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Freshfields Risk & Compliance

| 3 minutes read

Germany may require submission of transfer pricing documentation reports outside of tax audits

On 10 November 2022, the German Bundestag published a draft bill to implement Council Directive (EU) 2021/514 of 22 March 2021 amending Directive 2011/16/EU on administrative cooperation in the field of taxation and modernizing the law on tax procedure (DAC 7).

The draft bill not only includes new regulations on the tax reporting obligations of platform operators and the automatic exchange of such information ("Plattformen-Steuertransparenzgesetz – PStTG"), but also contains measures to modernise the procedural law in Germany in relation to tax matters. In particular, new rules are proposed to be added to the German Fiscal Code ("Abgabenordnung" or "GFC") to speed up tax audits (see Articles 3 and 4 of the draft bill). In general, the aim is that tax audits should be both started and completed more quickly. This is intended to be achieved primarily by improving cooperation between relevant tax authorities and companies. For companies, the draft bill extends the obligation to cooperate. In return, it is envisaged that tax audit orders ("Prüfungsanordnung") would be issued more promptly, focus areas of the tax audit will be identified, interim discussions will be introduced and binding partial final assessment notices ("Teilabschlussbescheide") may be introduced.

Obligations for taxpayers

Taxpayer obligations in the area of transfer pricing will, in particular, be tightened as, for taxation periods beginning after 31 December 2024, tax authorities will be able to demand TP documentation reports (Master Files and Local Files according to section 90 (3) GFC) at any time and not just during tax audits. In the case of ongoing tax audits, the TP documentation reports will have to be submitted without need for a separate request. In addition, the period for submission will be shortened from 60 days to 30 days from the date of the request or from the date of notification of the audit order (new section 90 (4) GFC).

To ensure cooperation of the taxpayer during the audit (in light of the proposed new limits around the suspension of time limits in section 171 (4) GFC – see below), new section 200a GFC includes a qualified request for cooperation with specific legal consequences for non-compliance. The qualified request for cooperation may be issued six months after the announcement of the tax audit. The deadline for compliance is generally one month from the date the taxpayer is notified of the qualified cooperation request and a cooperation delay penalty (amounting to EUR75 for each day of delay, up to a maximum of 150 calendar days) can be imposed. The new penalty system would apply for taxation periods beginning after 31 December 2024.

Modernisation of procedural law

On the other hand, according to the draft bill, the usual suspension of time limits pending the tax audit ("Ablaufhemmung") would be limited such that the audit must end no later than five years after the end of the calendar year in which the audit order was issued. The five-year period may only be extended if the start of the tax audit is postponed at the request of the taxpayer; if the tax audit is interrupted; or if the tax authority makes use of intergovernmental administrative assistance. This restricts the general rule around suspension of time limits under section 171 (4) GFC. This may be enforced for taxes and tax refunds arising after 31 December 2024.

Moreover, the draft bill foresees changes to section 197 GFC – i.e. regarding the announcement of the audit procedure. According to the new section 197 (3) GFC, the tax authority will also be able to request accounting documents when the audit order is issued, and these must be submitted within a reasonable period of time (which may be before the start of the tax audit). The documents submitted may be used to determine the focus of the tax audit, although this does not limit the scope of the tax audit. Rather, this is intended to enable more effective and faster audits and – according to the draft bill – will make it easier for taxpayers to prepare for the tax audit. On the other hand, it should be possible to agree to holding discussions at regular intervals on the facts ascertained during the course of the tax audit and their possible tax implications as well as to determine the framework conditions for cooperation in accordance with section 200 GFC. If these general conditions are met, a qualified request for cooperation pursuant to section 200a GFC (= qualified request) will not be issued.

According to new section 180 (1a) GFC, separable and conclusively audited bases of taxation may be separately determined by binding partial final assessment notices. Prior to the issuance of such a partial assessment notice, a written or electronic partial assessment report must be issued. The decisions made therein can only be challenged by contesting the partial final assessment. In addition, binding commitments may be issued even before completion of the tax audit, provided that a partial final assessment notice has been issued (new section 204 (2) GFC). This new instrument would apply for tax periods for which an external audit was started after 31 December 2024.

The draft bill also contains some new regulations regarding the testing of alternative audit methods in relation to the use of client tax control systems.


The German Federal Council will consider the draft bill on 25 November 2022 and is likely to give its approval to the law.


transfer pricing, regulation, germany, tax disputes