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Transfer pricing methods

Available methods

Which transfer pricing methods are used in your jurisdiction and what are the pros and cons of each method?

In principle, all methods described in Chapter II of the Transfer Pricing Guidelines of the Organisation for Economic Cooperation and Development (OECD), comparable uncontrolled price method (CUP), resale price method, cost plus method, transactional net margin method and profit split can be used in Austria.

Preferred methods and restrictions

Is there a hierarchy of preferred methods? Are there explicit limits or restrictions on certain methods?

If all methods are evaluated with more or less the same degree of appropriateness, the ‘traditional methods’ (CUP 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’. If no reliable data can be identified with respect to the gross margin, the net margin methods should be used (Paragraph 43 of the Austrian Transfer Pricing Guidelines). In general, the profit split method should be selected only if the controlled transactions are carried out between companies using unique intangibles of high value (Paragraph 40 of the Austrian Transfer Pricing Guidelines).

Comparability analysis

What rules, standards and best practices should be considered when undertaking a comparability analysis?

It is important that all comparability factors identified in the OECD Transfer Pricing Guidelines and in the Austrian Transfer Pricing Guideliens be carefully taken into account: contractual terms of the transaction, functions performed and risks incurred, characteristics of property and services, economic circumstances and business strategies (see subchapter D of Chapter I of the OECD Transfer Pricing Guidelines and Paragraphs 50 to 62 of the Austrian Transfer Pricing Guidelines).  

Special considerations

Are there any special considerations or issues specific to your jurisdiction that associated parties should bear in mind when selecting transfer pricing methods?

In general, the pros and cons of each method should be identified on the basis of the facts and circumstances of each individual case. Special considerations are described in Paragraphs 2.68 through 2.73 of the OECD Transfer Pricing Guidelines when a decision has to be taken regarding whether or not a switch-over from the traditional methods to the net margin method should be made.

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