany, which have now been significantly increased and tightened, not only for transactions with associated companies and permanent establishments. Two essential increases of the obligations to document and cooperate in cross-border transactions are presented below.

Tightened Obligations to Submit Transfer Pricing Documentation

The transfer pricing documentation pursuant to Section 90 (3) Fiscal Code of Germany (“FC”; Abgabenordnung) for business relationships within the meaning of Section 1 (4) Foreign Tax Act (“FTA”; Außensteuergesetz) with related parties (e.g. affiliated companies and significant participations) and permanent establishments - in the form of the "master file" and the "local file" - can now no longer only be requested by the tax authorities within the scope of tax audits within a period of generally 60 days, but for financial years from 1 January 2025 at any time with a period of notice of 30 days.

However, the tightening is by no means a problem only for the financial years starting on 1 January 2025, because the new regulations also apply to old cases if a tax audit order for previous financial years is issued after 31 December 2024, which may be the case for permanently audited companies - for which, for example, the last audit period was 2018 to 2020 - already for the audit of the financial statements for the years 2021 to 2023.

Since the preparation effort for the transfer pricing documentation is very high, the transfer pricing documentation should already be prepared now - parallel to the preparation of the tax returns.

Further details on the amended obligations to submit transfer pricing documentation can be found at our article “Tightened Obligations to Submit Transfer Pricing Documentation”.

Increase of Documentation Obligations for Business Relations or Participations in Non-Cooperative Jurisdictions for Tax Purposes

If companies operating across borders maintain business relations or shareholdings in or with reference to so-called non-cooperative jurisdictions (Link) there are increased obligations for documentation and cooperation with the German tax authorities pursuant to Section 12 of the Tax Haven Defense Act (“THDA”; Steueroasenabwehrgesetz). Those are in addition to the general obligations to cooperate pursuant to Section 90 FC.

Pursuant to Section 12 THDA, records of these business relationships - similar to transfer pricing documentation - must be prepared no later than one year after the end of the business year and must be transmitted to the locally competent tax office or the Federal Central Tax Office (Bundeszentralamt für Steuern) without being requested to do so.

Further details on the increase of cooperation obligations for business relations or participations in non-cooperative jurisdictions can be found at our article “Financial Implications and Increased Documentation Obligations Tax Haven Defense Act in Germany”.