Overview of the BMF Instruction Sheet on Cross-Border Audit Cooperation
German Federal Ministry of Finance (BMF) recently released an instruction sheet on cross-border audit cooperation with tax administrations of other countries (dated May 15, 2025). The document outlines legal foundations, administrative procedures, and practical implementation of joint audits, simultaneous audits, and the presence of tax officials in the international tax audit context. It replaces the earlier 2017 version and supplements guidance on international administrative assistance under the EU framework and bilateral tax treaties.
The information sheet defines three principal forms of cross-border audit cooperation:
- Joint Audit: A coordinated audit involving German and foreign competent tax authorities with the goal of reaching mutual agreement on the facts and circumstances under examination and to reach a consensus on their tax implications based on the agreed facts. This form is particularly suitable in cases where unilateral actions may lead to double taxation or non-taxation, such as in transfer pricing or permanent establishment assessments. The intention is to avoid such outcomes already at the audit stage through cross-border agreement.
- Simultaneous Audit: Parallel audits conducted independently by each authority in its own jurisdiction, but coordinates to exchange the information obtained. This form is useful when a joint audit is not feasible or not desired by the other state, but where a coordinated exchange of audit information may help mitigate the risk of double or non-taxation or provide otherwise inaccessible information.
- Presence of Officials: Tax officials may be present in the other country’s proceedings, under procedural safeguards, to observe or participate in specific audit activities. The PAOE supports transparency and cooperation and may occur as part of a joint audit, simultaneous audit, or independently. It enables a better understanding of the facts for both jurisdictions but must comply with domestic legal restrictions and limitations.
The instruction sheet also clarifies the roles and responsibilities of the authorities involved:
- Local Tax Offices: Responsible for conducting investigations, particularly within the scope of tax audits.
- BZSt: The Federal Central Tax Office (BZSt) acts as the central liaison office, coordinating international cooperation and overseeing legal admissibility and communication with foreign authorities.
General Highlights
- A key enhancement in the 2025 guidance relates to the exchange of tax-relevant information. The interpretation of the “foreseeable materiality” standard has been clarified, now requiring only a realistic possibility that the information may be pertinent to the receiving jurisdiction’s tax matters (§§ 24–25). This lowered threshold facilitates more proactive and efficient administrative cooperation, enabling quicker and more flexible engagement between tax authorities.
- The approach to business, trade, and professional secrecy has also been modernized. These protections are no longer treated as automatic obstacles to information exchange. Instead, the central liaison office (BZSt) must perform a proportionality assessment, weighing the taxpayer’s confidentiality interests against the legitimate public interest in ensuring accurate taxation (§§ 26–27).
- Another important development is the removal of the requirement to exhaust domestic information sources prior to initiating cross-border audits, at least within the EU framework. This change (§ 25) allows for more agile coordination between tax authorities and supports a proactive, risk-based approach to international audit planning and execution.
- While joint audits are designed to promote consensus, a binding mutual agreement is not required. The revised guidance explicitly states that a common understanding is sought but not mandatory (§ 99).
Transfer Pricing Highlights
- The BMF cites transfer pricing cases as illustrative examples, suggesting that such cases are particularly well-suited for cross-border cooperation — especially in situations involving potential double taxation arising from value chain restructurings, or base erosion concerns.
- Taxpayers may propose cross-border audit cooperation informally, especially when a taxpayer has concrete indications that, in the absence of such administrative cooperation, unilateral measures could lead to double taxation.
- Information relevant to the assessment of the arm’s length nature of transfer pricing (such as comparable third-party business relationship with suppliers or customers) may generally be shared with foreign tax authorities in the context of joint or simultaneous audits. Such sharing is typically not precluded by trade or business secrecy provisions, provided the information is relevant and the legal requirements for cross-border information exchange are met.
Outcomes
- Joint audits result in a joint audit report summarizing agreed (and non-agreed) findings, which is then shared with the taxpayer. The instruction sheet provides a suggested template for such audit reports.
- Information and evidence collected may be used as if they were obtained domestically, supporting tax assessments, adjustments, or resolution processes.
Available Instruments to Manage Double Taxation Risks
The instruction sheet highlights Germany’s increasing focus on collaborative, cross-border tax enforcement, particularly through joint and simultaneous audits. These forms of administrative cooperation complement established mechanisms such as Advance Pricing Agreements (APAs) and Mutual Agreement Procedures (MAPs), providing both preventive and corrective tools to manage transfer pricing and double taxation risks. To illustrate the strategic role of these instruments, the table below offers a comparative overview of joint audits and simultaneous audits alongside ICAP (the International Compliance Assurance Programme, which is not referenced in the instruction sheet and is included here for context), APA, and MAP, focusing on their timing, involvement of competent authorities, and typical duration.
| Procedure | Timing | Competent Authorities | Typical Duration |
| ICAP | Pre-audit (voluntary, risk assessment stage) | The tax administration of the headquarter country and participating countries, with OECD FTA’s coordination support | Relatively time effective |
| Cross-Border Audit Coordination | During audit (active examination phase) | Two+ (Germany + one or more foreign tax authorities) | Medium |
| APA | Before transactions take place (unilateral, bilateral, or multilateral) | One–Three+ (depends on unilateral vs. multilateral APA) | Time consuming |
| MAP | Post-assessment (after potential double taxation arises) | Two+ (depending on number of affected jurisdictions) | Time consuming |
A&M Recommendation
- We recommend that companies with substantial intercompany transactions consider the strategic use of joint audits, not only as a compliance measure, but also as a risk management tool that can complement or even streamline subsequent MAP proceedings.
Companies should prepare for tax certainty with a cross-border mindset: ensure alignment of CbCR, Master File/Local Files, benchmarking defensibility, and clear articulation of value creation. Inconsistencies between countries' TP documentation or interpretations are more likely to be challenged and compared in real time. Preparing audit files with the expectation that they may be shared and reviewed by multiple tax authorities is now regarded as best practice, not just a precaution.
