Transfer pricing in 2025: Key changes and their impact on businesses
In this article, you will find out what changes the new Administrative Principles Transfer pricing from 2025 onwards. We’ll show you what transfer pricing documentation requirements will apply in future, which deadlines companies must meet, and how you can avoid risks at an early stage. Practical recommendations will help you adapt your processes optimally to the new rules and ensure compliance.
On 1 January 2025, significant changes to the administrative principles governing transfer pricing came into force. As is usually the case, these changes affect all companies with cross-border business relationships. As regards the implementation of these principles, it is now up to the tax departments to take action – or companies should consult their tax advisers. On the programme „hsp live at 11“, transfer pricing expert Tobias Polka, partner and chartered accountant at the Düsseldorf-based firm ADKL, explaining its contents, obligations and implications.
Introduction: Changes to the administrative principles governing transfer pricing
The new administrative principles, which were introduced as part of the Growth Opportunities Act The introduction of these principles represents a significant step forward in the regulation of transfer pricing. According to Tobias, these principles are designed to increase the transparency and traceability of financial relationships within corporate groups. Companies are now obliged to Funding arrangements to document and analyse in greater detail in order to meet the requirements of the tax authorities.
Experts foresee consequences for funding arrangements
The new regulations have direct implications for the Funding arrangements between group companies. Companies must now ensure that all financing services, including loans, guarantees and cash-pooling arrangements, comply with the new documentation requirements. This means that companies must provide clear and transparent documentation of their financing flows in order to prevent potential tax disadvantages.
A key point in the debate surrounding the new Administrative Principles on Transfer Pricing 2025 This raises the issue of retroactive application. Many companies are unsure whether the new regulations can also be applied to existing financing arrangements. Whilst certain aspects may be applied retrospectively, the precise application remains unclear in many cases. This is likely to give rise to a further point of contention between companies and the tax authorities.
Many financial services affected
The new regulations cover a wide range of financial services. In addition to traditional loans, guarantees, cash-pooling agreements and sureties, these also include guarantees. Companies must ensure that, for each of these services, they have a adequate documentation can provide evidence demonstrating that the interest rates are appropriate and setting out the economic background to the transactions.
In addition, the Documentation requirements significantly tightened. Companies are now obliged to, in just 30 days to produce comprehensive documentation setting out the functional and risk profiles of the companies involved. This includes an analysis of their ability to service debt, as well as the need to carry out a business purpose test. The companies must be able to demonstrate that the financing arrangements are not only tax-optimised but are also genuinely economically sound and necessary.
Interest income and interest expense under scrutiny in a tax audit
The verification of interest income and interest expenses is one of the key aspects of the new documentation requirements. Accordingly, companies must ensure that all interest income and interest expenses are properly documented and can be substantiated. The tax authorities will pay increasing attention to whether the interest income and expenses are in line with the Market conditions . This means that companies must provide evidence that the interest rates are reasonable. This evidence must be based on a detailed comparison of similar transactions.
The following are expected to be a particular focus of the examination:
Profitability test and net asset value test: checking appropriateness
The economic viability test and the net worth test are used to assess the appropriateness of financing arrangements. These tests are designed to ensure that companies are able to make the agreed payments and that the financing arrangements make economic sense. For example, the Cost-effectiveness test companies must provide evidence that they are able to meet interest and repayment obligations from their operating activities. This can be achieved by drawing up a detailed business plan setting out the company’s future profitability.
The Substance test This is intended to ensure that the financing is not merely on paper. There must in fact be substantial economic activity taking place in the country where the subsidiary is based. Companies must demonstrate that they have the necessary resources and activities to justify the financing.
The transaction matrix serves as a simplification, not as a shortcut
With the Transaction matrix A new tool is being introduced to help companies manage their transfer pricing documentation to simplify matters. The matrix provides an overview of all relevant transactions within the company and helps to meet documentation requirements. However, the implementation of a transaction matrix may lead some managers to draw hasty conclusions.
Many companies might mistakenly assume that by drawing up a transaction matrix, they are meeting all the requirements. In reality, however, they must also provide full documentation of all transactions. Companies should therefore ensure that the transaction matrix as part of their comprehensive Consider the transfer pricing documentation. This matrix should updated regularly to ensure that it covers all current transactions and their details.
Transfer pricing: 2025 guidance for businesses
In light of these new requirements, businesses should take a proactive approach. Here are some recommendations for overcoming the challenges:
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