The primary domestic provision for the arm's-length principle regarding cross-border transactions is Section 6(6) of the Austrian Income Tax Act, which is interpreted by the Austrian Ministry of Finance along the lines of Article 9 of the OECD Model Tax Convention. As far as the inter-company economic relationship with the European Union is concerned, it is Article 4(1) of the European Arbitration Convention that requires the application of the arm's-length principle. Accordingly, transfers of assets or services between related parties must be valued at a price that would be realised if the asset or service was sold to unrelated parties. Exceeding amounts are not tax-deductible with the entity acquiring the asset or service, and amounts below the market value lead to a profit markup with the entity transferring the asset or rendering the service.
Section 8(2) of the Austrian Corporate Income Tax Act provides the general principle (also relevant for mere domestic deals) that hidden profit distributions from a corporation to its shareholders do not reduce the taxable profit of the corporation, and Section 8(1) of the Austrian Corporate Income Tax Act correspondingly provides that hidden contributions by a shareholder to its corporation do not increase the taxable income of the corporation (which is – together with the general rules for dividend withholding tax – the basis for secondary transfer pricing corrections; see Section VIII).
Additionally, the Transfer Pricing Documentation Act2 and an implementing ordinance3 were enacted in 2016 on the basis of the Organisation for Economic Co-operation and Development (OECD) and G20's Base Erosion and Profit Project,4 which contains special provisions for transfer pricing documentation for large multinational enterprises exceeding certain thresholds of their annual turnovers (see Section II).
The Austrian Ministry of Finance follows the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations for the interpretation of the arm's-length principle. Additionally, several decrees and the Austrian Transfer Pricing Guidelines 2010 have been issued by the Austrian Ministry of Finance, and are based on a (dynamic) interpretation of the OECD Transfer Pricing Guidelines.5 The arm's-length principle interpreted along these lines is applicable for all economic transactions between related parties (i.e., regardless of the assets transferred or services rendered between related parties).
As stipulated in Section 6(6) of the Austrian Income Tax Act, taxpayers holding over 25 per cent of the share capital in a foreign company or foreign taxpayers holding over 25 per cent of the share capital in an Austrian company, as well as taxpayers under the management, control or influence of a third taxpayer, are treated as related parties. Also, the owner is regarded as a related party to its enterprise, and the partners of a partnership are regarded as related parties to the partnership. Individuals and Austrian private foundations can be related parties as direct or indirect shareholders of corporations. The same is true for foreign estates or trusts if they are treated as legal entities for tax purposes (i.e., if they are comparable to a corporation on the basis of a comparability analysis).
ii FILING REQUIREMENTS
The Austrian tax authorities require the taxpayer to set up transfer pricing documentation, based on the OECD Transfer Pricing Guidelines and in accordance with the Austrian Transfer Pricing Guidelines 2010 issued by the Austrian Ministry of Finance. Such transfer pricing documentation must be kept by any related party subject to tax in Austria (i.e., whether it is an Austrian corporation, shareholder or partner of a foreign related party, or an Austrian permanent establishment of a foreign corporation). The transfer pricing documentation should enable the Austrian tax authority to investigate in the case of a tax audit whether the transactions of the Austrian taxpayer with its related parties were at arm's length.
The transfer pricing documentation should contain a function and risk analysis regarding the transactions with related parties. Such documentation should include the main assets concerned, the contractual conditions agreed upon, the taxpayer's business strategy, the conditions of the market, as far as they are relevant for the pricing, and a chart of the position of the taxpayer in the international group.6 The taxpayer has an increased burden of proof in international tax cases, which has been implemented in the law,7 but was formerly based on standing case law of the High Administrative Court.8 On the basis of this increased duty of care, transfer pricing documentation of foreign related parties can be requested by the Austrian tax authorities from an Austrian enterprise in an Austrian tax audit, if it is relevant for the Austrian transfer pricing question.
Special rules are set out in the Transfer Pricing Documentation Act, as mentioned above. Austrian group companies are submitted to the Transfer Pricing Documentation Act if they have an annual turnover of over €50 million in two consecutive years (or €5 million of commission fees from the principal). Such enterprises must keep the master file or their local file and file it directly with the tax administration if so required by the competent tax authority. As far as the contents of the master file are concerned, an Austrian ordinance based on the Transfer Pricing Documentation Act follows the description contained in Annex I to Chapter V of the OECD Transfer Pricing Guidelines. Annex II to Chapter V of the OECD Transfer Pricing Guidelines describes which core information is expected to be found in the local file.
Large multinational enterprises with a consolidated group revenue of at least €750 million must take part in the country-by-country reporting for accounting periods beginning on or after 1 January 2016. Austrian enterprises that are required to submit a country-by-country report must do so electronically, using the standardised forms to the Austrian Tax Office of the Austrian company responsible for the report, within 12 months of the end of the accounting year (Section 8(1) of the Transfer Pricing Documentation Act). In general, the ultimate parent company of the multinational must annually file the standardised country-by-country report with its tax administration, which then distributes it to all participating jurisdictions where entities of the multinational have been set up. The Ministry of Finance must communicate the information contained in the country-by-country reports 15 months after the last day of the relevant accounting year at the latest. The first communication must be made within 18 months after the end of the first accounting year starting on or after 1 January 2016 (by June 2018 for an accounting period ending 31 December 2016). The participating jurisdictions are listed on the OECD's website.9
If the ultimate parent company is not legally obliged to file a country-by-country report in its country of residence, the resident country is not a participating jurisdiction, or a 'systematic failure' in submitting country-by-country reports occurs, the Austrian tax administration may request, by formal decree, that an Austrian entity belonging to the multinational takeover the filing responsibility for the multinational, unless another entity of that multinational is prepared to replace the ultimate parent company with regard to the filing obligation (Section 5 of the Transfer Pricing Documentation Act).
iii PRESENTING THE CASE
i Pricing methods
According to the Austrian Transfer Pricing Guidelines 2010, all methods as set out in the OECD Guidelines (traditional transaction-based methods, such as the comparable uncontrolled price, resale price, and cost-plus methods; and transactional profit methods such as profit split and transactional net margin methods) are recognised. Other methods are also allowed, but in practice they are not often used.
With respect to the comparability analysis, Austria strictly follows the comparability analysis of the OECD Transfer Pricing Guidelines. The Austrian Transfer Pricing Guidelines describe the relevant comparability factors in Paragraph 50 as concerning the product and service,10 the functions performed,11 the contractual conditions agreed upon,12 the market conditions13 and the business strategy.14
In principle, if all methods are evaluated with more or less the same degree of appropriateness, the 'traditional methods' (comparable uncontrolled price in the first place and then resale price method or cost-plus method based on gross margin comparisons) should be preferred compared to the 'profit methods'.15 If no reliable data can be identified with respect to the gross margin, the net margin methods should be used.16
The application of the comparable uncontrolled price method faces practical difficulties as it requires a high level of comparability. Where it is, however, possible to identify comparable uncontrolled transactions, especially if services similar to those rendered to associated enterprises are also rendered to independent parties, this method is considered very reliable and is used with respect to goods, IP or financial services.
The cost-plus method is, in principle, applied with respect to goods and services, especially for the delivery of semi-finished products to related parties.17 The Austrian Transfer Pricing Guidelines stipulate a markup somewhere between 5 per cent to 15 per cent with respect to routine services.18 A markup of more than 5 per cent is applied for high-quality services. Markups should always be determined case by case, taking into account the functions, risks borne and assets employed by the respective tested related party. When using the gross markups, comparable enterprises with the same cost base and functions must be given; for example, a routine distribution function cannot be compared with a distribution based on self-generated intangibles (e.g., owing to self-generated market access).19 In some cases, a cost allocation without a profit margin is admissible for ancillary services.20
Whenever a cost-plus method is applied, all costs that are economically related to the controlled transaction (e.g., services rendered or goods manufactured) need to be included in the markup. Hence, in the case of production costs, it is not only all direct costs but also the indirect costs incurred over the course of the production (with the exception of general overheads such as advertising expenses) that need to be taken into account.21
As regards the sale of goods, a distinction must be made between toll manufacturers and distribution companies. Whereas the cost-plus method can be used for toll manufacturers,22 the resale-minus method or comparable uncontrolled price method should be used for distribution companies.23 Based on comparability factors, benchmark studies are also used to find the appropriate markup. Benchmark studies are, however, usually based on net margins (EBIT) instead of gross margins, and always require an exact documentation of the comparability of the compared enterprises with special focus on functions, assets and risks.
ii Authority scrutiny and evidence gathering
The compliance of a company with transfer pricing rules is reviewed by the tax authorities during ordinary tax audits. The competent tax authorities have the obligation to investigate the tax positions ex officio. For the same period, only one tax audit is admissible. The taxpayer has an increased obligation to cooperate and to disclose truthfully any information requested by the tax authorities in cross-border matters.24 Therefore, a sufficient and structured documentation on transfer pricing is mandatory to provide evidence of arm's-length pricing. If the taxpayer violates its obligation to cooperate reasonably (e.g., no or insufficient documentation on transfer pricing is available), the tax authorities have the possibility to estimate the tax base on a reasonable basis.
iv INTANGIBLE ASSETS
There are no special transfer pricing rules as regards intangibles in Austrian transfer pricing legislation. Austria follows the approach stipulated by the OECD Transfer Pricing Guidelines, including for intangible property. In practice, the transactional profit split and comparable price method is most suited for determining the arm's-length pricing as regards intangible property, whereby the latter can be used only if comparable data on intangible assets exists, which is difficult (i.e., for valuable and unique intangibles). An accepted and widely used means of determining the transfer price for intangibles is the determination of the expected discounted cash flows from the use of the intangible.
As regards the identification of intangible assets (also defined in BEPS Actions 8–10) Austria fully follows the interpretation of the OECD, as it is also laid down in Chapter VI of the Transfer Pricing Guidelines 2017. In this context, it is often an issue in Austrian tax audits in the case of a transfer of a business or business parts between related parties, whether an adequate remuneration was paid for goodwill (including profit potential) to the Austrian enterprise that has transferred its business or business parts. However, profit potential also needs to be remunerated in cases where no business was transferred (e.g., in case of contractual positions).
Austrian tax authorities follow the principle that the economic owner of the IP is regarded as the person to which the income derived from the IP has to be allocated for tax purposes. By the same token, the DEMPE principles, as described in BEPS Action 8, are followed by the Austrian tax authorities (i.e., that the person or persons who control the development, enhancement, maintenance, protection and exploitation of the intangibles are relevant for the determination of the economic owner of the intangible, which should be documented appropriately).
In Austria, the following transfer pricing settlements with the tax authorities exist: the taxpayer may obtain an informal tax ruling that provides protection on a good-faith basis if, inter alia, the tax ruling has been issued by the competent tax authority and the taxpayer has made exactly the dispositions or transactions described in the ruling request that he or she otherwise would or would not have made.
Since 2011, taxpayers have also been able to apply for a legally binding advance tax ruling to determine an appropriate set of criteria (e.g., transfer pricing methods and appropriate adjustments) with respect to transfer pricing matters. Such an application must contain a comprehensive description of the envisaged transaction; an explanation of the applicant's special interest in the issuance of the requested ruling; description of the legal issue; the concrete legal questions; a legal opinion; and information with respect to the administrative costs. Thus, issued rulings by the tax authorities are unilateral (i.e., with no involvement of the tax authorities of other treaty states) and based on the facts and circumstances presented by the taxpayer with respect to the envisaged transaction. Such rulings must be communicated in the frame of a mandatory automatic exchange of information system to all other Member States, as well as to the European Commission within the European Union. The fee depends on the size of the taxpayer's annual turnover (when the turnover exceeds €400,000, the basic amount of €1,500 is gradually increased up to a maximum of €20,000 for a turnover of €40 million). Advance tax rulings as well as informal tax rulings are not released publicly. Only advance tax ruling decrees can be appealed to the Federal Tax Court. Any deviation of the implemented structure from the described facts will have adverse impacts on the binding effect of both the informal tax ruling and the advance tax ruling.
In addition, on the basis of Double Tax Conventions that contain a provision that reflects Article 25(3) of the OECD Model Tax Convention, cross-border advance pricing arrangements can be negotiated by the Ministry of Finance on a bilateral or multilateral basis.25 In Austria, such agreement procedures are initiated by the Federal Ministry of Finance ex officio or upon request of a taxpayer, and can, for instance, be used to obtain matching (corresponding) adjustments in the other contracting state in the case of primary adjustments in one contracting state.
However, the procedures can also be used to obtain solutions to uncertain questions of interpretation of the law of a tax convention, which can be of generic nature or in relation to a specific case. As far as they are used for international agreements to solve discovered transfer pricing problems in an abstract manner, they can be released publicly. The tax authorities do not charge any administrative fee for the issuance of informal rulings and informal advance pricing arrangements.
The assessments of corporate income tax and value added tax (VAT) by the tax office, which take place annually based on the taxpayer's annual tax returns, are audited by the tax office ex post in more or less regular intervals. There are no specific time limits for the tax authorities to conduct an audit. Usually, a period of three years for which tax returns have been filed or tax assessments have been issued is covered by an audit. The taxpayer has to be informed about of a tax audit at least one week before its start, unless the purpose of the audit would be jeopardised by such information.26 Transfer pricing issues are also audited by the tax office in the course of the regular audits of the corporate income tax or VAT returns of a company (i.e., together with other issues of these taxes related to the audited taxpayer). Transfer pricing aspects are usually an important issue in tax audits of international groups of companies. However, in the case of an audit with an individual, a transfer pricing issue in relation to his or her position as a shareholder of a company can also come up in the course of the audit of the individual's income tax or VAT assessment.
The tax authority has to investigate ex officio the facts that form the basis for taxation, but the taxpayer has a duty to cooperate with the tax office, to clarify his or her standpoint, prove the content of its declarations and supply to the tax authorities all the information that is needed to ascertain the facts alleged that are relevant for taxation. This includes business books, accounts and records, and the information necessary to understand the records, such as, in the case of a transfer pricing audit, an adequate transfer pricing documentation. The duty to cooperate is stronger in cases of international tax matters, as far as circumstances abroad are concerned.27
At the end of the transfer pricing audit, the auditor discusses his or her findings with the taxpayer in a final meeting. The auditor's final report (a copy of which has to be handed over to the taxpayer) is the basis for the adjusted assessment decrees to be issued. Upon the finalisation of the tax audit, a decree on the re-opening of the original assessment and an amended tax assessment are issued by the tax authority. Unless the taxpayer opted for a waiver of the appeal, the appeal can be lodged by the taxpayer against both the assessment decree of the tax audit and the adjusted tax assessment decrees within a period of one month after the issuance of the decree. The period for the appeal can be extended upon request of the taxpayer. If the period for the appeal elapses without any appeal being lodged, there is the possibility to lodge an extraordinary remedy within one year of the issuance of the re-opening decree or the adjusted tax assessments decrees in case of mistakes on behalf of the tax authority as regards the legal qualification of the decrees (not regarding wrongful fact-finding).
If the taxpayer wants to change the assessment of the tax audit, he or she may lodge an appeal against the assessment decree within one month following the issuance of the contested tax assessment notice by the tax authority. The period for the appeal can be extended by the tax office upon request of the taxpayer.
Upon the filing of the appeal, the tax office has first the possibility to amend or withdraw the contested tax assessment according to the appeal in a pre-decision, unless a direct transmission to the Federal Fiscal Court was requested in the appeal and the tax office transmits the appeal without a pre-decision or in case that the appeal only pleads issues to be raised before the constitutional court (i.e., that a law does not correspond to the constitution or an ordinance does not correspond to a law).28
A pre-decision can be contested by the taxpayer within one month, whereby this period can also be extended. Upon contesting the pre-decision, the case has to be transmitted without delay to the Federal Fiscal Court, where it will be heard. Against the decision of the Federal Fiscal Court, the taxpayer can appeal to the Supreme Administrative Court (regarding matters of interpretation of tax law with fundamental importance) or the Constitutional Court (the latter if the assessment or decision violates a constitutional right or guarantee, or an unconstitutional law was applied when rendering the contested decision).
The Federal Fiscal Court's decisions are not bound to the reasons of the appeal; it has full power of recognition (i.e., it can either cancel the contested decree or change the contested decree in every direction, including to the detriment of the taxpayer). The Federal Fiscal Court can examine both the fact-finding and the discretion applied by the tax authority for the fact-finding as well as matters of interpretation. However, the Supreme Administrative Court (the second and last judicial instance) will not perform any factual investigations, nor will it review the facts and circumstances provided by the Federal Fiscal Court. If facts and circumstances were determined by the Federal Fiscal Court by neglecting fundamental procedural rules, the decision of the Federal Fiscal Court will also be cancelled by the Supreme Administrative Court and the case re-directed to the Federal Fiscal Court.
After an appeal is filed, the tax office must make its decision within a period of six months provided it was not requested that it may refrain from doing so (see above). If the decision is not made within six months, the taxpayer is entitled to file a complaint against the tax office's inactivity with the competent tax court. If such a complaint is levied, the tax office has three months to make its decision. The same time frame applies to the tax courts, whereby complaints against the tax courts' inactivity are filed with the Supreme Administrative Court. In practice, it usually takes courts more time to come to their decision than envisaged by the statute. A tax trial may take approximately between six and 30 months, depending on the court and the subject matter of the case. An appeal before the Supreme Administrative Court may take between nine months and 36 months, whereas the Constitutional Court is usually quicker to decide on the claims levied that fall within its scope of competency.
viii SECONDARY ADJUSTMENT AND PENALTIES
Tax-increasing transfer pricing adjustments are made in a tax audit if a profit shift from an Austrian company to a related party leads to a reduction of profits (e.g., by underpricing services rendered or goods delivered or by overpricing services acquired or goods received). The primary adjustment consists of an increase in profit of the Austrian related party by the Austrian tax audit as far as a deviation from the fair market level was given.
Additionally, the following 'secondary adjustments' are made:
- In the case of upstream or side-stream profit-shifting to a shareholder, parent company or sister company, a hidden profit distribution to the direct shareholder or parent company is assumed. Alternatively, the profit adjustment may also result in a transfer pricing receivable:
- the assumption of a hidden profit distribution to the shareholder triggers withholding tax of 27.5 per cent (37.93 per cent, if the withholding tax is borne by the company and not charged to the beneficiary of the distribution); withholding tax amounts to 25 per cent (33.33 per cent) in the case of a parent company being the direct shareholder (and treated as dividend at the level of the receiving parent company). The secondary adjustment can fully or partly be relieved according to a double tax treaty or EU rules like the parent-subsidiary directive), if applicable between Austria and the residence state of the direct parent company or shareholder (if the subsidiary is in Austria) or the residence state of the subsidiary (if the shareholder is in Austria); and
- alternatively, the Ministry of Finance accepts that the profit shift is effectively neutralised by a transfer pricing receivable (in the case of a profit shift made) or liability (in the case of a profit shift received) versus the related party in the balance sheet of the Austrian company, to neutralise the profit shift.
- In the case of downstream profit shifts to the direct or indirect subsidiary, the secondary adjustment is either the assumption of a hidden contribution to the subsidiary that leads to an increase of the acquisition costs of the participation at the level of the Austrian parent company (for tax purposes) if the parent company is in Austria, or capital reserve (for tax purposes) if the subsidiary receiving the advantage is in Austria. Alternatively, the secondary adjustment can (again) be the booking of a transfer pricing receivable and corresponding liability in the balance sheets of the related enterprises.
- In the case of a profit markup due to a primary transfer pricing correction, a matching corresponding adjustment can be made in the other country in which the related party is resident. This is to avoid international double taxation under a double tax convention (see Section IX.ii. 'Double Taxation').
If transfer pricing corrections lead to the assessment of additional amounts of (corporate) income tax, interest for late payment of 2 per cent above the base interest rate (published by the tax authorities) is assessed.29 Interest for late payment is calculated from 1 October the following year, and is assessed for a maximum of 48 months of the tax arrears. Upon request, no interest for late payment is assessed if the taxpayer had a surplus on the tax account during the time in which the arrears accrued.
In addition, late payment penalties of 2 per cent can be assessed for arrears of VAT (or withholding tax for hidden profit distributions), which can be increased by two further percentage points.30 Upon the taxpayer's request, no late payment penalty is assessed insofar as the taxpayer can prove that the failure to pay the appropriate amounts of tax was not the result of gross negligence. This also speaks in favour of reasoned opinions on the transfer pricing structure to be added to the transfer pricing documentation. In the case of deliberate tax evasion due to non-compliance with the taxpayer's obligation of truthful disclosure of facts and circumstances in connection with transfer pricing rules, prosecution under criminal law can arise.
ix BROADER TAXATION ISSUES
i Diverted profits tax and other supplementary measures
In Austria, there is currently no diverted profits tax as adopted in the UK (e.g., 'Google tax'), and no other special supplementary measures for digital enterprises. The governmental programme of the new Austrian government stated in December 2017 that, within the next five years, the issue of a digital permanent establishment shall be addressed (see BEPS Action 1) by the Austrian legislator, but we are not aware of any concrete plans as to how the implementation is planned.
ii Double taxation
In the case of profit adjustments in Austria due to transfer pricing corrections, international double taxation can occur if no corresponding adjustment is made abroad in the country in which the other related party is resident. It may be possible to receive such corresponding adjustment upon request of the related party; otherwise, the parent company can request the initiation of a mutual agreement procedure under Article 9(2) OECD Model Tax Convention with the competent authority of its residence state.31 In the EU, it is possible to obtain a corresponding adjustment by means of the EU Arbitration Convention.
There are no automatic matching adjustments of transfer prices by the Austrian tax authorities in cases of primary adjustments abroad. However, in the case of primary adjustments inflicted to a related party in another contracting state of a double tax convention, the Austrian tax authority in charge is, in principle, willing to reopen the relevant tax assessment of the Austrian related party to make a matching primary adjustment either upon request of the Austrian related party32 or ex officio33 if the Austrian related party can demonstrate and document the correctness of a transfer pricing markup made in the other contracting state.
Otherwise, a mutual agreement procedure with Austria can be initiated. The request has to be made by the parent company to which a primary adjustment was made in its resident state34 or in the case of transactions between sister companies in either of the resident states of the sister companies.35 Based on the EU Arbitration Convention, it should be possible to initiate the arbitration procedure in either of the states.36
Double taxation may be unavoidable, corresponding to the Austrian view, if it is based on different interpretations of the double taxation convention by the contracting states and no solution is found in a mutual agreement procedure (unless such mismatch is due to different domestic laws of the contracting states, in which case the residence state of the taxpayer has to relieve according to the method for elimination of double taxation of the applicable double taxation convention).
iii Consequential impact for other taxes
Transfer pricing is mainly a matter of corporate income tax or personal income tax (in the case of individuals as shareholders). Dividend withholding tax of 27.5 per cent (to be relieved according to applicable double tax treaties or EU law) is applied as a secondary adjustment for hidden profit distributions if the taxpayer concerned does not decide for a correction of the profit shift by booking a transfer pricing receivable against the other related party, see Section VIII).
The company's deduction of input VAT is denied insofar as the price for goods or services obtained from a related party is above the market level.37 The company's deduction of input VAT is denied in total for goods, assets or services, which are acquired primarily from third parties (more than 50 per cent) for the benefit of a related party.38
In the case of a sale of goods to a related party below the acquisition cost, only the difference between the sales price and the acquisition cost would be regarded as a deemed turnover subject to VAT,39 whereas, in the case of a sale at or above acquisition cost, the difference to the fair market value is subject to VAT40 (unless, in both cases, the place of the supply is outside Austria or an exemption applies).
In principle, a correction of the invoice would be necessary for VAT purposes in these cases. However, for the sake of simplicity, the Austrian Ministry of Finance accepts that increases of the taxable turnover do not need to be assessed at the occasion of a transfer pricing correction if the profit shift and the effect of the additional VAT liability is neutralised.41 This is especially the case if the supply is exempt (as export or intra-community delivery)42 or the counterparty is entitled to a an equal deduction of input VAT.43 Regarding goods received from related parties of third countries, the Ministry of Finance normally neglects an assessment of import VAT, so long as such assessment would be neutral because of an equally high entitlement to deduction of input VAT.44 For customs-duty purposes, transfer pricing is relevant and has been subject to increased attention by the customs authorities.
x OUTLOOK AND CONCLUSIONS
Like other countries, Austria has adopted several OECD BEPS recommendations and already implemented most of them, such as BEPS Action 13 on 'Transfer Pricing Documentation and Country-by-Country Reporting' in its Transfer Pricing Documentation Act and the respective Ordinance (see Section II). Austria was the first country that signed the Multilateral Convention to implement tax treaty-related measures (MLI) as provided for in BEPS Action 15 and will be one of the first countries for which the MLI will enter into force on 1 July 2018.45
There will be no specific implementations of BEPS Actions 8–10 with regard to transfer pricing rules on value creation. However, these Actions are already respected by the Austrian tax authorities, as they largely reflect the update of the OECD Transfer Pricing Guidelines, which are used by the Austrian tax authorities as a means of interpretation of the arm's-length principle. It is expected that the government will tackle issues as provided in the BEPS Action Plan for CFC legislation or thin-capitalisation rules; however, the Austrian Ministry of Finance is of the opinion that the existing rule denying the deduction of interest and royalty payments to related parties in the case of low-taxation abroad may already correspond to the requirements of the thin-capitalisation rules.
As regards transfer pricing conflicts between jurisdictions, Austria has opted for the arbitration provision of the MLI. In its double tax treaties, Austria has comprehensive provisions that provide for the mutual agreement procedure between contracting states according to Article 25 OECD Model Tax Treaty, and is ready in treaty negotiations to extend the arbitration further. In this context, one may note a specific feature in the Double Tax Conventions, such as the convention between Austria and Switzerland providing for independent arbitration courts, or in the tax convention between Austria and Germany, where a special provision46 provides for the competence of the European Court of Justice according to Article 273 of the Treaty of the Functioning of the EU (ex-Article 239) if the mutual agreement procedure under the Double Tax Convention cannot be solved within three years, which has already been made use of.47
1 Gerald Schachner is a partner, Walter Loukota is an attorney-at-law and Stanislav Nekrasov is an associate at bpv Hügel.
2 Austrian Transfer Pricing Documentation Act, BGBl. I Nr. 117/2016.
3 Ordinance on the Austrian Transfer Pricing Documentation Act. 'Verrechnungspreisdokumentationsgesetz-Durchführungsverordnung' – VPDG-DV.
4 OECD final report of 5 October 2015 relating to Action 13 'Transfer pricing Documentation and Country-by-Country Reporting'.
5 Austrian Transfer Pricing Guidelines 2010, Paragraph 18.
6 Ibid., Paragraph 310.
7 Section 115(1) Federal Fiscal Procedures Act.
8 Ritz, Bundesabgabenordnung5 Section 115(10).
10 OECD Transfer Pricing Guidelines, Paragraph 1.39 et seq.
11 Ibid., Paragraph 1.42 et seq.
12 Ibid., Paragraph 1.52 et seq.
13 Ibid., Paragraph 1.55 et seq.
14 Ibid., Paragraph 1.59 et seq.
15 Austrian Transfer Pricing Guidelines 2010, Paragraph 43.
16 Ibid., Paragraph 43.
17 Ibid., Paragraph 27; OECD Transfer Pricing Guidelines Paragraph 2.39.
18 Ibid., Paragraph 77 et seq.
19 Ibid., Paragraph 32.
20 Ibid., Paragraph 77.
21 Ibid., Paragraph 28.
22 Ibid., Paragraph 70.
23 Ibid., Paragraph 24, 72 et seq.
24 Section 115(1) Federal Fiscal Procedures Act; Ritz, Bundesabgabenordnung5 Section 115(10).
25 Information of the Federal Ministry of Finance, dated 31 March 2015, BMF-010221/0172-VI/8/2015.
26 Section 148(5) Federal Fiscal Procedures Act.
27 Section 115(1); Ritz, Bundesabgabenordnung5 Section 115(10).
28 Section 262(2) and (3) Federal Fiscal Procedures Act.
29 Section 135 Federal Fiscal Procedural Act; ordinance of the Austrian Ministry of Finance, dated 21 April 2016, number 010103/0072-IV/4/2016, BMF-AV Nr. 62/2016.
30 Section 217 Federal Fiscal Procedural Act.
31 Austrian Transfer Pricing Guidelines 2010, Paragraph 352.
32 Austrian Transfer Pricing Guidelines 2010, Paragraph 324.
33 Austrian Ministry of Finance, dated 19 July 2004, EAS 2493.
34 Austrian Transfer Pricing Guidelines 2010, Paragraph 352.
35 Ibid., Paragraph 352.
36 Ibid., Paragraph 367.
37 Austrian VAT Guidelines 2000 Paragraph 1930; Windsteig, in Melhardt/Tumpel, UStG § 1 Paragraph 300; Supreme Administrative Court 27 May 1999, 97/15/0067.
38 Section 12(2)(2)(a) VAT Act; Austrian VAT Guidelines 2000 Paragraph 1929; Kollmann/Schuchter, in Melhardt/Tumpel (Ed) UStG2, 2015, § 12, Paragraph 202.
39 Windsteig, in Melhardt/Tumpel (Ed) UStG2 § 1, Paragraph 297.
41 Austrian Transfer Pricing Guidelines 2010, Paragraph 338.
42 Ibid., Paragraph 339.
43 Ibid., Paragraph 340.
44 Ibid., Paragraph 341.
45 Bendlinger, SWI 2018, 172.
46 Double Tax Convention Austria-Germany, Article 25, Paragraph 5.
47 ECJ 12 September 2017, C-648/15 Austria versus Germany; See also Kerschner/Koppensteiner/Seydl, Österreich erhebt aufgrund einer DBA-Streitigkeit erstmals Klage beim EuGH, SWI 2016, 134.