[Opinion] Comparative Overview of Germany’s Transaction Matrix and Indian Compliance

Ameet Baid, Virti Shah & Sagar Nagaraj – [2025] 181 taxmann.com 129 (Article)

1. Background

The Germany’s transaction matrix provides a structured, tabular record of cross-border related-party transactions, capturing contractual basis, transaction value, transfer pricing method, tax jurisdiction, and deviations from standard taxation. It allows auditors to assess both the form and substance of transactions and must be maintained retrospectively. In contrast, India’s Form 3CEB focuses on reporting transaction nature, value, and transfer pricing method, without requiring disclosure of contractual terms or the tax status of associated enterprises. The article emphasises Germany’s framework and illustrates insights that can be drawn to strengthen Indian transfer pricing compliance.

2. Introduction

The transaction matrix is a structured, tabular overview that contains relevant information on the taxpayer’s or Multinational Enterprise’s (‘MNE’) cross-border business relationships with related-parties and permanent establishments introduced in Germany as part of its enhanced transfer pricing documentation regime under the Fourth Bureaucracy Relief Act, effective from 1 January 2025. Its purpose is to provide tax auditors with an overview of cross-border related-party transactions undertaken by a German MNE.

The introduction of the transaction matrix aligns with the OECD’s BEPS Action 13 framework and complements the existing Master File and Local File documentation requirements. In essence:

• The Master File provides a global business overview of the MNE group.
• The Local File details the entity-specific transfer pricing analysis.
• The Transaction Matrix offers a clear, transaction-level overview.

Importantly, prior to the introduction of the Transaction Matrix, there were no additional disclosure obligations in place. Consequently, German taxpayers were relatively exempt from the reporting requirements applicable in neighboring countries, such as the annual transfer pricing report (TPR form) mandated elsewhere.

Furthermore, German tax authorities clarify that a tax audit order issued often encompasses examination periods prior to 2025, which requires taxpayers to prepare the transaction matrix for those prior years as well. For instance, an audit order may cover the period from 2019 to 2022, and in such cases, the transaction matrix must be submitted for the entire examination period within 30 days, without any separate request. As a result, taxpayers are expected to maintain and update the transaction matrix not only for the current year but also retrospectively, ensuring that historical related-party transactions are thoroughly documented and readily available for audit purposes.

From an Indian perspective, the transaction matrix serves a function similar to that of Form 3CEB under section 92E of the Indian Income tax Act, 1961. While Form 3CEB is a prescribed statutory form that must be filed annually, while the transaction matrix is part of the transfer pricing documentation to be maintained and furnished to the German tax authorities upon request. Both aim to ensure transparency and facilitate the assessment of whether international transactions are conducted at arm’s length.

3. Key Elements in Transaction Matrix

Each entry in the transaction matrix summaries the economic and operational characteristics of a controlled transaction. A transaction matrix must contain the following information:

(a) The subject and nature of the business transactions (for example, supply of goods or an ongoing business relationship)

(b) The parties involved in the transactions, with an indication of the recipient and provider of the goods or services

(c) The volume and remuneration (in euros) of the transactions (for example, the loan volume and interest, or the remuneration for a supply of goods or services)

(d) The contractual basis (specifying the contract document)

(e) The transfer pricing method applied (for example, cost plus method or comparable uncontrolled price method)

(f) The tax jurisdictions concerned

(g) Whether the business transactions are not subject to standard taxation in the tax jurisdiction concerned

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