BDO Transfer Pricing Alert - Issue 2 | August 2024

The transfer pricing ("TP") landscape is continuously evolving, with several key developments emerging as significant topics so far in 2024. Country-by-country reporting ("CbCR") requirements have gained considerable prominence due to new regulations established in the EU and Australia, marking a substantial shift towards greater tax transparency. Concurrently, the OECD's two-pillar framework remains a critical component of TP discussions, with recent guidance published by the OECD on Amount B of Pillar One providing further clarity on this complex issue. Advance Pricing Agreements ("APAs") have also been a focal point, evidenced by a marked increase in the number of agreements signed and/or executed in the US and India. Lastly, the importance of intra-group financing in TP has been underscored by recent rulings from the UK Court of Appeals.
 
As we transition from these developments of 2024, it's crucial to look forward and anticipate the changes on the horizon. One such significant shift is set to occur in Germany in 2025.

Tightening of TP documentation requirements

As a reminder, back in 2023, Germany implemented a law that significantly strengthened its TP documentation requirements. This updated regulation is set to take effect for tax audits commencing on or after January 1st, 2025. The following outlines the key changes brought about by this law:

  • The new legislation applies to tax audits that commence after January 1st, 2025.
  • The timeframe for submitting the requested documentation has been significantly reduced from 60 days to 30 days from the commencement of the audit.
  • The Tax authority will be able to request TP documentation anytime outside a Tax Audit.
  • Failure to fulfill the request or submitting unusable documentation is associated with penalty fees.

Conclusions

Given the substantial reduction in response time, it is strongly recommended that Multinational Enterprises with a German affiliate to proactively prepare and keep up to date the German TP documentation. Failure to comply or inadequate compliance with these documentation obligations can lead to strict sanctions from tax authorities. To alleviate these risks, it is crucial for companies to proactively review their current TP policy between Switzerland and Germany, take action to ensure its compliance, and prepare accurately the contemporaneous TP documentation.