Single Source of Truth for Intercompany Transactions: An Automated Transaction Matrix

As of January 1, 2025, new rules for transfer pricing documentation apply in Germany. A so-called “transaction matrix” that captures key details of each intercompany transaction is now explicitly listed as a required element of the documentation to be maintained (§ 90(3) of the Fiscal Code (Abgabenordnung, AO)). In addition, under amendments to § 90 AO introduced by the Fourth Bureaucracy Relief Act of 2024, multinational enterprises must submit their transaction matrix within 30 days of notification of a tax audit order, together with other relevant documentation. A separate and explicit request by the tax auditor is no longer required.

The transaction matrix is essentially a structured, tabular overview of all cross-border transactions of the German taxpayer with related parties abroad, capturing the key details of these relationships. As required by law, it is now a distinct component of German transfer pricing documentation, alongside the qualitative factual documentation (display and description of business transactions) and the quantitative arm’s-length analysis (demonstration of the arm's-length nature of transfer prices, e.g., using benchmark analyses). Further clarifications to these requirements have been issued by the German Ministry of Finance in guidance dated April 2, 2025.

Based on the regulatory requirements for the content and availability of the transaction matrix, this article addresses the challenges faced by internal stakeholders in preparing the transaction matrix and outlines automation solutions that can ensure compliance with these legal obligations.

While German taxpayers have always submitted the contents of the transaction matrix as part of their general transfer pricing documentation and have often already largely prepared a de facto transaction matrix in the past, the new formalized requirements lead to an increased importance of the transaction matrix. The law now stipulates that the transaction matrix must be submitted to the tax authority within 30 days of notification of the tax audit order without a separate request. This short deadline also applies to tax years prior to 2025 if the taxpayer is only notified of the tax audit order in 2025 or later.

The transaction matrix must contain the following information for each cross-border transaction with related parties

• Nature and subject of the transaction – e.g., whether it is a sale of goods, the provision of services, a loan, or another agreement.
• Parties involved – the affiliated entities or permanent establishments participating in the transaction, with a clear indication of which entity is the provider of services or goods and which is the recipient.
• Transaction volume and fee – the amount and volume of the transaction and the price or fee charged (in euros). For financial transactions, such as loans, this would include the principal and interest.
• Contractual basis – a reference to the underlying intercompany agreement or contract governing the transaction (e.g. type of legal arrangement or name of the contract).
• Transfer pricing method applied – the method used to determine the arm's length price for the transaction (e.g., price comparison method, cost plus method, resale price method).
• Relevant tax jurisdictions – the tax jurisdictions of the entities involved in the transaction.
• Deviations from standard taxation – whether the transaction is subject to special tax regulations or deviations from standard taxation in the country concerned. If a transaction abroad benefits from preferential tax treatment (e.g.., as part of investment promotion measures such as a patent box), this must be flagged.

By recording all the above-mentioned data points, the transaction matrix provides tax auditors with a concise picture of the potential transfer pricing risks of the audited company at a glance. The stated purpose of the transaction matrix is to support the risk-oriented selection of cases and focus areas for tax audits. The tax authorities can use the transaction matrix to quickly identify large or unusual transactions, the extent of the involvement of low-tax countries or inconsistent transfer pricing methods, and then decide on a case-by-case basis which issues to deal with in detail as part of their audit.

The guidance dated April 2, 2025, also clarifies that a flat-rate surcharge of EUR 5,000 is to be imposed if the transaction matrix is not submitted.

Preparing a transaction matrix poses significant challenges, particularly for companies with high volumes of intercompany transactions or complex structures. Key challenges include:

• Data volume and complexity: Multinational companies process numerous intercompany transactions in various categories (goods, services, licenses, etc.) every year. Consolidating this data into a structured transaction matrix increases the workload considerably, especially if there are no robust systems in place for consolidation.
• Data availability and quality: Often, essential information is not readily accessible in a unified format. Financial data resides in ERP systems, but crucial details like contractual agreements, transfer pricing methods, or special tax statuses are usually recorded separately. Integrating financial and qualitative data is complex, often requiring manual manipulation and data enrichment.
• Manual processes: Historically, tax departments rely on manual extraction and manual compilation of data from various spreadsheets. Such a process is time-consuming and error prone. Manually identifying and categorizing transactions increases the likelihood of inaccuracies. Reconciling sales and purchasing data between related companies is a particular challenge without automated controls.
• Short submission deadline: The new 30-day deadline significantly shortens the preparation time for German documentation. Previously, companies could expect longer deadlines (often 60 days or more). The shortened deadline increases the risk of errors.
• Cross-functional coordination: Assembling the transaction matrix requires cross-departmental collaboration, including tax, finance, legal and IT - with clear roles, responsibilities and regular update processes. Insufficient internal coordination or decentralized storage of information can lead to bottlenecks and delays.
• Rapidly changing regulatory and business landscapes: Companies need to continuously adapt their processes and systems to meet evolving legal requirements and respond to changes in their business model.

In the face of these challenges, traditional year-end or reactive approaches are no longer adequate. Companies are increasingly turning to process improvements and technological solutions to efficiently meet compliance requirements and minimize the strain on their resources.

In view of the challenges described above and the tight timeframe, automation is proving to be a crucial prerequisite for efficient management of the transaction matrix. An automated approach significantly reduces both manual workload and the error rate, ensuring that legal requirements are met without overloading scarce staff capacity.

The following section explains how companies can use technology and process improvements to automate the creation of the transaction matrix:

• Integrating data from source systems: The automation of the transaction matrix requires the connection of ERP and consolidation systems and, where applicable, contract management and transfer pricing tools to extract all intercompany transactions and supplementary characteristics (e.g., contract references, method identifiers). A robust and low-code data integration pipeline can consolidate all required fields into one data set and enable a repeatable workflow that retrieves and compiles the latest intercompany data with minimal manual intervention.
• Identification and classification of transactions: A key challenge of automation is to enable the system to accurately identify and categorize cross-company transactions. This can be done in various ways:
  • Enhanced upstream accounting: Configuring ERP systems so that they provide each intercompany transaction with a unique code or indicator that matches the transfer pricing categories used in the company. This makes filtering and grouping transactions much easier.
  • Rule-based classification outside the ERP system: If ERP labeling (e.g., in legacy years) is not possible, transaction classification rules - based on keywords, account ranges, and/or counterparties, among other things - can be defined and integrated into the automation workflow so that automation scripts or low-code platforms automatically and consistently assign the transactions. The structured assignment ensures that each transaction is systematically assigned to the correct category.
• Data harmonization and quality control: Automation should ensure data consistency across all sources, especially reconciliation on both sides of an intercompany transaction. Automated reconciliations can reveal inconsistencies in volume. By cleansing and structuring the data, automation provides a correct transaction matrix that complies with the legal requirements, which can be additionally secured by manual validations (spot checks).
• Using business intelligence (BI) dashboards: BI dashboards allow tax teams to filter and analyze transactions as needed. Once set up, these dashboards can be regularly updated with new data. This ensures that an up-to-date transaction matrix is always available. It also provides further valuable insights into the transaction data.
• Low-code and workflow automation: Low-code solutions are attractive for companies with limited IT resources: Tax/finance teams can set up workflows with minimal programming effort, retrieve ERP transaction data, enrich it with transfer pricing methods and output it as a formatted transaction matrix in Excel or Power BI. Low-code automations are faster and easier to develop than complex IT applications and can be adapted more flexibly as requirements change.

In summary, automation ranges from data capture at the source, defined processing rules and workflows to reporting and analytics. It transforms a manual, error-prone process into an automated, rule-based workflow - processing times are reduced from weeks to hours, accuracy and consistency increase through validations and audit trails, data quality improves (e.g., anomalies and risks become visible earlier), and responsible staff will have more time for strategic work. At the same time, continuous updating ensures that documents are always ready for auditing and strengthens the compliance culture: the immediately available data can be used directly for the local file and simplifies the annual documentation processes.

In many cases, this can already be achieved through the intelligent use of already available company systems and supplementary analysis tools. Investing in the appropriate infrastructure pays off twice over: It significantly reduces the annual compliance burden and leads to noticeable quality gains.

Germany’s transaction matrix requirement signals a shift toward greater tax transparency and data-driven transfer pricing audits. Companies must be proactive - it is no longer an option to wait until an audit request to compile intra-group data. The expectation is clear: accurate, up-to-date information must be readily available at any time. By investing in the right processes and technology, taxpayers can ensure their data is organized, validated, and always audit-ready. This not only helps to avoid sanctions but also builds trust with tax authorities and can lead to smoother audits.

More broadly, tax compliance is becoming increasingly data-centric worldwide. The use of automation and analytics by taxpayers not only reduces their compliance risk but also provides deeper insights into intercompany business processes. For tax departments, this is a chance to modernize tax processes, collaborate closely with finance and IT, and thus create lasting added value for the company. The supposed additional effort of complying with new tax regulations thus proves to be an investment that leads to strategic advantages for the company.