10 April 2025 Germany publishes administrative guidance on Transaction Matrix
On 2 April 2025, the German Ministry of Finance published administrative guidance on the Transaction Matrix. Since 1 January 2025, German taxpayers have been legally required to prepare an overview of their intercompany business transactions (i.e., Transaction Matrix) as part of their transfer pricing (TP) documentation. The Transaction Matrix must be "automatically" submitted (without separate request) to German tax authorities within 30 days upon receipt of a formal tax audit order. A number of questions regarding the Transaction Matrix have so far remained unanswered. The German tax authorities are now positioning themselves with the publication of administrative guidance in form of an information sheet. A specification in the law (German Transfer Pricing Documentation Rules), as stated in the explanatory notes of the Bureaucracy Reduction Act IV, is still pending. Enacted on 18 October 2024, the Bureaucracy Reduction Act IV includes changes to the scope of the German TP documentation and its filing requirements. The changed rules apply from 1 January 2025 onward for all open years that are subject to a tax audit and introduce a Transaction Matrix as an additional requirement to the existing TP documentation requirements. According to the explanatory notes, the Transaction Matrix will be further specified in the German TP documentation rules (Gewinnabgrenzungsaufzeichnungsverordnung) and should include the following information:
Upon receipt of a formal tax audit order, a German taxpayer must submit the following documents within 30 days without separate request:
Upon separate request, the Germany taxpayer must submit the German TP documentation (e.g., Local file) within 30 days. This separate request can take place at any time (i.e., also outside the scope of a German tax audit) and may come, for example, in the context of advance pricing agreements. It should be noted that under the prior law, German TP documentation only had to be submitted upon separate request, which was typically made during a tax audit. The general submission deadline was 60 days after the request, with the exception of TP documentation subject to extraordinary transactions with a submission deadline of 30 days. The administrative guidance on the Transaction Matrix, published on 2 April 2025, clarifies some key points, summarized below. Although not further specified in the law, the German tax authorities define the Transaction Matrix as "a structured, tabular overview that contains relevant information on the taxpayer's cross-border business relationships with related parties and permanent establishments. In particular, it supports a risk-oriented selection of the key focus areas in the context of tax audits." With respect to providing a contractual basis, it is deemed sufficient for the Transaction Matrix to merely make a reference to a specific agreement that governs the intercompany transaction. The information sheet explicitly states that intercompany agreements do not need to be attached to the Transaction Matrix. The information sheet does not further explain the term "not subject to regular taxation" and only provides one example. According to this example, intercompany transactions are not subject to regular taxation if the tax jurisdiction of the transaction counterparty applies a preferential regime (e.g., license box). Cross-border business transactions between a German taxpayer and related parties can be aggregated into groups and entered accordingly in the Transaction Matrix, if these transactions are economically comparable with respect to the functions and risks. An appendix to the information sheet provides two sets of templates for a Transaction Matrix. German tax authorities state that a taxpayer may deviate from these templates, but to do so must inform German tax authorities in advance (at the latest within 30 days of the announcement of the tax audit order) and provide the reasons for deviating from the template. According to German tax authorities, a tax audit order issued in 2025 regularly includes examination periods prior to 2025, thus requiring the German taxpayer to also prepare a Transaction Matrix for previous years. The information sheet provides an example in which a tax audit order is issued on 10 March 2025, covering the examination period 2019 to 2022. Consequently, the Transaction Matrix (and, if applicable, the Master file as well as TP documentation subject to extraordinary transactions) is to be submitted for this examination period without separate request within 30 days — i.e., by 9 April 2025. In addition, the information sheet states that the Transaction Matrix must also be submitted within 30 days upon separate request by German tax authorities in 2025 even if the tax audit order was issued before 1 January 2025. If cross-border corporate income tax matters are not subject to a German tax audit, (e.g., special value-added tax audits, wage tax audits or insurance tax audits), the Transaction Matrix, Master file and TP documentation subject to extraordinary transactions are only to be submitted upon separate request (i.e., not automatically within 30 days of a tax audit order). Lastly, the information sheet clarifies that penalties imposed for not providing a Transaction Matrix are limited to €5,000. The modified rules introduce a Transaction Matrix as an additional German TP documentation requirement. In practice, the changes of the filing requirements result in a "de-facto" contemporaneous German TP documentation requirement, given the shortened filing period of 30 days. Companies should understand the timing, scope and extent of the changed rules and evaluate the significance of the changes to existing rules and established practices in their organizations. To proactively manage TP compliance in Germany, companies should timely prepare TP documentation in line with German TP documentation requirements, including a Transaction Matrix for all open years not yet subject to a German tax audit.
Document ID: 2025-0856 | ||||||
