Policy, trends and developments
Describe the general government/regulatory policy for transfer pricing in your jurisdiction. To what extent is the arm’s-length principle followed?
For fiscal purposes, transactions between associated companies and transactions between companies and their individual shareholders must comply with the arm's-length principle. This is required for both international and domestic transactions.
Trends and developments
Have there been any notable recent trends or developments concerning transfer pricing in your jurisdiction, including any regulatory changes or case law?
See the Legal framework section for the enactment of the Austrian Transfer Pricing Documentation Act and the consequences of the base erosion and profit shifting work at the Organisation for Economic Cooperation and Development.
Domestic legislation and applicability
What primary and secondary legislation governs transfer pricing in your jurisdiction?
As far as cross-border transactions between associated companies are concerned, the applicable domestic provision is Section 6(6) of the Income Tax Act and the international law provision is Article 9 of the Model Tax Convention of the Organisation for Economic Cooperation and Development (OECD MTC), as incorporated in the respective bilateral double taxation conventions (DTC).
As far as the inter-company economic relationship within the European Union is concerned, it is Article 4(1) of the EU Arbitration Convention (90/436/EEC) that applies, which requires the application of the arm's-length principle.
As far as international dealings within one single enterprise are concerned (especially between the head office and permanent establishments), the primary domestic legal provision is again Section 6(6) of the Income Tax Act and, at international law level, it is the relevant DTC provision that reflects Article 7 of the OECD MTC and/or – within Europe – Article 4(2) of the Arbitration Convention.
The Austrian Transfer Pricing Documentation Act, as well as the pertaining ordinance issued by the Ministry of Finance, specifies the documentation requirements.
The relevant secondary legislation is the Austrian Transfer Pricing Guidelines 2010.
Are there any industry-specific transfer pricing regulations?
What transactions are subject to transfer pricing rules?
All commercial transaction between related parties, as well as any dealing between the different parts (permanent establishments) of a single enterprise, are subject to transfer pricing rules.
How are ‘related/associated parties’ legally defined for transfer pricing purposes?
As stipulated in Section 6(6) of the Income Tax Act, taxpayers holding over 25% of the share capital in a foreign company or foreign taxpayers holding over 25% 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/associated 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.
Are any safe harbours available?
Which government bodies regulate transfer pricing and what is the extent of their powers?
The Federal Ministry of Finance.
Which international transfer pricing agreements has your jurisdiction signed?
To what extent does your jurisdiction follow the Organisation for Economic Cooperation and Development (OECD) Transfer Pricing Guidelines?
For the purpose of applying the arm's-length principle as contained in Article 9 of the OECD MTC, Austria follows the OECD Transfer Pricing Guidelines. Moreover, the Austrian Transfer Pricing Guidelines 2010 were prepared on the basis of the OECD Guidelines.
Transfer pricing 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).
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).
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.
Documentation and reporting
Rules and procedures
What rules and procedures govern the preparation and filing of transfer pricing documentation (including submission deadlines or timeframes)?
Special rules are set out in the Transfer Pricing Documentation Act, which was drafted on the basis of the Organisation for Economic Cooperation and Development (OECD)/G20 Base Erosion and Profit Project (see the OECD final report of October 5 2015 relating to Action 13 "Transfer pricing Documentation and Country-by-Country Reporting").
Austrian enterprises with an annual turnover of over €50 million that are part of a multinational group of companies must keep both a master file and a local file. Austrian enterprises that must submit a country-by-country report must submit the report 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).
For smaller multinational enterprises, the general rules of the Austrian tax system for documentation are applicable.
What content requirements apply to transfer pricing documentation? Are master-file/local-file and country-by-country reporting required?
Austrian group companies submitted to the Transfer Pricing Guidelines Act with an annual turnover of over €50 million in two consecutive years (or €5 million of commission fees from the principal) must file the master file and/or their local file 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 January 1 2016. In general, the ultimate parent company of the multinational must file, on an annual basis, the standardised country-by-country report with its tax administration, which then distributes it to all participating jurisdictions where entities of the mulitinational have been set up. The Ministry of Finance must communicate the information contained in the country-by-country reports at the latest 15 months after the last day of the relevant accounting year. The first communication must be made within 18 months after the end of the first accounting year starting on or after January 1 2016 (by June 2018 for an accounting period ending December 31 2016). The participating jurisdictions are listed on the OECD website at www.oecd.org/tax/automatic-exchange/about-automatic-exchange/CbC-MCAA-Signatories.pdf.
If the ultimate parent company is not legally obliged to file a country-by-country report in its country of residence or the residence 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 take over 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).
What are the penalties for non-compliance with documentation and reporting requirements?
Deliberate non-compliance with the reporting requirements under the country-by-country regime (failure to submit a report or submitting a report with incorrect information) is a punishable offence and entails pecuniary punishment of up to €50,000 (Section 49(b)(1) of the Financial Criminal Act). Non-compliance because of gross negligence is punishable by fines up to €25,000 (Section 49(b)(2) of the Financial Criminal Act). The same applies where mandatory information (under Annexes 1,2 and 3 of the Austrian Transfer Pricing Documentation Act) is missing or incorrect.
What best practices should be considered when compiling and maintaining transfer pricing documentation (eg, in terms of risk assessment and audits)?
As a general rule, all taxpayers are required by law to keep sufficient documentation demonstrating in a clear-cut manner that they have complied with the tax law. This requirement also applies to transfer pricing cases, without the need to spell it out in the law specifically. Therefore, unless specific documentation rules are set out by law (as in the case for large multinationals in the Transfer Pricing Documentation Act), all taxpayers carrying out cross-border transactions with related companies should assess themselves whether:
- their commercial behaviour is at arm's length (as required in Section 6(6) of the Income Tax Act); and
- they have sufficient documentation evidence to that effect.
Obvious compliance with the Austrian Transfer Pricing Guidelines and the OECD Transfer Pricing Guidelines should be a key goal in that context. Careful documentation is of greatest importance whenever a particular type of business operation carries the risk of profit shifting into low or no-tax jurisdictions (be that directly or indirectly by applying stepping-stone strategies via high-tax countries) and, therefore, might have been earmarked for risk-oriented audit programmes of tax authorities.
Advance pricing agreements
Availability and eligibility
Are advance pricing agreements with the tax authorities in your jurisdiction possible? If so, what form do they typically take (eg, unilateral, bilateral or multilateral) and what enterprises and transactions can they cover?
As far as unilateral measures are concerned, taxpayers can obtain an informal tax ruling that provides protection on a good-faith basis. Since 2011 taxpayers have also been able to apply for a legally binding advanced tax ruling that determines an appropriate set of criteria (eg, transfer pricing method, appropriate adjustments etc) with respect to transfer pricing matters. Such rulings are unilateral (ie, with no involvement of the tax authorities of other treaty states) and are based on the facts and circumstances presented by the taxpayer prior. Within the European Union, 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.
On the basis of double taxation conventions (DTC), which contain a provision that reflects Article 25(3) of the Model Tax Convention of the Organisation for Economic Cooperation and Development (OECD MTC), cross-border advance pricing arrangements can be negotiated by the Ministry of Finance on a bilateral or multilateral basis. Within the European Union, the outcome of such arrangements is also subjected to a mandatory automatic information exchange system. However, the advance pricing arrangements should clarify specific issues of interpretation of double tax treaties (including fact patterns) on a rather generic level (see more on this in the answer to “What rules and procedures apply to advance pricing agreements?”).
Rules and procedures
What rules and procedures apply to advance pricing agreements?
Advance pricing arrangements are generally based on provisions of the relevant DTC, corresponding to Article 25(3) of the OECD MTC (see Explanatory Note 17 on Section 2(1) of the EU Taxation Act 2016), and are therefore not initiated formally by the taxpayer. Furthermore, such arrangements are not specifically based on, or restricted to, the specific facts of a taxpayer's individual tax case. Such agreement procedures are initiated by the competent authority of the DTC (in Austria: the Federal Ministry of Finance). Therefore, such procedures disclose neither names of taxpayers nor facts and circumstances of an individual tax case. They focus only on getting an international agreement on how discovered transfer pricing problems can be solved on a general level in a coordinated manner. Because advance pricing agreements are treated in this rather abstract manner, they can released publicly. Of course, taxpayers that seek clarity for their own individual tax case may request that the competent authority contact the competent authority of the treaty partner in order to reach the desired agreement on the contested interpretation of the relevant DTC under the consultation procedure based on Article 25(3) of the OECD MTC.
How long does it typically take to conclude an advance pricing agreement?
For informal rulings and advance pricing arrangements, the duration is highly dependent on facts and circumstances. It may take several months to obtain an advance cross-border ruling.
What is the typical duration of an advance pricing agreement?
As facts and circumstances vary from case to case, a ‘typical’ duration cannot be ascertained. Unless otherwise stated in an individual agreement, there is no expiry date to an advance ruling.
What fees apply to requests for advance pricing agreements?
In case of agreements between the taxpayer and the Austrian Tax Office in the form of advance cross-border rulings, the fee is highly dependent 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. The tax authorities do not charge any administrative fee for the issuance of informal rulings and advance pricing arrangements.
Are there any special considerations or issues specific to your jurisdiction that parties should bear in mind when seeking to conclude an advance pricing agreement (including any particular advantages and disadvantages)?
The fees for an advance cross-border ruling become due in any case, even if the tax authorities completely reject the appropriateness of the taxpayer's legal opinion. Advance cross-border ruling decrees can be appealed to the Federal Tax Court, as any other decree of the Tax Office.
Review and adjustments
Review and audit
What rules, standards and procedures govern the tax authorities’ review of companies’ compliance with transfer pricing rules? Where does the burden of proof lie in terms of compliance?
The tax authorities review the compliance of a company with transfer pricing rules during ordinary tax audits. Broadly speaking, the Tax Office has an obligation to investigate the facts, while the taxpayer has an obligation to cooperate and to disclose truthfully any information requested. With regards to the burden of proof, the taxpayer must provide evidence of the advantages that it requests (eg, the applicability of a double taxation convention (DTC)), whereas the Tax Office has the obligation to investigate ex officio, unless this is impossible. An increased burden of proof for the taxpayer exists in relation to cross-border transactions, as it is normally the taxpayer who is able to clarify the cross-border situation more easily than the Tax Office.
When requesting information from the taxpayer, the Tax Office must consider the principle of proportionality – that is, where the Tax Office can obtain information itself more easily that by requesting the taxpayer to submit it, it would be questionable to request such information from the taxpayer.
In the ordinary tax procedure, the Tax Office can assume the existence of facts if their existence is predominantly likely. If the taxpayer violates its obligation to cooperate reasonably (eg, no or insufficient documentation on transfer pricing is available), the Tax Office has the possibility to estimate the tax base on a reasonable basis. In the criminal tax procedure, however, no doubts must remain with regard to the facts in order to reach a conviction of the taxpayer for criminal tax evasion.
Do any rules or procedures govern the conduct of transfer pricing audits by the tax authorities?
The general principles of investigation and cooperation by the taxpayers apply in transfer pricing audits as well. The taxpayer has a right to be heard and must be informed about new findings or assumptions of the tax authority at every stage of the audit. Before the end of the tax audit, a meeting takes place between the tax authority and the representatives of the taxpayer, in which the final results are discussed before the report is written.
Where criminal tax evasion is at stake, the taxpayer has a last opportunity to submit a voluntary self-accusation at the beginning of the tax audit, relieving the taxpayer from punishment upon payment of an additional 35% of the evaded taxes.
Where a primary adjustment takes place and is not appealed against, a corresponding adjustment should be made in the other contracting state.
What penalties may be imposed for non-compliance with transfer pricing rules?
In general, if transfer pricing corrections lead to the assessment of additional amounts of tax, interest for late payment is assessed for arrears of corporate income tax. In addition, late payment penalties of 2% + 1%+ 1% can be assessed in that context for arrears of value added tax or withholding tax for hidden profit distributions.
Prosecution under criminal law can arise in 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.
What rules and restrictions govern transfer pricing adjustments by the tax authorities?
Transfer pricing adjustments can be made only where the transfer price under examination is outside the arm's-length range (Article 3(55) of the Transfer Pricing Guidelines of the Organisation for Economic Cooperation and Development (OECD)). If the relevant condition of the controlled transaction (eg, price or margin) is within the range, no adjustment is made (Article 3(60) of the OECD Transfer Pricing Guidelines), even if the taxpayer has deliberately selected the lowest point in the range.
Upward transfer pricing adjustments are made in case of profit shifting from an Austrian company to another associated enterprise (eg, by underpricing services rendered or goods delivered, or by overpricing services acquired or goods received). The primary adjustment consists in an increase of the profit by the Austrian tax audit to the amount that deviated from the fair market level. Additionally, secondary adjustments take place that vary depending on certain underlying circumstances, as outlined below.
Firstly, in case of upstream or sidestream shifting of profits to a parent company or sister company, a ‘secondary adjustment’ generally consists of the assessment of a hidden profit distribution; however, the profit adjustment may also result in a transfer pricing receivable as a ‘secondary adjustment’:
- The assumption of a hidden profit distribution to the direct parent company triggers withholding tax of 25% (33.33%% if the withholding tax is borne by the company and not charged to the shareholder). The withholding tax can be refunded fully or partly according to the benefits available under the applicable DTC with the residence state of the parent company or the parent-subsidiary directive.
- As an alternative, the Austrian Ministry of Finance accepts that the profit shift is effectively neutralised by a transfer pricing receivable to be booked on the balance sheet of the Austrian company against the foreign affiliated company or foreign shareholder to which the benefit has been granted by the Austrian company. This option, however, requires a corresponding treatment on the part of the debtor company; for fiscal purposes, the amount receivable must be booked as an amount payable by the debtor company.
Secondly, in case of downstream profit shifts from an Austrian company to the direct or indirect subsidiary, the ‘secondary adjustment’ is either the assumption of a hidden contribution to the subsidiary leading to an increase of the acquisition costs of the participation at the level of the Austrian parent company (for tax purposes) or the booking of a transfer pricing receivable against the foreign company that has received the benefit to be neutralised.
Lastly, in case of primary adjustments in another contracting state the Austrian tax authority in charge can re-open the relevant tax assessment of the Austrian taxpayer and make a matching adjustment (upon request of the taxpayer), if the taxpayer can demonstrate and document the correctness of the transfer pricing adjustment made in the other contracting state. There are no automatic matching adjustments of transfer prices by the Austrian tax authorities.
How can parties challenge adjustment decisions by the tax authorities?
An appeal can be lodged against the taxes assessed in the tax audit. The appeal is directed to the Tax Court of First Instance. The appeal must be filed within one month of the issue and delivery of the assessment decree resulting from the tax audit, whereby the time period can be extended. Before the Tax Court becomes competent for the appeal, the Tax Office may correct its decision by issuing a pre-decision on the appeal, against which the taxpayer can lodge an appeal to the Tax Court within a month of receipt of the pre-decision.
Together with the appeal, the taxpayer can request a suspension of the enforcement of the tax claims. Such suspensions are often granted, unless the taxpayer jeopardises the enforceability of the assessed tax claims or the appeal’s likeliness of success is too low. Against the decision of the Tax Court, an appeal to the Supreme Administrative Court or, in extraordinary circumstances, a complaint to the High Constitutional Court is possible.
During the tax audit, the taxpayer may file a request with the competent tax authority for the initiation of a mutual agreement procedure with the tax authorities of the other contracting state (see next point) in case of non-consistency of the findings or expected findings of the tax audit with an applicable DTC. If an appeal is already pending, the appeal procedure is normally suspended while the mutual agreement procedure is carried out.
Mutual agreement procedures
What mutual agreement procedures are available to avoid double taxation arising from transfer pricing adjustments? What rules and restrictions apply?
Most of the DTCs signed by Austria provide for the possibility of a mutual agreement procedure between the competent tax authorities of the contracting states, along the lines of Article 25 of the OECD Model Tax Convention (MTC) (although internationally, few DTCs include such a provision). A mutual agreement procedure with the tax authorities of the other contracting state can be initiated upon request at the Ministry of Finance if the taxpayer is a resident of Austria. However, according to Paragraph 352 of the Austrian Transfer Pricing Guidelines, in case of an audit of the Austrian branch (permanent establishment) of a non-resident taxpayer or of an Austrian subsidiary of a foreign parent company, the request must be filed with the foreign residence state (of the parent company).
The EU Arbitration Convention provides for an arbitration procedure between EU countries that must start with a mutual agreement procedure as well. If the request is based on the EU Arbitration Convention, the request for the mutual agreement procedure can always be filed with the Austrian Ministry of Finance according to Article 6(1) of the convention (ie, also in case of an Austrian permanent establishment of a non-resident or in case of an Austrian subsidiary of the foreign parent company, see Paragraph 367 of the Austrian Transfer Pricing Guidelines).
For tax conventions that have already implemented Article 25(5) of the OECD MTC (2008 or later version), as is in place for instance between Austria and Switzerland, the parties can invoke an arbitration procedure before an arbitration board if the mutual agreement procedure is not successful within three years. A special arbitration clause is contained in the Austro-German Tax Treaty as that treaty provides that the arbitration procedure is conducted by the European Court of Justice.
The Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (Multilateral Instrument, or MLI for short) signed on June 7 2017 provides for a similar arbitration procedure with regard to bilateral tax treaties of the signatory states that have been nominated as being covered by the MLI and where both treaty partners of such covered treaties have made use of the ‘opting in’ clause under the MLI. According to the Austrian explanatory notes to the MLI, it is expected that besides the EU countries that have already accepted arbitration, this will extend the arbitration possibility for Austria in relation to Canada and Singapore. The arbitration decision will be binding on both contracting states except in three situations:
- if a person directly affected by the case does not accept the mutual agreement that implements the arbitration decision;
- if the arbitration decision is held to be invalid by a final decision of the courts of one of the contracting states; and
- if a person directly affected by the case pursues litigation in any court or administrative tribunal on the issues which were resolved in the mutual agreement implementing the arbitration decision.
The term ‘final decision of the courts’ describes a decision that is not merely an interim order or decision (Article 19 of the MLI).
A constantly updated list of the signatory states is available at www.oecd.org/tax/treaties/beps-mli-signatories-and-parties.pdf. The text of the MLI is accessible at www.oecd.org/tax/treaties/multilateral-convention-to-implement-tax-treaty-related-measures-to-prevent-BEPS.pdf.
What legislative and regulatory initiatives has the government taken to combat tax avoidance in your jurisdiction?
Special anti-avoidance provisions include:
- the non-deductability of interest being not at arm’s length;
- the non-deductibility of interest paid to associated companies in low-tax jurisdictions (tax level below 10%);
- the non-deductibility of interest paid on loans taken up for the acquisition of a participation in another associated company; or
- the switch-over from the exemption system to the credit system in the case of dividends stemming from substantial participations held at the minimum of 10% for an uninterrupted period of at least one year, with passive income located in low-tax jurisdictions and capital gains derived from the salt of such participations.
In addition, two general anti-abuse rules based on the ‘substance over form’ doctrine (Section 21 of the Federal Tax Proceedings Code) and on the ‘abuse of law’ doctrine (Section 22 of the Federal Tax Proceedings Code) are in place.
To what extent does your jurisdiction follow the OECD Action Plan on Base Erosion and Profit Shifting?
Action 1 (digital economy) has not specifically been reflected in Austrian tax law, except for the implementation of EU directives concerning value added tax (VAT) (eg, VAT for digital services in the business-to-customer area at the place of the recipient as of Janunary 1 2015); there are no special concepts for a digital permanent establishment in Austrian domestic tax law. Actions 2 to 5 do not effectively deal with transfer prices, which is why they are not further commented here.
Action 6 (prevention of treaty abuse) either has no relevance or only a rather remote one in the area of transfer pricing. Austria has national anti-abuse rules (see answer to the question “What legislative and regulatory initiatives has the government taken to combat tax avoidance in your jurisdiction?” above). A ‘limitation of benefits’ clause features in only a few double taxation conventions (DTC) signed by Austria (eg, with the United States and with Taiwan); a number of Austrian DTCs will be adapted in the framework of the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (Multilateral Instrument or MLI for short) (see below) to correspond to Action 6.
Action 7 (prevention of artificial avoidance of permanent establishment status) will be part of the 2017 update of the Model Tax Convention of the Organisation for Economic Cooperation and Development (OECD) and, as such, should be followed by the Austrian tax authorities as an interpretation tool. As regards new provisions of DTCs suggested by Action 7, a number of Austrian DTCs will be adapted in the framework of the MLI (see below). This concerns spelling out the ‘two-taxpayers approach’ for commissionaire arrangements and similar structures, but Austria has not opted for the specific activity exemptions.
There are no special implemations of Actions 8 to 10 (change of transfer pricing rules with respect to value creation) in Austrian tax law. However, these actions are largely reflected in the update of the OECD Transfer Pricing Guidelines, which are used by the Austrian tax authorities as an interpretation tool.
There is no implementation yet on Actions 11 (monitoring of profit shifting) and 12 (disclosure of aggressive tax planning models). Especially, Austria has no reporting requirements in its domestic law with regard to aggressive tax planning or other cross-border arrangements, as is currently discussed in the draft for a council directive (COM(2017) 335 final).
Austria has fully implemented the OECD recommendations on Action 13 (re-examination of transfer pricing documentation) in its Transfer Pricing Documentation Act and in the implementing ordinance, specifying the master file and the local file, which is largely in accordance with the description given in Annexes I and II to Chapter V of the OECD Transfer Pricing Guidelines. For the mandatory automatic information exchange regarding the country-by-country reporting, the Austrian legislator has implemented Council Directive (EU) 2016/881 of May 25 2016 amending Directive 2011/16/EU, which is in line with the OECD recommendation on Article 13 of the final Base Erosion and Profit Shifting Report (Paragraph 17 of the Preamble). Austria has implemented the Multinatioal Authority Agreement that extends the scope of participating countries of the automatic information exchange for the country-by-country reporing (the list of currently participating countries is at www.oecd.org/tax/automatic-exchange/about-automatic-exchange/CbC-MCAA-Signatories.pdf).
As regards Action 14 (arbitration rules in double taxation treaties), Austria has opted for the arbitration provision of the MLI (see above) and is ready in its treaty negotiations to extend the arbitration further.
Lastly, as regards Action 15 (MLI), Austria has signed the MLI on June 7 2017 and was one of the first countries to submit the ratification instrument to the depositary (the OECD Secretary General).
Is there a legal distinction between aggressive tax planning and tax avoidance?
The terms ‘aggressive tax planning’ and ‘tax avoidance’ are not used in Austrian tax law; they are not legally defined terms. Austria has to date not implemented any reporting requirements as regards certain aggressive tax planning schemes.
In Austria, a distinction has to be made between legal schemes (accepted for tax purposes) and illegal schemes (not accepted for tax purposes). In fact, a transaction is not accepted for tax purposes if it either violates special provisions of tax law or infringes the Austrian general anti-avoidance rules (GAARs).
In the given context, the Austrian tax systems contains two provisions with a GAAR character. The first is Section 22 of the Federal Tax Proceedings Code, which is based on the ‘anti-abuse’ doctrine that prohibits the abuse of law (as established by the jurisprudence of the Austrian Supreme Administrative Court): abuse of law occurs if, with regard to the targeted goal, a legal structure has an unusual and inappropriate character and can be explained only by the intention of tax avoidance. It has to be verified whether the chosen path remains meaningful without the tax minimisation.
The other provision, Section 21 of the code, is based on the ‘substance over form’ doctrine and provides that for the purpose of evaluating tax questions under an economic approach, it is not the outer formal appearance that counts, but the actual economic substance of facts and circumstances.
In general, lack of conformity with the updated version of the OECD Transfer Pricing Guidlines puts the arrangement at risk of being considered illegal by the tax authorities and of being subjected at least to profit adjustments.
Non-acceptance of a structure for tax purposes has again to be distinguished from structures violating criminal tax law, which applies only if disclosure requirements or requirements of truthful notification were neglected by the taxpayer and its deliberate avoidance of taxes can be proved. A conviction of criminal tax evasion is not possible where the behaviour of the taxpayer was due to an excusable error (an ‘excusable error’ occurs when a reasonable person applying a high standard of care could not have been aware that the conduct of its activities was illegal) – for instance, in case of justifiable interpretation. An excusable error will in most cases deflect a conviction for criminal offence if adequate transfer pricing documentation was kept, backed by reasonable opinions of tax law.
What penalties are imposed for non-compliance with anti-avoidance provisions?
There are no specific penalties for non-compliance with anti-avoidance provisions. The general penalties described above (late payment interests for corporate income tax, late payment penalties of up to 4%) apply in case of arrears of taxes as determined in a tax audit.
Deliberate evasion of tax (criminal tax evastion) is punishable by up to twice the tax amount evaded or imprisonment of up to two years (higher in case of qualified tax fraud). In case of serious negligence, the punishment is limited to the amount of tax whose collection was illegally avoided.