Global Tax Alert | 9 January 2018

OECD releases Austria peer review report on implementation of Action 14 Minimum Standards

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Executive summary

On 15 December 2017, the Organisation for Economic Co-operation and Development (OECD) released the second batch of peer review reports relating to the implementation of the Base Erosion and Profit Shifting (BEPS) Minimum Standards under Action 14 on improving tax dispute resolution mechanisms.1 Austria was among the assessed jurisdictions in the second batch.2 Austria requested that the OECD also provide feedback concerning their adoption of the Action 14 best practices, and therefore, in addition to the peer review report, the OECD has released an accompanying best practices report.3

Overall, the report concludes that Austria meets most of the elements of the Action 14 Minimum Standards. In the next stage of the peer review process, Austria’s efforts to address any shortcomings identified in its Stage 1 peer review report will be monitored.

Detailed discussion

Background

In October 2016, the OECD released the peer review documents (i.e., the Terms of Reference and Assessment Methodology) on Action 14 on Making Dispute Resolution Mechanisms More Effective.4 The Terms of Reference translated the Action 14 Minimum Standards into 21 elements and the best practices into 12 items. The Assessment Methodology provided procedures for undertaking a peer review and monitoring in two stages. In Stage 1, a review is conducted of how a BEPS member implements the Minimum Standards based on its legal framework for Mutual Agreement Procedure (MAP) and how it applies the framework in practice. In Stage 2, a review is conducted of the measures the BEPS member takes to address any shortcomings identified in Stage 1 of the peer review.

Both of these stages are desk-based and are coordinated by the Secretariat of the Forum on Tax Administration’s (FTA) MAP Forum. In summary, Stage 1 consist of three steps or phases:

(i) Obtaining inputs for the Stage 1 peer review

(ii) Drafting and approval of a Stage 1 peer review report

(iii) Publication of Stage 1 peer review reports

Input is provided through questionnaires completed by the assessed jurisdiction, peers (i.e., other members of the FTA MAP Forum) and taxpayers. Once the input has been gathered, the Secretariat prepares a draft Stage 1 peer review report of the assessed jurisdiction and sends it to the assessed jurisdiction for its written comments on the draft report. When a peer review report is finalized, it is sent for approval of the FTA MAP Forum and later to the OECD Committee on Fiscal Affairs’ to adopt the report for publication.

Minimum Standards peer review reports

The report is divided into four parts, namely:

(i) Preventing disputes

(ii) Availability and access to MAP

(iii) Resolution of MAP cases

(iv) Implementation of MAP agreements

Each part addresses a different component of the Minimum Standards.

The report includes 19 recommendations relating to the Minimum Standards. In general, as reported, the performance of Austria with regard to MAP has proven to be satisfactory. Overall, Austria meets most of the elements of the Action 14 Minimum Standards.

Preventing disputes

Of Austria’s 90 tax treaties, 85 contain a provision which is equivalent to Art. 25(3), first sentence, of the OECD Model Tax Convention (MTC). The other 5 tax treaties contain a provision which is similar to that provision. Austria will update the tax treaties that do not contain a provision equivalent to Art. 25(3), first sentence, of the OECD MTC.

Austria reported that it has implemented a bilateral Advance Pricing Agreement (APA) program and bilateral APAs are dealt with under the same principles as MAP cases. Furthermore, roll-backs of bilateral APAs will generally be granted except where there are important obstacles.

Availability and access to MAP

Of Austria’s 90 tax treaties, 66 include a provision that is equivalent to Art. 25(1), first sentence, of the OECD MTC. In addition, 69 of Austria’s 90 tax treaties contain a provision that is equivalent to Art. 25(1), second sentence, OECD MTC. Austria reported that it will ensure that all of its tax treaties, which are considered covered tax agreements for purposes of the Multilateral Instrument (MLI), contain a provision equivalent to Art. 25(1), first sentence, of the OECD MTC.

Out of Austria’s 90 tax treaties, 58 contain a provision equivalent to Art. 9(2) of the OECD MTC requiring their country to make a corresponding adjustment if a transfer pricing adjustment is made by the other treaty partner. Austria will include Art. 9(2) of the OECD MTC in its tax treaties where possible.

None of Austria’s 90 tax treaties allow competent authorities to limit access to MAP for cases in which an anti-abuse provision applies.

Out of Austria’s 90 tax treaties, 80 contain a provision which is equivalent to Art. 25(3), second sentence, of the OECD MTC. Austria reported that it will update the other 10 tax treaties.

Austria published guidance on the MAP and arbitration procedure under its tax treaties and the European Union (EU) Arbitration Convention. This guidance is available under the following link (in German only):

https://www.bmf.gv.at/steuern/int-steuerrecht/rueckerstattung/Verstaendigungs-_und_Schiedsverfahren_13032015.pdf?63xfxz.

Resolution of MAP cases

Out of 90 tax treaties, 86 contain a provision equivalent to Art. 25(2), first sentence of the OECD MTC. Austria reported that it will update those tax treaties that do not contain a provision equivalent to Art. 25(2), first sentence, of the OECD MTC.

Jurisdictions should resolve MAP cases within a 24-month average time frame. The time for Austria to resolve its MAP cases exceeded this time frame during the reporting period. Austria noted that it plans to continue increasing the number of staff in charge of MAP to enhance the efficiency of its MAP process.

Austria reported that its competent authority operates independently and has full authority to resolve MAP cases.

Austria opted for Part VI of the MLI, which included a mandatory and binding arbitration provision. Austria reported that it is currently in the process of analyzing which of its tax treaties can be modified to incorporate this arbitration provision.

Implementation of MAP agreements

Austria reported that all MAP agreements reached since 1 January 2016 have been or will be implemented. Agreements reached by competent authorities through the MAP process should be implemented on a timely basis. Austria does not have a time frame for implementation of the mutual agreements reached.

Best practice peer review reports

Part A – Preventing disputes

Austria has reported that it has implemented an APA program and that it is authorized to enter into bilateral APAs.

Austria has not published specific information on bilateral APAs, but Austria considers that the general information on MAP is applicable to APAs. Austria envisages including information on its APA program when updating the MAP guidance.

Part B – Availability and access to MAP

Austria does not charge fees to taxpayers when they submit a MAP request. In Austria, taxpayers are allowed to request MAP assistance and seek to resolve the same dispute via domestically available judicial and administrative remedies. Austria reported that the authorities are not allowed to deviate from decisions of its domestic courts in MAP. However, to avoid that the court makes a decision before the MAP case is closed, it is possible to suspend domestic appeals procedures.

Austria reported that it provides access to MAP for bona fide taxpayer-initiated foreign adjustments. Furthermore, it important to note that Austria’s MAP guidance currently does not contain information on multilateral MAPs.

According to the Austrian reporting, a suspension of collection procedures during the period of a pending MAP is possible upon request by taxpayers.

Part C – Resolution of MAP cases

Austria has implemented procedures to permit taxpayers to request multi-year resolution of recurring issues through the MAP.

In Austria, taxpayers can request the MAP regardless of the fact that a legal remedy is pending or that appellate remedies within Austria are not yet exhausted. However, as already mentioned above, the competent authorities are bound by decisions from Austria’s domestic courts and are not allowed to deviate from such decisions in MAP. This is clarified in Austria’s MAP guidance, both with respect to the EU Arbitration Convention and tax treaties.

Austria reported that interest and penalties are within the scope of the MAP and that these are recalculated based on the outcome of a MAP case.

Part D – Implementation of MAP agreements

There are no best practices for Part D.

Next steps

Austria is already working to address deficiencies identified in its peer review report and will now move on to Stage 2 of the process, where Austria’s efforts to address any shortcomings identified in its Stage 1 peer review report will be monitored. Under the peer review program methodology, Austria shall submit an update report to the FTA’s MAP Forum within one year of the OECD Committee on Fiscal Affairs’ adoption of the Stage 1 peer review report.

Implications

In a post-BEPS world, where multinational enterprises (MNEs) face tremendous pressures and scrutiny from tax authorities, the release of Austria’s peer review report represents the continued recognition and importance of the need to achieve tax certainty for cross-border transactions for MNEs. While increased scrutiny is expected to significantly increase the risk of double taxation, the fact that tax authorities may be subject to review by their peers should be seen by MNEs as a positive step to best ensure access to an effective and timely mutual agreement process.

Furthermore, the peer review for Austria provides insights to taxpayers on the availability and efficacy of MAP. With additional countries continuing to be reviewed, the OECD has made it known that taxpayer input continues to be welcomed on an ongoing basis.

With stakeholder feedback in mind, businesses are encouraged to share their views with the OECD on the peer review for Austria and any other jurisdictions, and to perhaps comment on whether the next iteration of the OECD’s assessment of tax administration’s MAP performance warrants greater feedback from taxpayers as the primary source. Feedback from the international tax community is the logical next step after peer review, which may help to further validate the current favorable result.

Endnotes

1. See EY Global Tax Alert, OECD releases second batch of peer review reports on Action 14, dated 15 December 2017.

2. MAP peer review report – Austria.

3. Best practices peer review report – Austria.

4. See EY Global Tax Alert, OECD releases BEPS Action 14 on More Effective Dispute Resolution Mechanisms, Peer Review, dated 31 October 2016.

For additional information with respect to this Alert, please contact the following:

Ernst & Young Steuerberatungsgesellschaft m.b.H, Austria
  • Gerhard Steiner
    gerhard.steiner@at.ey.com
  • Andreas Stefaner
    andreas.stefaner@at.ey.com
Ernst & Young LLP, Global Tax Desk Network, New York
  • Jose A. (Jano) Bustos
    joseantonio.bustos@ey.com
  • David Corredor-Velásquez
    david.corredorvelasquez@ey.com

EYG no. 00090-181Gbl