On 16 December 2022, the Federal Council approved the so-called DAC7 Implementation Act, which aims to modernise tax procedural law, among other things.

Aim of the legislation

The law aims to shorten tax audits and therefore amends, among other things, Section 90 AO, which contains general provisions on the duty of co-operation of the parties involved in the taxation process. To date, a tax authority has generally only requested the submission of transfer pricing documentation for the purpose of conducting an external audit (section 90 para. 3 sentence 5 AO). In future, taxpayers should submit their transfer pricing documentation without being requested to do so within 30 days of notification of the audit order. Furthermore, the tax authorities should be able to request this at any time - even without an external audit.

What has changed?

The provision of Section 90 AO will initially be restructured for clarification purposes. In paragraph 3, sentences 5 to 11 are replaced by supplemented by the following addition: "Records must be prepared promptly for extraordinary business transactions. The records within the meaning of this paragraph must be completed at the request of the tax authorities." The legislation now clarifies that this sentence refers to all records mentioned in para. 3 and not just those relating to extraordinary business transactions.

The new regulation concerns details on the submission of the relevant records, according to which:

  • a tax authority can - as in the past - demand corresponding records at any time (e.g. when applying for a preliminary expert opinion procedure),
  • in the event of an external audit in futureno separate request for the submission of records for Transfer pricing documentation more, and
  • a standardised submission deadline of 30 days is intended to speed up the external audit (previously: 60 days).

When does the new regulation apply?

The temporal applicability of Section 90 (3) sentences 5 and 6 as well as (4) and (5) AO (new version) is provided for as follows:

  • The new version is first applicable for taxesapply, that arise after 31 December 2024.
  • The new version also continues to apply to taxes arising before 1 January 2025, provided that an audit order pursuant to Section 196 AO is not issued for these periods until after 31 December 2024.
  • The old version of Section 90 (3) continues to apply to taxes that arise before 1 January 2025 and for which an audit order pursuant to Section 196 AO is issued before 31 December 2024.

Take-away and recommendations

  • The new regulation tightens the submission deadlines for transfer pricing documentation by shortening them from 60 to 30 days.
  • Taxpayers must submit transfer pricing documentation within 30 days of notification of an audit ruling. In future, it will no longer be necessary to wait until documentation is requested within 60 days, which has been quite common in practice to date.
  • The tax authorities can request additions to the content for all types of business transactions, not just for extraordinary business transactions.
  • Depending on the timing (i.e. the audit order is issued before or after 31 December 2024), the old or the new regulation, i.e. the previous 60-day submission deadline or the new 30-day submission deadline, may apply for a financial year to be audited.
  • The legislation once again increases the pressure towards the prompt preparation of transfer pricing documentation. Active submission, e.g. together with the tax return, or a timely upload to the tax authorities' system as in other countries is not yet required, but the request for submission at any time already comes very close to this.
  • Although the first-time application in 2025 sounds a long way off, we nevertheless recommend that the processes for preparing the transfer pricing documentation (master file and local files) in the group be aligned with the current tightest deadlines (e.g. Italy or China) and that the documentation for Germany (local file) also be prepared at an early stage.

We are happy to offer you our support in implementing the new tax compliance regulations.

Carsten Schmid

Transfer Pricing & Friends GmbH, Stuttgart