Stricter transfer pricing documentation requirements in 2025: Challenges ahead for multinational companies

Transfer pricing documentation has been a key issue for multinational companies for years. The requirements (i.e. shortened submission deadlines) for transfer pricing documentation will become significantly stricter from 2025, with impact on the tax strategy and compliance of the affected companies. The shortened submission deadlines and new components of the documentation mean that multinational companies should proactively prepare transfer pricing documentation from 2025, as the tight deadlines may otherwise become unrealistic to meet.

 

New challenges

With the new regulations, affected companies should be required to submit transfer pricing documentation within 30 days after receiving an audit notice – without a separate request. This deadline applies to both the Local File and the Master File. Previously, the deadline was 60 days, and a separate request by the external auditor was necessary. Furthermore, the tax authorities can now request transfer pricing documentation outside of audits, such as in the context of an (advance) mutual agreement procedure. Since the new deadlines also apply to fiscal years before 2025, if the audit order is issued after December 31, 2024, companies must ensure they always have up-to-date transfer pricing documentation available.

 

Alleged simplification through current legislative process

The Fourth Bureaucracy Relief Act provides for an apparent procedural simplification of transfer pricing documentation. Contrary to the planned changes from 2025, automatic submission following an audit notice will only be required for the newly introduced transaction matrix, the Master File, and records of extraordinary business transactions, not for the full transfer pricing documentation. The complete transfer pricing documentation will then be required within 30 days upon request by the tax auditor. The content of the transaction matrix is yet to be specified.

This supposed relief is not a real easing for practice. The transaction matrix, as a new component of the Local File, is more of an additional burden that now comes with the documentation process. It is expected that tax auditors will request the full documentation at the beginning of the audit, so that, in effect, 30 days + 30 days after the request/audit start will remain for the preparation of full transfer pricing documentation.

Affected companies

Companies that are part of an international corporate group and whose (intra-group cross-border) business relationships exceed certain thresholds (e.g., goods deliveries over 6 million euros or services over 600,000 euros) must prepare a Local File. For a total turnover of over 100 million euros, a Master File is also required, providing a comprehensive overview of the global transfer pricing strategy. Country-by-Country Reporting (CbCR): In addition, groups with a turnover of over 750 million euros are required to prepare Country-by-Country Reporting, providing tax authorities with a detailed overview of the global profit distribution.

 

Consequences for failure to meet cooperation obligations

In the absence of usable transfer pricing documentation, the tax authorities can estimate the company’s income to the detriment of the taxpayer. These estimates are presumed to be higher than the declared income, which poses significant financial risks for the company. Additionally, a penalty of 5-10% of the increase in income, at least 5,000 euros, is imposed at the discretion of the tax authorities. If the transfer pricing documentation is usable but submitted late, the penalty can be up to 1 million euros, at least 100 euros for each full day of delay.

Consistent compliance with the new rules requires early planning and close collaboration between tax departments and other financial functions, such as accounting and controlling. Timely and carefully prepared documentation is crucial to minimize compliance risks and ensure smooth audits.

 

The role of technology and its impact on tax strategy

Given the increasing complexity and scope of transfer pricing documentation, digitalization plays a critical role. Modern software solutions allow large amounts of data to be processed efficiently, transfer pricing analyses to be automated if necessary, and consistent documentation to be ensured. Companies should integrate tax and financial data management systems to meet the new requirements.

Summary

The stricter requirements for transfer pricing documentation from 2025 present significant challenges for companies but also offer opportunities to optimize tax strategies. Through early planning, the targeted use of technology and close cooperation with specialized tax advisors, companies can ensure compliance and minimize financial risks.