Transfer pricing & transaction matrix – ensuring compliance and minimising risks

Current challenges in transfer pricing

A tax audit on transfer pricing still counts as one of the most demanding things that those responsible for taxes at an international company have to deal with. Tax authorities are increasingly pursuing risk-based audit approaches and acting with great analytical depth. Formal compliance and globally consistent contents of the transfer pricing documentation are a particular focus. This means companies are confronted with stricter requirements, particularly as regards tight filing deadlines, dealing with unusual transactions, and the introduction in Germany of the compulsory transaction matrix as the central element of documentation. 

One key problem is that the deadlines for filing the documentation are often very short, e.g. in Germany 30 days from the request. Those who are not prepared will quickly be put on the back foot. This becomes particularly critical when the quality of the data is inadequate, and evaluating the transaction matrix, which was intended to simplify things, turns into a challenge because intercompany transaction volumes have to be laboriously compiled by hand or there are concerns about inconsistencies.

Audits abroad may also turn into a long-term annoyance to the group if there are no processes in place to deploy the central tax department in time and questions always have to be responded to quickly and individually. In the worst case scenario, this can result in unnecessary double taxation because, in the absence of central coordination, local responsible parties make statements that don’t align with the group’s transfer pricing plan.

The increasing relevance of a well-founded transfer pricing strategy also continues to be a reason for the growing number of cross-border tax disputes, which frequently end in a mutual agreement procedure – particularly related to double taxation. In 2023, 677 mutual agreement procedures were pending in Germany related to transfer pricing, of which 24% were more than four years’ old. The average procedure length rose to 32 months – a considerable rise from the previous year and an indicator of the growing complexity and length of such procedures. 

There are also varied challenges regarding the contents. Many countries take the OECD Guidelines as their basis for transfer pricing but interpret them differently in their national legislation. In Germany it was the rules on financing relationships that were most recently in focus. Those who want to keep up-to-date need to regularly study changes in the law, new Federal Ministry of Finance circulars and court judgments (e.g. on the transfer of functions or permanent establishments) and question the status quo.

The greatest risk is a lack of preparation – missing deadlines, incomplete documentation and a lack of transparency weaken your negotiating position in an audit. Systematic preparation that looks ahead (ideally embedded in a globally coordinated transfer price plan) is therefore indispensable to minimise tax risks, prevent disputes and safeguard compliance long-term.

What is a transfer price health check?

A health check of transfer prices is a structured analysis of existing documentation, processes and data flows. The goal is to identify risks early, improve the quality of data and uncover potential to optimise strategic management. 

First impressions count – the opportunities that a sustainable transfer pricing plan brings 

To companies, the transaction matrix can be much more than simply a compliance tool. Organisations that are able to consistently and quickly record intercompany transactions not only save time in an audit but also create a basis for solid analyses and decisions.

A well curated transaction matrix compiled from reliable data allows intercompany information to be provided at the push of a button – both for external audit questions and internal management purposes. It creates transparency regarding the intragroup interfaces along the global value chain and allows intragroup relationships to be presented uniformly across country borders. This is vital in times of increasing regulatory complexity and growing requirements on the coherence of the master file, local file and actual business practice.

Optimisation of the data basis for the transaction matrix is often combined with a project to standardise the transfer pricing documentation. Globally drafted documentation integrating the transaction matrix as its central element not only takes the strain off resources at home and abroad but also fosters transparency across the company.

The matrix can also serve as the basis for visualisations, such as interactive dashboards or management reports that support strategic decisions. This turns a regulatory duty into a valuable control instrument that connects operational and tax perspectives.

What is a transaction matrix under section 90 of the Fiscal Code?

The transaction matrix is an element of the transfer price documentation under section 90(3) of the Fiscal Code (Abgabenordnung – AO). It provides a structured presentation of intercompany business relationships (particularly the nature, volume and economic background to intercompany transactions) and has been compulsory in Germany since 2025.

Now’s the right time to take action – take the opportunity to analyse your transfer pricing processes, professionalise your documentation and improve the quality of your data. A pro-active, globally coordinated documentation project (ideally with digital support) will give you not only a strategic advantage if you are audited but also strengthen your position internationally against the competition. 

Act with foresight – don’t wait to react.

Talk to the Grant Thornton Germany transfer pricing team! Together, we’ll develop a transfer pricing strategy that’s tailored to your business model – consistent, practical and future-proof. Whether compiling a reliable transaction matrix, carrying out a health check or strategic documentation: we’ll support you with our professional expertise, international experience and a clear understanding of what’s important.