In a recent episode of The Transfer Pricing Method, host Adriaan van der Heijden welcomes Oliver Treidler and Rudolf Sinx. Together, they explore the evolving landscape of tax audits, compliance demands, and strategic documentation requirements in Germany and the Netherlands. This engaging conversation bridges theory and practice, focusing on actionable strategies for multinational companies.
In the article below, the key highlights and practical takeaways from the podcast are outlined.
Germany and Netherlands Transfer Pricing Shifts
Transfer pricing is increasingly under the microscope. In both Germany and the Netherlands, tax authorities are refining their approaches and increasing their capabilities on each topic. The consequences for multinationals are clear: the need for robust documentation, thorough analyses, and more proactive audit readiness are essential.
Germany has rolled out significant changes in 2024, including updates to its Administrative Principles and the introduction of a mandatory transaction matrix. These changes reflect a stronger adoption of OECD transfer pricing guidelines and highlight the country’s focus on financial transactions.
One of the most notable developments is the expansion of financial transaction guidance within these administrative principles. This isn’t just a procedural shift. It signals an intensified scrutiny on loan structuring, debt capacity, interest deduction justifications, and intra-group financing arrangements.
Audit Readiness: More Than Just Documentation
It is important to have robust documentation, and merely having paper in place will not help your storyline towards the tax authorities. Auditors are evaluating whether a company’s transfer pricing truly reflects economic substance. Key aspects under review include:
- The commercial rationale behind intercompany loans
- Debt capacity of borrowing entities
- Control over financial risk within lending entities
- Alignment of contractual terms with market conditions
One resounding theme throughout the podcast is the increasing importance of being proactive rather than reactive. As tax authorities become more sophisticated, companies need to elevate their game. This includes:
- Preparing benchmark studies in advance
- Clearly documenting intra-group roles and risk control
- Maintaining consistent logic across master and local files
- Anticipating questions and creating defensible narratives
Audit readiness now means being able to show, not just tell.
The Transaction Matrix: A New Standard for Transparency
The new German requirement to submit a transaction matrix represents a broader push for transparency. This matrix should, amongst others, clearly lay out:
- The intercompany transactions and related information
- Their respective legal frameworks
- Transaction volume
- Transfer Pricing method applied
Rather than being seen as just another form to complete, this tool can serve as a strategic overview for tax authorities and internal stakeholders alike. It provides immediate insight into whether a company’s global operations are coherent and justifiable from a tax perspective.
The Dutch Perspective: Clarity and Coherence First
While the Netherlands may not have implemented as extensive a regulatory overhaul as Germany, it is actively strengthening its audit approach. Dutch tax authorities place high value on the clarity of explanations and logical flow in documentation.
In audits, a well-prepared presentation can often provide as much value as a comprehensive local file, especially when it’s structured to tell a compelling, transparent story about the company’s transfer pricing policy.
When jurisdictions like the Netherlands favor a narrative approach, the emphasis shifts to:
- Making complex structures understandable
- Linking operational and legal substance clearly
- Providing concise overviews of transfer pricing strategies
This does not diminish the importance of documentation, it complements it.
Financial Transactions: A Lightning Rod for Audits
Germany’s enhanced focus on financial transactions stems from a desire to assess not just arm’s length pricing, but the underlying economic justification. This includes:
- Is there a solid business reason behind the loan transaction?
- Does the borrower have a plan and the capacity to repay the loan and interest?
- Are the lender’s actions aligned with risk management responsibilities?
Auditors don’t just want to see pricing models, they want to understand the “why” behind every transaction.
Cash Pooling: Under the Microscope
Cash pooling arrangements also face high scrutiny in Germany. The administrative principles default to classifying cash pool leaders as routine service providers, unless strong economic substance and functions are proven.
Auditors will also analyze whether certain balances have become effectively long-term. If a short-term cash pool balance remains untouched for one to two years, it could be reclassified, triggering adjustments and recharacterizations.
Final Perspective: Why This Matters Now
As audits become more complex and documentation requirements more demanding, companies need to build systems that are resilient, consistent, and clear. The conversation concludes with a powerful reminder:
“There are lots of court cases where the burden of proof is also very important. So it’s good to have legal documents in place, have your relevant master file, local file, supportive benchmark studies, and policies in place where you can show that the applied margins, the applied transfer pricing policy is backed up with either benchmark studies or specific reasonings. That makes it a lot more difficult for tax authorities to challenge your position.”
FAQs
What is the main takeaway from the podcast episode?
Tax authorities in Germany and the Netherlands are increasingly focused on substance and transparency. Documentation must go beyond compliance to tell a defensible story.
Why is Germany focusing on financial transactions?
The 2024 administrative update expanded financial transaction guidance significantly, reflecting the desire to ensure debt arrangements reflect real economic activity.
What is a transaction matrix?
It’s a structured document outlining intercompany transactions and their justifications. It enhances transparency and is now mandatory in Germany.
Why is economic substance more important than ever?
Authorities are no longer satisfied with just numbers. They want to know if the arrangement makes sense commercially and if it mirrors what independent companies would do.
Conclusion
Transfer pricing is no longer just about rates – it’s about rationale. The direction is clear: build robust documentation and ensure every decision is grounded in economic substance. In both Germany and the Netherlands, this is the standard of tax governance.
Want to Learn More?
- Listen to more episodes of The Transfer Pricing Method Podcast here.