Taxing authority and tax law
Tax authority: Ministry of Finance (MF)
Tax law:
- Section 6(6) Income Tax Act
- Section 8(2) Corporate Income Tax Act
- Sections 124, 131 and 138 Federal Tax Code
- Section 118 Federal Tax Code regarding unilateral APAs
Relevant regulations and rulings
- Transfer Pricing Guidelines 2010 (BMF-010221/2522-IV/4/2010, 28 October 2010)
- Income Tax Guidelines 6.13.3, 2511-2513
- Corporate Income Tax Guidelines 14.8.2, 1147
- Ministerial decrees AÖF Nos. 114/1996, 122/1997, 155/1998, and 171/2000
- Several opinions published by the MF regarding selected transfer pricing issues
OECD guidelines treatment
As an OECD member country, Austria has fully adopted the OECD Transfer Pricing Guidelines by publishing them in the form of several ministerial decrees. According to the recently released Austrian Transfer Pricing Guidelines 2010 the arm’s length principle contained in income tax law has to be construed in line with the OECD Transfer Pricing Guidelines and any updates thereto.
In addition to the OECD Transfer Pricing Guidelines, the tax authorities also observe the OECD Report on the Attribution of Profits to Permanent Establishments (AOA), although the AOA is currently not fully applicable as none of Austria’s current double tax treaties already includes the new Article 7.
The Austrian Transfer Pricing Guidelines 2010 have also been released in the form of a ministerial decree. They are binding for the Austrian tax authorities, but are not binding for Austrian courts or the taxpayers.
Priorities/pricing methods
Based on the OECD Transfer Pricing Guidelines and the Austrian Transfer Pricing Guidelines 2010, the MF accepts CUP, Resale Minus, Cost Plus, TNMM and Profit Split. The MF follows the replacement of the hierarchy of transfer pricing methods according to the latest update of chapters I to III of the OECD Transfer Pricing Guidelines, and in particular the TNMM and the Profit Split method are no longer considered methods of last resort. According to the Austrian Transfer Pricing Guidelines 2010 the method that provides the highest degree of certainty for the determination of an arm’s length transfer price has to be selected.
Transfer pricing penalties
There are no specific transfer pricing penalties. If the taxable income is increased because the arm’s length criterion has not been met, non-deductible late payment interest in the amount of 2% points above the base rate (published by the European Central Bank) is levied on any additional prior year’s corporate income tax payments for a maximum period of 48 months. Lacking or insufficient transfer pricing documentation does not lead to specific penalties, but increases the risk that the tax authorities will regard a transaction as non-compliant with the arm’s length criterion, and thus assess a transfer pricing adjustment based on an estimate.
Penalty relief
If the taxpayer provides formerly lacking or insufficient documentation to the tax authorities, the tax authorities are obliged to base their consideration upon such documentation. However, late payment interest will become due on any additional prior year’s corporate income tax payments regardless of whether there is sufficient documentation or not.
Documentation requirements
The Austrian Transfer Pricing Guidelines 2010 state that there is an obligation to prepare transfer pricing documentation based on the Federal Fiscal Code’s general provisions concerning bookkeeping, record-keeping and the disclosure requirement for tax purposes. Regarding content and scope, documentation must be in line with the documentation requirements according to the OECD Transfer Pricing Guidelines (in particular according to Chapters V and VIII). It is also permissible to prepare documentation that follows the Code of Conduct on transfer pricing documentation for associated enterprises in the European Union (EU).
Documentation deadlines
Documentation should be prepared contemporaneously and must be provided to the tax authorities upon request (which is usually during a tax audit). Usually the competent tax auditor will determine a submission deadline, which can vary from case to case (e.g., from only one week to several weeks). Upon the tax auditor’s consent, an extension of the deadline is possible. Given the recent release of the Austrian Transfer Pricing Guidelines 2010 and the included requirement to prepare transfer pricing documentation, short submission deadlines will be likely in the future.
Statute of limitations on transfer pricing assessments
The statute of limitations on a transfer pricing adjustment usually is six years after the end of the calendar year in which the relevant fiscal year ends. The term may be extended up to 10 years.
Return disclosures/related-party disclosures
No specific continuous disclosure is required in the annual tax return. In case of a tax audit, the auditors usually ask for a description of major related-party transactions as well as for disclosure of all contracts in place with related parties and transfer pricing studies available. In an increasing number of cases, an extensive transfer pricing questionnaire is discussed.
Audit risk/transfer pricing scrutiny
Tax authorities regularly examine related-party transactions and transfer prices charged. There is a noticeable trend towards increased awareness of transfer pricing problems among tax auditors. Given the recent release of the Austrian Transfer Pricing Guidelines 2010, the transfer pricing audit risk can be considered high.
APA opportunity
Based on a new law, effective as of 1 January 2011, it will be possible to apply for a unilateral, binding, appealable advance ruling issued by the competent tax office on the tax treatment of a particular (but yet-to-occur) transfer pricing issue. The fee for such a unilateral APA amounts up to EUR 20,000.
In addition, it is possible to obtain a unilateral ruling from the competent tax office on transfer pricing questions which is only binding for the tax authorities to a limited extent and cannot be appealed against.
Finally, under specific circumstances it should be possible to ask the Austrian tax authorities to participate in negotiations of a bilateral APA on the basis of Article 25(3) of the respective double tax treaty.
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