On 12 July 2022, the Federal Ministry of Finance published a draft bill to implement the recently revised EU Mutual Assistance Directive. This contains a tightening of the German transfer pricing regime with significantly shortened submission deadlines for transfer pricing documentation.
The objectives of the draft law are actually the introduction of new due diligence and reporting obligations for platform operators as well as further improvements in the cooperation between European tax administrations (DAC 7). However, the Federal Ministry of Finance is also using this law as a vehicle to transport other topics, including modernising or more strictly regulating individual aspects in the area of external audits and accounting and record-keeping obligations.
The draft bill provides for very significant tightening in the area of transfer pricing. According to Section 90 (4) AO-E, the tax authorities will in future be able to request the submission of records in accordance with Section 90 (3) AO, i.e. the master file and the country-specific documentation (local file), at any time. In the case of external audits, the taxpayer should also be able to submit the records without a separate request. In future, the deadline for the submission of records is to be only 30 days after the request or after notification of the audit order in all cases. Previously, the deadline for submission was 60 days or 30 days for records of extraordinary transactions. The draft bill also provides for adjustments to the surcharge that is to be imposed if the records are not submitted or are submitted late or if the records are unusable (section 162 (4) AO). When calculating the surcharge, any advantages accruing to the taxpayer from missing deadlines are also to be taken into account. The BMF is further authorised, with the approval of the Bundesrat, to determine the type, content and scope of the records to be prepared in accordance with Section 90 (3) and (4) AO by statutory order.
The new regulation is to come into force on 1 January 2023.
The BMF sells these shortened submission deadlines as a contribution by taxpayers to shorter tax audit periods.
Take away:
From 2023, taxpayers should ensure that their master file and/or local file has already been finalised at the start of a tax audit. The comparatively long timeframe for submitting transfer pricing documentation in Germany will be significantly shortened and will increasingly converge with international standards.
Carsten Schmid
Transfer Pricing & Friends GmbH, Stuttgart
