Transfer pricing documentation: what German subsidiaries must submit

German subsidiaries of international groups buy goods from sister companies, receive services from the parent company, pay licence fees or obtain loans from within the group. All of these transactions are subject to the arm’s length principle (Fremdvergleichsgrundsatz): prices must be set as unrelated third parties would have agreed them. In a tax audit (Betriebsprüfung), the auditors use the transfer pricing documentation to check whether this has been achieved. The documentation is therefore the starting point of every audit of a group subsidiary.

Section 90(3) AO requires records of the nature and content of business relationships with related parties abroad (factual documentation, Sachverhaltsdokumentation) and of the economic and legal basis for arm’s length pricing (appropriateness documentation, Angemessenheitsdokumentation). Together they form the country-specific, company-related documentation known internationally as the Local File. If the company belongs to a multinational group and has itself generated revenue of at least €100 million in the preceding financial year, it must also maintain master documentation on the group (Stammdokumentation), the Master File; this is usually supplied by headquarters. Companies that, in the current financial year, exchange goods worth no more than €6 million and other transactions worth no more than €600,000 with related parties can make use of the simplifications in Section 6 of the Profit Allocation Documentation Ordinance (GAufzV).

Stricter rules have applied since 1 January 2025, including in audits of earlier years. In addition to the factual and appropriateness documentation, a transaction matrix must be maintained (Section 90(3) sentence 2 AO). It covers the intra-group transactions (transactions of the same kind may be grouped together) and states their subject matter and type, provider and recipient, volume and remuneration, contractual basis, transfer pricing method, the tax jurisdictions concerned and whether the transactions are subject to standard taxation there. Requested records must be submitted within 30 days. In a tax audit, the transaction matrix, the Master File and records of extraordinary transactions (außergewöhnliche Geschäftsvorfälle) must be submitted even without a request, within 30 days of notification of the audit order (Prüfungsanordnung). Extraordinary transactions, such as restructurings, significant changes in functions and risks or the conclusion of cost allocation agreements (Umlageverträge), must be documented no later than six months after the end of the financial year.

If the company submits no documentation, or documentation that is essentially unusable, there is a rebuttable presumption that its German income is higher than declared. The tax office may then make an estimate and use the end of a price range that is least favourable to the company (Section 162(3) AO). In addition, surcharges of 5% to 10% of the resulting increase in income apply, with a minimum of €5,000; failure to submit the transaction matrix alone is enough to trigger the minimum surcharge. For late submission, the surcharge is up to €1 million, with a minimum of €100 for each full day (Section 162(4) AO). If cooperation in a tax audit is protracted, a penalty for delayed cooperation (Mitwirkungsverzögerungsgeld) may also be imposed (Section 200a AO).

Many groups work with a global transfer pricing policy and studies prepared by the parent company. For German tax auditors, this is a good starting point, but not finished documentation. They expect records prepared from the perspective of the German company and figures that match the German annual financial statements. As a rule, the records must be prepared in German. On application, the tax office may permit another language, such as English; the application must be made without undue delay after the records have been requested, if not before (Section 2(5) GAufzV). Common points of dispute are intercompany charges, the functional and risk profile of the German company and the return earned by routine entities (Routineunternehmen).

Good documentation does not prevent every discussion with the tax auditors. It does, however, determine the basis on which that discussion takes place.