Transfer Pricing Basics, Part 3 of 3. Part 1: what transfer pricing is and what it covers. Part 2: how an arm's length price is proven. You are here: who has to file, when, and what it costs not to.
Part 2 produced a defensible price and a range. This part is about the other half of the obligation, and it is the half that generates assessments — because a tax administration cannot see your reasoning, only your file.
The OECD's three tiers
Paragraph 5.16 of the Guidelines sets the international template:
In order to achieve the objectives described in Section B, jurisdictions should adopt a standardised approach to transfer pricing documentation. This section describes a three-tiered structure consisting of (i) a master file containing standardised information relevant for all MNE group members; (ii) a local file referring specifically to material transactions of the local taxpayer; and (iii) a Country-by-Country Report containing certain information relating to the global allocation of the MNE group's income and taxes paid together with certain indicators of the location of economic activity within the MNE group.
Paragraph 5.17 explains the purpose: reliable information for a transfer pricing risk assessment, a platform on which an audit can be developed, and an incentive for taxpayers to consider and describe their own compliance. That third objective is easy to overlook and matters most in practice — the file is the argument you will make in three years' time, written while the facts are still available.
Country-by-country reporting is the narrowest tier. Paragraph 5.52 exempts groups with annual consolidated revenue in the immediately preceding fiscal year below EUR 750 million.
Which obligation applies at which size
The tiers are international. The triggers are not.
Germany: three components, thirty days, and a presumption
Section 90(3) of the Fiscal Code requires three components for cross-border related-party dealings: a transaction matrix, a factual description of the transactions, and an arm's length analysis that must expressly record the time at which the transfer price was determined, the method used and the third-party data relied on. A master file is additionally required unless prior-year turnover was below EUR 100 million, and extraordinary transactions must be documented contemporaneously.
Note the division of labour. The Fiscal Code makes the method used a statutory disclosure; the requirement to justify the selection and suitability of that method comes from section 4(1) no. 4(d) of the Documentation Ordinance. Both have to be satisfied, and the second is the one thin files skip.
The deadlines are in section 90(4): records within 30 days of a request, and in a tax audit the transaction matrix, the master file and the records on extraordinary transactions unprompted within 30 days of the audit order.
The Documentation Ordinance of 12 July 2017 fills in the standard. Records that are essentially unusable count as not created at all (section 1(1) sentence 4), and section 2(1) requires a serious effort, judged by whether an informed third party could understand whether the arm's length principle was observed. Two reliefs sit alongside that and are routinely missed: the extent of documentation follows the individual case, and only one suitable method has to be documented — not the exclusion of the other four (section 2(2)); and records on extraordinary transactions count as contemporaneous if made within six months of the year end (section 3). Smaller enterprises — related-party goods up to EUR 6 million and other charges up to EUR 600,000 — are relieved by section 6 from the formal records, but not from the arm's length principle itself.
The consequences are in section 162. Where the duty to cooperate is breached, subsection 3 raises a rebuttable presumption of higher income and allows the estimation range to be exhausted against the taxpayer. Subsection 4 adds a surcharge of EUR 5,000 — expressly including the case where the transaction matrix is not produced — or 5–10 % of the income adjustment where that produces more than EUR 5,000, and up to EUR 1 million where usable records are filed late, at a minimum of EUR 100 for each full day.
The administrative view sits in the Administrative Principles on Transfer Pricing of 12 December 2024, applicable from assessment period 2024, with the German translation of the 2022 OECD Guidelines annexed. That is how OECD paragraphs bind the German administration even though the statute has no tie-break rule of its own.
United Kingdom: exempt, but not unobserved
Small and medium-sized enterprises are exempt from the transfer pricing rules for the vast majority of transactions under section 166 of TIOPA 2010, using thresholds modified from EU Recommendation 2003/361/EC — for a medium-sized enterprise, up to 250 staff and either turnover up to EUR 50 million or a balance sheet total up to EUR 43 million, tested across the whole group rather than the single entity.
The exemption has edges worth knowing before relying on it: it does not cover transactions with related parties in territories without an appropriate non-discrimination article, a business may elect to stay inside the rules, and HMRC can issue a notice requiring a medium-sized enterprise to apply them.
Autumn Budget 2025 confirmed that medium-sized enterprises keep the exemption, and announced a new annual International Controlled Transactions Schedule — structured reporting of cross-border related-party transactional data, for accounting periods beginning on or after 1 January 2027, with a technical consultation in spring 2026. Exemption from the rules and exemption from reporting are drifting apart.
What is changing elsewhere
Three other movements are worth tracking. Amount B has been live in adopting jurisdictions for fiscal years beginning on or after 1 January 2025, fixing the return for in-scope baseline distribution. The proposed EU Transfer Pricing Directive, COM(2023) 529, was announced for withdrawal in the Commission Work Programme of 21 October 2025, with a non-binding EU transfer pricing platform signalled as a possible successor forum — so harmonisation across member states remains a matter of national law. And the OECD opened a public consultation in June 2026 on revising Chapter VII, which carries the simplified approach for low value-adding intra-group services forward largely unchanged.
Meanwhile the same file is being read for a second purpose: the global minimum tax draws on the same numbers from a different angle, as our note on Pillar Two and transfer pricing documentation sets out.
What the whole series comes down to
Transfer pricing looks like a legal subject and behaves like a data subject. Part 1 showed that the principle asks a factual question — what would independent parties have agreed. Part 2 showed that the method you may use depends on the information available. This part adds the deadline: whatever you relied on has to be on file, in a form an informed third party can follow, within 30 days of being asked.
Which is why the practical constraint is rarely the argument and almost always the evidence. Every ratio has to lead back to a named company's published accounts, with the accounting basis, the period and the rejection reasons on the record — reconstructable years later by someone who was not there. That is what the transfer pricing module and the export in Transfer Pricing Pro are for, and what makes a database defensible in the first place is set out in our guide for tax consultants. Where the transaction is small, the effort should be proportionate rather than maximal — the standard our note on proportionality sets out.
Documentation is not the tax. It is the evidence that the tax was right.
Start of the series: Part 1 — What Is Transfer Pricing? · Part 2 — How Is an Arm's Length Price Proven?
References
- OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations 2022 — Ch. V paras. 5.16 (three-tiered structure, quoted), 5.17 (objectives: risk assessment, audit platform, taxpayer incentive), 5.52 (EUR 750 million country-by-country exemption); Annex II to Ch. V (local file template — reasons for selecting the method); Ch. III paras. 3.80–3.83 and Ch. V paras. 5.28, 5.32–5.33 (proportionality and materiality)
- Germany: § 90 Abs. 3 Abgabenordnung (transaction matrix, factual documentation, arm's length documentation incl. time of determination, method used and third-party data; master file unless prior-year turnover below EUR 100 million; contemporaneous records for extraordinary transactions); § 90 Abs. 4 AO (30 days after request; in an audit, matrix, master file and extraordinary-transaction records unprompted within 30 days of the audit order); § 138a Abs. 1 AO (country-by-country report to the Federal Central Tax Office from EUR 750 million consolidated revenue); § 162 Abs. 3 and Abs. 4 AO (presumption of higher income, exhaustion of the estimation range, EUR 5,000 surcharge or 5–10 % of the adjustment where that exceeds EUR 5,000, up to EUR 1 million for late but usable records at minimum EUR 100 per full day)
- Germany: Gewinnabgrenzungsaufzeichnungsverordnung of 12 July 2017 (BGBl. I S. 2367) — § 1 Abs. 1 Satz 4 (essentially unusable records count as not created), § 2 Abs. 1 (serious effort; informed-third-party standard), § 2 Abs. 2 (extent per individual case; only one suitable method to be documented), § 3 (extraordinary transactions contemporaneous within six months of the year end), § 4 Abs. 1 Nr. 4 lit. c and d (presentation and justification of the method), § 6 Abs. 1 and 2 (smaller enterprises: EUR 6 million goods / EUR 600,000 other charges)
- Germany: BMF, Verwaltungsgrundsätze Verrechnungspreise of 12 December 2024, first applicable for assessment period 2024, with the German translation of the OECD Guidelines 2022 annexed; BMF, Merkblatt zur Transaktionsmatrix of 2 April 2025
- United Kingdom: TIOPA 2010 s. 166 and HMRC International Manual INTM412070 / INTM412080 (SME exemption "for the vast majority of transactions", thresholds modified from Recommendation 2003/361/EC, group-wide testing, non-discrimination-article and notice carve-outs); HM Treasury, Autumn Budget 2025 (medium-sized exemption retained; International Controlled Transactions Schedule for accounting periods beginning on or after 1 January 2027, technical consultation spring 2026)
- OECD, Pillar One – Amount B, February 2024, annexed to Chapter IV of the Guidelines; OECD public consultation on the revision of Chapter VII, opened June 2026
- European Commission, Proposal for a Council Directive on transfer pricing, COM(2023) 529 final, 12 September 2023 — withdrawal announced in the Commission Work Programme 2026 of 21 October 2025; a non-binding EU transfer pricing platform signalled as a possible successor forum
Related pages
- Transfer Pricing Benchmarking & TNMM Analysis — the module, the profit level indicators and the calculation log on live data
- Part 1 — What Is Transfer Pricing? — definition, scope and the arm's length principle
- Part 2 — How Is an Arm's Length Price Proven? — methods, comparables and the range
- Your Benchmarking File Is Now a Pillar Two Input — how the global minimum tax reads the same study
- How Much Search for Comparables is Enough? — the OECD's proportionality standard for benchmarking effort
- Transfer Pricing Databases: A Guide for Tax Consultants — selection criteria and what auditors reject
