Transfer Pricing 2025: Why European Authorities Expect Real-Time Data – and How to Manage It

What's Changing in Practice: New Documentation Requirements

Shift from static documents to dynamic data deepening

Traditionally, transfer prices were documented in extensive year-end summaries, often in Master File and Local File formats. This documentation included transaction descriptions, comparability analysis, and justification for the chosen method. It was a static library – created once, filed once.

Now this model is changing. European tax administrations, especially in Italy, Germany, and Belgium, are introducing mandatory digital formats and continuous reporting, requiring constant transparency. Companies must be able to generate an up-to-date overview of their prices and related-party relationships at any time – not once a year, but continuously, monthly or quarterly. The SAF-T standard (Standard Audit File for Tax) is one of the tools that allows structured mapping of accounting data directly from ERP systems, and its use is expanding across Europe, for example in Poland and Portugal.

In Denmark, 2025 saw a fundamental change. The Danish parliament approved legislation simplifying transfer pricing documentation requirements for smaller entities, while increasing transparency for larger entities. The threshold for full documentation increased, but data digitization and the ability to submit it on request remained mandatory. Similarly, in the Czech Republic and other countries, companies are expected to integrate transfer pricing into their regular financial processes – not as a standalone tax activity at year-end.

MicroFAQ:

1. Why is SAF-T important? SAF-T enables standardized and structured export of accounting data directly from ERP systems, facilitates automated analysis by tax authorities, and serves as a key to meeting 'real-time' data requirements.

2. How do rules differ between countries? The basic principles are based on the OECD, but each country may have its specific thresholds, formats, and deadlines. It is crucial to monitor local legislation and practice.

Data specifications required by tax authorities

New requirements concern not only the volume of data but also its specificity and interconnectedness across different jurisdictions. Tax administrations now want to know:

• The specific identity of counterparties in each transaction (not just aggregated amounts by business type).

• The country of residence of each counterparty and its role in the transaction.

• The type of controlled transaction (often from a prescribed list – in the Czech Republic, for example, categorization according to OECD or specific local authority categorization, usually over 30 categories, is recommended).

• The exact amount and its impact on profit and tax base in each affected entity.

• The history of changes and justification of pricing policy, including records of all adjustments and reasons why they occurred.

• Consistency between contractual terms (intercompany agreements) and actual operations.

All this must be displayed uniformly, ideally in a digital format supported by structured data schemas. Companies that still store information in Excel spreadsheets and paper files are particularly vulnerable, as such data is difficult to control and can hardly prove adherence to the arm's length principle.

Operational transfer pricing (OTP) is coming to the forefront

Until recently, transfer pricing was often viewed primarily as a tax matter – forms prepared by the tax team and tax advisor at year-end. Now, this is changing radically. The finance department must take responsibility for the day-to-day implementation of transfer prices. This means that prices must be correctly accounted for in ERP systems, adjustments must be made when key factors change (e.g., market conditions, costs), and communication about these prices between entities in different countries must be transparent and consistent.

Operational transfer pricing (OTP) is becoming a critical process requiring collaboration across the entire organization – from sales to finance and IT to the tax department. When a tax authority asks for data, it no longer wants to hear: “The data is scattered across different systems.” It wants to see one consistent, up-to-date picture supported by a functional and continuous process.

Practical situation: How it works in the real world

Example: European distribution company based in Germany

Imagine a company based in Berlin that buys products from its factory in Poland and sells them to distributors in the Czech Republic, Austria, and Slovakia. Transfer prices are set for each transaction path, usually with a certain margin. Until now, all data was collected at the end of the year: invoices, margins, costs, and then documentation was prepared.

In 2025, and especially now in 2026, authorities view this process differently. The German tax authority wants to see how prices were actually applied month by month. If deviations arise – for example, if the margin of the Czech distributor sharply increased in March without justification in the contract or market conditions – the authority wants to know immediately, not just in December. Similarly, Polish and Czech authorities want to see how their entity proceeded in accordance with the policy and what happened when the situation changed.

Without a centralized system that tracks this data in real time and contains the history of decisions, documentation quickly gets out of control. Discrepancies arise between what is stated in the tax return and what is in the accounting records. Reasons for price changes are unclear. A tax audit, instead of a mere review, turns into a battle for the burden of proof with the potential for significant penalties across multiple jurisdictions.

Common mistakes we see in practice

In practice, companies often:

• Store data in different systems and lack a unified view of intercompany transactions within the group.

• Lack sufficiently documented decisions regarding price adjustments and policy changes.

• Cannot quickly and consistently explain why a margin deviated from policy or why it differs between countries.

• Cannot prove consistency between contractual terms (in intercompany agreements) and what actually happened and is accounted for.

• Commonly detect errors and inconsistencies only during a tax audit – which is too late for proactive resolution.

These problems are not just administrative. They can lead to significant tax assessments, penalties, and long, costly disputes with authorities, often occurring simultaneously in several countries.

How transfer pricing works in Europe: Principles and legislation

All European countries adhere to the arm's length principle, which is based on the OECD. This means that the price between related parties (e.g., parent and subsidiary) must be what independent parties would agree to under the same or comparable conditions. This prevents companies from artificially reducing profits in high-tax countries and increasing them in low-tax countries.

Documentation of this principle traditionally consists of three tiers according to OECD guidelines, which are implemented into national legislation and practice:

• Master File – contains global information about the multinational group, its organizational structure, business strategy, and general transfer pricing rules.

• Local File – detailed information on individual controlled transactions (services, sale of goods, licenses, etc.) carried out in the given country and their compliance with group policy.

• Country-by-Country Report (CbCR) – an aggregated overview of revenues, profits, taxes paid, and economic activity in each country where the group operates.

In the EU, the DAC6 directive further requires the reporting of certain aggressive tax schemes, including those that may manipulate transfer prices. Companies must report these cross-border arrangements within 30 days of their implementation, further increasing pressure for timely and digitized record-keeping.

In the Czech Republic, Germany, Poland, and other countries, local specifics are added to these general rules. In Germany, for example, the assessment of transfer pricing is one of the most frequently audited areas – the audit focuses on distributions, services, and the licensing of intangible assets, with increasing emphasis on data continuity.

How AI and technology help address new requirements

Automation of data collection and analysis

New requirements would be almost impossible to meet efficiently if companies still operated predominantly manually. Here, AI and modern technologies come into play as key helpers.

Modern platforms, such as Anywhere.legal, enable:

• Automated data collection from ERP systems – pricing and transaction data are regularly and automatically exported and stored in a structured format, ensuring consistency across entities.

• Anomaly detection – AI monitors when prices, margins, or volumes deviate from set policies or market references, and automatically flags them, often in real-time.

• Instant reconciliation – transactional data between individual entities in different countries are automatically compared, and any discrepancies are flagged for quick correction.

• Easier report preparation – documentation (Master File, Local Files) is generated from a central data source, thereby reducing manual work and eliminating errors, instead of being compiled from dozens of fragmented files.

Companies that deploy these technologies report a reduction in documentation preparation time by up to 50 percent, while also increasing quality and defense against disputes, which is crucial in the context of proactive audits.

Example: Using AI for documentation control and coordination

When a tax authority from one country sends inquiries or requests for information that may be dozens of pages long, AI quickly processes these documents, finds key questions and topics, and helps the tax team prepare consistent and relevant responses. This saves time and reduces the risk of providing contradictory information across jurisdictions, which could have serious consequences.

Similarly, AI can help with the analysis of comparable data. Instead of manually searching databases and filtering data, preparing a benchmarking study takes significantly less time and is more accurate thanks to AI's ability to process and evaluate vast amounts of data.

Risk and Solution Table with Anywhere.legal

Practical Steps for the Coming Months

For companies with intercompany transactions in Europe, now is the time to act to avoid problems in 2026 and beyond:

• Map the current state: What are the current transfer pricing policies? Where is data stored? Is it harmonized across the group and jurisdictions?

• Identify source systems: Which ERP and accounting systems contain relevant data? Can these systems export data in standardized digital formats, such as SAF-T?

• Assess risk: Which industries, transactions, and geographical areas are most important and risky for the tax authority? Where is the greatest likelihood of an audit or assessment?

• Plan digitization and automation: It is not necessary to do this all at once, but there should be a clear and realistic plan for the next 6-12 months, focusing on automating data collection and processing.

• Engage the right multidisciplinary team: Without collaboration between finance, tax, legal, and IT teams, and experts from different jurisdictions, the transformation of transfer pricing to 'real-time' management cannot be achieved.

Why it pays to master automation and structure now

Tax authorities will not wait. In Germany, Spain, Poland, and the Czech Republic, audits focus directly on transfer pricing, and the number of audits is growing along with increasing transparency requirements. Companies that have clean, structured data and unambiguous documentation available in real time will go through audits faster and with less risk. Others will find themselves in a situation where the tax authority can arbitrarily choose and propose its own calculation, leading to assessments and penalties that often multiply in a cross-border context.

Technology and AI are not just add-ons – they are now essential tools for effective compliance and minimizing transfer pricing risks. It would not be wise to wait until the first tax audit to deploy them. Anywhere.legal offers a platform that combines technology, AI, process management, and a network of international experts to help you tackle these challenges proactively and safely.

Do you need international legal or tax assistance with managing transfer pricing and meeting new requirements? Contact us via Anywhere.legal.

FAQ

3. Does my company need to be ready for real-time transfer pricing reporting?
       That depends on your country, size, and the nature of your cross-border transactions. However, the trend is clear: in countries like Germany, Belgium, and Poland, the requirements for structured and continuously available data are becoming stricter. If you have controlled transactions and revenues above certain thresholds, you should expect data to be available digitally and in near real-time. It is optimal to start preparing now, before an audit catches you unprepared.

4. How does Country-by-Country Reporting differ from Local Files?
   CbCR is a summary at the level of the entire multinational group – it shows aggregated revenues, profits, and taxes paid in each country where the group operates. It serves as a tool for tax authorities to analyze risks. A Local File, in contrast, is detailed documentation of specific controlled transactions (e.g., sale of goods, services, licenses) and comparability analyses for a specific entity in a given country. CbCR serves as a first signal for the tax authority where it might conduct a detailed audit, and the Local File then serves as a defense for individual transactions.

5. Can I set a transfer price once and then not change it?
    In principle, yes, if the operating environment, market conditions, or functions and risks of the entities do not change. In practice, however, the market is constantly moving, margins change, new products emerge, or economic conditions shift. Transfer prices should be reviewed at least once a year and adjusted as needed. If tax authorities do not receive an explanation for changes or inconsistencies over time, this becomes a target for audit and challenge.

6. What are the most common transfer pricing errors that authorities in Europe monitor?
   The most common errors include: unperformed or outdated functional analysis, poor selection of comparable entities or databases, missing justification for price changes, inconsistency between contractual terms (intercompany agreements) and actually realized transactions, missing or outdated intercompany agreements, and insufficient documentation of transfer pricing decisions. In addition, it is now also the inability to provide data quickly and in a digitally processable format.

7. Will an Advance Pricing Agreement (APA) help us?
   An APA (Advance Pricing Agreement) is an agreement with the tax authority that pre-determines the method and calculation of transfer prices for future transactions, usually for 3-5 years. It is a complex and time-consuming formal process (often lasting years), but if you have high risks or significant and recurring cross-border transactions, it is worth considering as it provides legal certainty and reduces the risk of future disputes. For example, the US tax authority (IRS) concluded 110 APAs in 2025, which shows activity in this program.

8. How do approaches differ in various European countries?
    While the basic principles (arm's length principle) are the same and based on the OECD, local thresholds for mandatory documentation, specific reporting formats (e.g., SAF-T in Poland and Portugal, or Danish simplification for small entities in 2025), and the practices of tax authorities differ significantly. Germany is known for its strictness and detailed audits, while other countries may have different priorities. Without knowledge of local rules and approaches, you will make mistakes. Here, collaboration with a local expert from the given country is advantageous, which Anywhere.legal facilitates.