Dear Sir or Madam, Dear clients,
As if an audit would not already lead to many worries, § 90 (4) of the German Fiscal Code (AO) now makes matters even more difficult. The increased duties to cooperate in connection with the documentation of transfer prices lead to additional obligations not only in the context of an external audit. Furthermore, the amendment may lead to a need to adjust your internal company processes
Transfer Pricing Documentation
As per §90 (3) AO, records must be kept on business relations with a related party abroad.
The definition of a related party can be found in §1 (2) Foreign Tax Act (AStG). According to this, a related person is, inter alia, a person who holds an interest in the subscribed capital of at least 25% in the taxpayer or who has a controlling influence over the taxpayer. E.g. if you are shareholder of at least 25% of another company you might be obligated to prepare a transfer pricing documentation.
If applicable, this will result in various reporting obligations that you need to record in the so-called local file.
According to §90 (3) sentence 2 AO, you need to prepare documentation of country-specific and company-related facts, transfer pricing and appropriateness. There is an exception according to §6 GAufzV from the preparation of a local file if, during the fiscal year, payments for supplies from business relationships with related parties of not more than EUR 6 million and payments for services from business relationships with related parties of not more than EUR 600,000 were made or received.
If you company is part of a multinational group of companies whose sales in the previous fiscal year amounted to more than 100 million euros, an overview of the type of global business activity and the system used for transfer pricing must also be prepared (so-called “master file”).
If you company’s sales in the previous fiscal year amounted to at least 750 million euros, you need to prepare an additional country-by-country report after the end of the fiscal year in accordance with §138a AO.
The adjustments at a glance
Old version of §90 (3) AO
Records of transfer pricing documentation are generally only required in the course of an external audit
If the records are requested (i.e. usually within the scope of an external audit), they must be submitted within 60 days
Reforms due to §90 (4) AO
Records of the transfer pricing documentation must now be kept continuously and presented upon request
Upon request or after notification of an examination order, the time limit for submission is generally only 30 days
The records must be submitted without being requested when the audit is announced
Application date
The amendments made by the newly inserted §90 (4) AO apply to taxes arising after December 31, 2024.
In addition, the amendments apply to taxes that arose before December 31, 2024, but for which an audit is announced after December 31, 2024.
What does this mean for you?
In the future, you should keep continuously records of transfer pricing documentation and keep them available. In the event of an audit, you need to submit the records without being requested. This means that in most cases it is no longer possible to prepare the records retrospectively after the audit has been announced or even to hope that the records will not be requested in the first place.
This leads to increased documentation efforts within your company. Non-usable or inadequate transfer pricing documentation can lead to tax estimates and may constitute the offence of reckless tax evasion up to and including tax evasion.
If you have any comments, questions or implementation difficulties, please contact us!
