In July 2016, Austria passed the EU Tax Amendment Act 2016, also known as the Abgabenänderungsgesetz, which introduced the transfer pricing regulations in the country. The law aims to comply Austria’s tax legislation with the OECD’s Action Plan on Base Erosion and Profit Shifting (BEPS) Action Plan. Based on the Article 1 of the Tax Amendment Act, Austria published the Transfer Pricing Documentation Act (TPD) or Verrechnungspreisrichtlinien, which provides comprehensive guidance on transfer pricing documentation and reporting obligations as stipulated in Action 13 (CbCR) of the OECD’s BEPS Action Plan.
Alongside these two key documents, transfer pricing rules in Austria are also governed by the Austrian Income Tax Law (ITA) and supported by the Corporate Income Tax Act (KStG).
Arm’s Length Principle
In Austria, the arm’s length principle is established in Section 6 paragraph 6 of the Income Tax Act, which governs the valuation of transfers of assets (tangible or intangible) or services between related entities, including transfers to foreign permanent establishments or group companies. It ensures alignment with international standards like Articles 7 (Business Profits) and 9 (Associated Enterprises) of the OECD Model Treaty. Additionally, provisions in Section 8 of the Corporate Income Tax Act support adjustments for capital contributions and profit distributions that do not comply with arm’s length terms, reinforcing Austria’s commitment to fair and transparent taxation.
In the current regulations, the principle is mentioned in section 6, paragraph 6 of the Austrian Income Tax Act which states the following:
“(a) If assets of a domestic business (permanent establishment) are transferred abroad to another business (permanent establishment) or if domestic businesses (permanent establishments) are relocated abroad, the transferred assets must be valued at the prices that would have been agreed upon if they were sold to an entirely independent business, assuming:
- The foreign business belongs to the same taxpayer;
- The taxpayer is a partner in the foreign and/or domestic business;
- The taxpayer or the foreign company has significant ownership (more than 25%) in the other; or
- The same individuals exercise control or influence over both businesses.
This also applies to other services provided under similar conditions.
Related Party Definition
In Austria, the definition of related parties for transfer pricing purposes is primarily based on Section 6 paragraph 6 of the Austrian ITA and aligns with the OECD Model Tax Convention (Article 9).
Key Criteria for Related Parties in Austria:
- Common Ownership – Companies are considered related if they are commonly owned or controlled by the same entity or individual.
- Substantial Shareholding – A party is considered related if one entity owns more than 25% of the other, either directly or indirectly.
- Partnerships – In cases involving partnerships, the taxpayer must be a partner in both businesses to establish a related-party relationship.
- Management and Control – Companies are related if the same individuals manage, control, or exert significant influence over both entities.
Transfer Pricing Methods
The methods that can be used to determine the arm’s length price are:
- Comparable uncontrolled price method
- Resale price method
- Cost plus method
- Transactional net margin method
- Profit split method
The Comparable Uncontrolled Price method is considered the simplest and most accurate method. If the application of this method in a certain case is difficult, then any method mentioned in the OECD guidelines can be applied, using the best/most appropriate method rule. In Austria, the most appropriate transfer pricing method must align with the arm’s length principle, with a preference for traditional transaction methods, particularly the CUP method, when multiple methods are equally applicable. To ensure accurate results, companies must analyze functions, assets, risks, and comparability factors.
Comparability Analysis
An important part of the transfer pricing compliance is the comparability analysis. Below is a summary of the main points regarding comparability analysis in Austria:
While internal comparables are preferred, external data from databases like Orbis and Amadeus is allowed if internal data is unavailable. Companies must consider key factors such as contracts, functions, product features, market conditions, and business strategies, with adjustments made for differences in geography and markets. The interquartile range is commonly used to determine fair prices, and multi-year data (3–5 years) can help stabilize results. Austrian tax authorities, when deciding on the choice of comparables, choose the approach that provides for the most reliable data, and require detailed documentation and careful reviews to ensure compliance.
Documentation Requirements
In Austria, transfer pricing documentation requirements are governed by the Transfer Pricing Documentation Act. These requirements are designed to ensure compliance with the arm’s length principle and align with OECD BEPS Action 13 standards.
Master File and Local File:
Obligatory for Austrian entities that are part of an MNE group with annual turnover exceeding EUR 50 million in each of the two preceding fiscal years.
Entities below this threshold are exempt but still need to provide minimal documentation to demonstrate arm’s length compliance, including:
- General information on associated entities.
- Descriptions of intra-group transactions.
- Role in the value chain.
- Functional and risk analysis.
- Transfer pricing method justification and contracts.
The Master File must also be available if a foreign affiliate of the group is required to prepare one under its local laws.
Country-by-Country (CbC) Reporting:
Applies to MNEs with consolidated group revenues of EUR 750 million or more in the preceding fiscal year. The CbC report is submitted by the ultimate parent entity or a designated surrogate entity in Austria, with notification to tax authorities if reporting obligations change. The report includes financial and operational data for each jurisdiction, as specified under the OECD framework.
Filing Requirements:
- Transfer pricing documentation must be prepared upon request by the Austrian tax authorities and submitted within 30 days of the request.
- Documentation may be in German or English, although English documents may require translation upon request.
Advance Pricing Agreements (APA) and Mutual Agreement Program (MAP)
Austria uses both APA and MAP to manage and resolve international tax disputes, in compliance with OECD guidelines and EU directives.
APAs are agreements made between the taxpayer and the tax authorities, in advance, to avoid tax disputes regarding transfer pricing methodology. The authority regulating the agreements is the Federal Ministry of Finance (Bundesministerium für Finanzen, BMF), through its Tax Authority for Large Traders (Großbetriebsprüfung, GBP). GBP handles requests as part of its responsibility for transfer pricing and international tax matters.
GBP offers three types of APAs:
Unilateral APA – between the taxpayer and the tax authority. Austria offers a formalized procedure for unilateral APAs, allowing taxpayers to obtain advance rulings on transfer pricing matters. This procedure was introduced on January 1, 2011, under Article 118 of the Federal Fiscal Code. The filing fees for such rulings range from EUR 1,500 to EUR 20,000, depending on the taxpayer’s sales, with the maximum fee applicable to groups required to file consolidated accounts.
Bilateral & Multilateral APA – between the taxpayer, a foreign related party (two or more in the case of multilateral), the GBP, and the foreign tax authority. While there is no formalized procedure for bilateral or multilateral APAs in Austria, they are handled based on the provisions of Double Taxation Agreements (DTAs).
MAPs are agreements made after an incident of double taxation has occurred. If a taxpayer believes that the taxation they are subject to, is inconsistent with the treaty, they can submit a request for an MAP. Managed by the Austrian Ministry of Finance, it adheres to OECD standards, aiming to resolve cases within 24 months. Arbitration is available for unresolved disputes, ensuring fair outcomes and compliance with international tax treaties.
Approach to Transfer Pricing Audits
In Austria, transfer pricing is a key part of tax audits, though audits focused solely on transfer pricing are uncommon. Inspectors usually request documentation and details of methods at the start of a general tax audit, as these are often significant for multinational companies. Transfer pricing experts review the documents, including benchmarking studies, using tools like the Orbis database. Audits may include site visits, staff interviews, and record reviews, with taxpayers required to cooperate within reasonable limits. After the audit, findings are discussed, and any agreements form the basis for tax assessments. Unresolved issues can be appealed to the Austrian Federal Fiscal Court.
Penalties
In Austria, transfer pricing penalties depend on the type of non-compliance:
- CbC Reporting: Late, incomplete, or incorrect filings can lead to fines of up to EUR 50,000, or EUR 25,000 for gross negligence.
- Master and Local Files: There are no specific penalties for late or incomplete filings, but failure to provide required information may result in fines of up to EUR 5,000, with harsher penalties if fraud or evasion is proven.
- Late Payments: Transfer pricing adjustments can increase the corporate tax base. Late payments incur interest at 2% above the base rate for up to 48 months, with additional penalties of 2% for the first delay and 1% for further delays.
- Serious Violations: Tax fraud or evasion can result in fines or imprisonment under Austria’s Fiscal Offenses Act.
Taxation at a Glance
Austria’s tax authority is called the Federal Ministry of Finance or BMF (Bundesministerium für Finanzen). The table below provides a summary of the main taxation rates related to businesses:
Tax Type | Tax Rate |
Corporate Tax | 24% |
VAT | 20% |
Withholding tax on dividends to non-residents | 23% |
Withholding tax on interest to non-residents | 0% |
Withholding tax on royalties to non-residents | 20% |
Our firm provides our clients with comprehensive assistance in their transfer pricing needs globally. To contact a team member, please click here.