Germany Introduces New Transaction Matrix Requirement for Transfer Pricing Documentation

Key Takeaways:

• As of January 1, 2025, German taxpayers are now required to prepare a Transaction Matrix as part of their transfer pricing (TP) documentation.
• This new requirement is automatically triggered when a taxpayer receives a tax audit order. The Transaction Matrix must be submitted to the tax authorities within 30 days of receiving the audit order.
• The Transaction Matrix should provide a structured, tabular overview of intercompany transactions, and it must include key details such as the nature of transactions, involved parties, tax jurisdictions, and the transfer pricing method used.
• This change was introduced under the Bureaucracy Reduction Act IV on October 18, 2024, and is part of broader modifications to Germany’s transfer pricing rules.

Introduction of the Transaction Matrix

The German Ministry of Finance introduced the Transaction Matrix on April 2, 2025, in a detailed information sheet. This follows changes to Germany’s transfer pricing documentation rules under the Bureaucracy Reduction Act IV, effective from January 1, 2025. The Transaction Matrix is now a mandatory element of TP documentation.

This requirement applies to open years under audit, and taxpayers must submit it upon receiving a formal tax audit order, even if the audit pertains to periods before 2025. The Transaction Matrix must be submitted automatically within 30 days, without a separate request from tax authorities.

Key Information Required in the Transaction Matrix

The Transaction Matrix should include the following details:

1. Nature and subject matter of the intercompany transactions.
2. The parties involved in the transactions, identifying both the recipient and the provider.
3. Volume and consideration of the transactions.
4. Contractual basis for each transaction.
5. Transfer pricing method applied.
6. Tax jurisdictions involved in the transactions.
7. A note on whether the transactions are subject to regular taxation in the relevant jurisdiction.

Filing Requirements for Transfer Pricing Documentation

In addition to the Transaction Matrix, taxpayers are required to submit the following documents within 30 days of receiving a tax audit order:

• Master file (a central file containing key transfer pricing information).
• TP documentation related to extraordinary transactions (such as business restructurings).

However, the Local file and other related TP documentation are only required if specifically requested by the German tax authorities. The general submission deadline for such documents is 60 days following the request.

Administrative Guidance and Clarifications

The information sheet issued by the German tax authorities provides further clarifications on the Transaction Matrix:

• Contractual basis: It is sufficient to reference the intercompany agreement governing the transaction; the actual agreements do not need to be attached to the Matrix.
• Not subject to regular taxation: Transactions are considered not subject to regular taxation if they are governed by preferential tax regimes (e.g., license boxes).
• Aggregation of transactions: Cross-border transactions that are economically similar can be grouped in the Transaction Matrix.

Additionally, the guidance specifies that if a tax audit order issued in 2025 pertains to years prior to 2025, the Transaction Matrix (and other required documents) must be submitted for those years as well, within 30 days of the audit order.

Penalties for Non-Compliance

Failure to provide the Transaction Matrix can result in penalties, which are limited to a maximum of €5,000.

Practical Implications for Companies

The introduction of the Transaction Matrix as part of German TP documentation represents a significant change in how taxpayers must manage transfer pricing compliance:

• Companies must now prepare and submit transfer pricing documentation more promptly, in response to a tax audit order.
• The 30-day deadline creates a “de facto contemporaneous” transfer pricing documentation requirement, meaning businesses must be proactive in maintaining their documentation.
• Companies should assess the impact of these changes on their existing TP processes and ensure that they are prepared for audits in the future, particularly for open years not yet audited.

Recommendations

To comply with the new rules:

• Companies should prepare TP documentation, including the Transaction Matrix, for all open years not yet subject to a German tax audit.
• Businesses should familiarize themselves with the details of the Transaction Matrix and ensure that their internal processes are aligned with the new filing requirements.
• Companies may also want to consult with tax advisors to ensure full compliance with the new rules and avoid penalties.

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