Tax – The One Pager: Amendment to Transfer Pricing Documentation Requirements

Current legal situation

All documentation (local file, master file, documentation of extraordinary business transactions) must be submitted within 30 or 60 days after request by the tax audit department (“GTA”) (sec. 90 (3) sent. 1, 3, 7 et seqq. General Fiscal Code (Abgabenordnung; “AO”)).

Amendments

In addition to the documentation of facts and an economic analysis, local files are to include a transaction matrix going forward.

Furthermore, the submission requirements for the start of tax audits are to change:

• transaction matrix, master file, documentation of extraordinary business transactions without request within 30 days of the tax audit order;
• complete local file upon request by the tax authorities within 30 days.

Regulatory background

Going forward, GTA is to use a risk-based approach in tax audits and limit its request to a local file to transactions that warrant examination.

A reduced documentation burden means a relief for taxpayers.

Relevance for practice

• It remains doubtful whether the intended relief for taxpayers will be achieved. This is because a (fully comprehensive) local file should at least be prepared at the start of a tax audit, because experience shows that 30 days is not enough to prepare a robust local file.
• Limited scope for income estimations and shift of the burden of proof due to violation of tax audit filing obligations (sec. 162 (3) AO) resulting from the new risk-based approach to tax audits.

Key takeaways

After the amendment of sec. 90 (3) AO, the following applies to taxpayers:

• new: creation of a transaction matrix;
• unsolicited submission of the transaction matrix, master file and documentation of exceptional business transactions at the start of a tax audit;
• submission of a (limited) local file only upon request by the tax authorities;
• however: local file should continue to be prepared in a timely manner. Finalization and limitation of the documented business transactions in consultation with the tax authorities.