austria transfer pricing overview - bkd transfer pricing rules ... service provision towards related...
TRANSCRIPT
Agenda
Austrian Transfer Pricing Rules
Selected Highlights from Austrian TPG 2010
Documentation Requirements
Compliance and Transfer Pricing Audits
Advance Pricing Agreement
Austrian Transfer Pricing Rules I
Law
Sec 6 (6) Income Tax Act (ITA)
Transfer of assets to foreign group companies and
permanent establishments (PEs)
Sec 8 (2) Corporate Income Tax Act (CITA)
Hidden profit distribution (“verdeckte
Gewinnausschüttung”)
Sec 8 (1) CITA and Sec 6 (14) (b) ITA
Hidden capital contribution (“verdeckte Einlage”)
Valuation: arm„s length price
Interpretation corresponding to Art 7 and 9 OECD-MC
Austrian Transfer Pricing Rules II
Ministerial Decrees (“Erlass”)
No binding effect as a law
Not binding upon taxpayers and courts but solely on
Austrian tax authorities
Translation of OECD-TPG 1995
Austrian Transfer Pricing Guidelines 2010 (TPG
2010)
No change of administrative practice
Not intended to provide comprehensive guidance on
determination of arm‟s length price
Merely systematic summary of selected TP issues
Austrian Transfer Pricing Rules III
Austrian TPG 2010 (cont)
Comprise
Earlier published opinions of Austrian Ministry of Finance (esp.
public letter rulings – “EAS”)
Decisions of Austrian Supreme Administrative Court (VwGH),
Independent Tax Chamber (UFS) and German Federal Tax
Court (BFH)
German ministerial decrees
Based on OECD-TPG 2010 and aimed at facilitating their
domestic implementation
Congruence of domestic and international (OECD-TPG)
arm„s length principle
Later versions of OECD-TPG will prevail (dynamic
interpretation)
Austrian Transfer Pricing Rules IV
Austrian TPG 2010 (cont)
Primarily aimed at avoiding “unjustified” profit
transfers to foreign jurisdictions (abuse of law)
But: any statement referring to outbound transaction also
to be applied to corresponding inbound transaction et
vice versa
5 Chapters
Multinational group structures
Multinational PE structures
TP documentation requirements
TP audits by tax authorities
Tax planning via intermediate companies
Selected Highlights I
Austria follows OECD-TPG 2010 to large extent
Selected controversial issues in Austrian TPG
2010 and administrative practice
Dynamic interpretation (slide 5)
TP adjustment to median (slide 19)
Use of databases and comparability
Profit margin for routine services
Intra-group financing services
Shareholder costs
Business Restructurings
Selected Highlights II
Use of databases
“Unrestricted“ comparability required (para 66 AT TPG 2010)
5 comparability factors according to OECD-TPG
In case of limited comparability
Database search unusable
Relevance for “rough control calculation” only (para 65 AT TPG 2010)
Excessive requirement
No need for database search in case of unrestricted comparability
In practice not available – implications for tax audits?
Multiple-year data accepted to enhance reliability
Qualitative screening mandatory
Use of interquartile range
“Common international practice” (para 67 AT TPG 2010)
Not to enhance comparability in case of limited comparability of data
(German decree on documentation requirements, 2005)
Selected Highlights III
Profit margin for routine services
C+ appropriate except if direct comparables are available (CUP)
Cost base: direct and indirect cost
Markup for routine services between 5% and 15% (para 77 AT TPG
2010)
No safe harbour rule but approximate guidance
Not every markup within range considered arm‟s length
Markup to be determined on a case by case basis
EU-JTPF: arm‟s length mark up between 3% and 10% (regularly
around 5%)
In specific circumstances charging at cost acceptable
Services not part of core business of enterprise and mere ancillary
service provision towards related party with continuing transactions
(maintaining customer relationship)
Agency costs
Selected Highlights IV
Intra-group financing services
CUP method preferred
Capital and money market
Regularly no direct comparability of intercompany financing and
financing by commercial banks (para 88 AT TPG 2010)
Different business purposes of commercial banks (profit) and
intercompany financing (optimum allocation of financial means
amongst group members)
Debit interest rate
Of commercial banks
(Theoretical) upper limit of arm‟s length interest if identical terms
Consideration of all relevant facts (amount of credit, currency,
duration, creditworthiness of borrower, currency risks, refinancing
costs, financial covenants, etc)
Selected Highlights V
Intra-group financing services (cont)
Debit interest rate (cont)
Group parent‟s ability to influence capital structure /
creditworthiness of group companies
Interest rate for secured loans to be considered as
(theoretical) upper limit
Credit interest rate
Of commercial banks as (theoretical) lower limit if lending
company has sufficient liquidity (alternative: bank deposit) (para 90
AT TPG 2010)
Example on inbound case in AT TPG 2010 => corresponding
application to outbound cases (para 4 AT TPG 2010)
Selected Highlights VI
Intra-group financing services (cont)
Range of arm‟s length interest between (theoretical) limits of
debit and credit interest rate
Comprehensive functional analysis required
In case of doubt: difference between (theoretical) debit and
credit interest rate of commercial banks equally divided
between creditor and debtor
Cash-pooling
Cash-pool header provides only services
No attribution of residual profit (merely cost plus)
Exception: assumption of unavoidable risks within group to
be compensated
Selected Highlights VII
Shareholder costs
Non-exhaustive list of non-chargeable shareholder
activities including (para 85 AT TPG 2010)
Legal organization of the group (e.g. consolidation of
group balance sheet)
Statutory reporting obligations (e.g. US Sox-cost)
Financial planning of group, group restructuring
Cost “imposed on” subsidiary such as compulsory
participation in new IT-system (SAP-project)
Deductibility to be examined on case by case basis
(benefit test)
Selected Highlights VIII
Business Restructurings
AT TPG 2010 generally follow Chapter IX. OECD-TPG
Relocation of functions (“downsizing”): assumed transfer and
taxation of business opportunity
Third party not willing to give up business opportunity without
compensation (para 136 AT TPG 2010)
Basis for compensation of unsubstantiated business opportunity (resp
“profit potential”) in OECD-TPG 2010 and Austrian domestic tax law?
Conversion of AT sub from fully-fledged distributor into limited-risk
distributor or commissionaire (para 176 AT TPG 2010)
Austrian finance authorities: AT sub qualifies as dependent agent
according to Art 5 (5) OECD-MC
Economic interpretation of “authority to conclude contracts” (para
175 AT TPG 2010)
Application of “two-taxpayer-approach” (OECD-AOA)
TP Documentation Requirements I
No specific legislation on TP documentation requirements
Austrian TPG 2010
General provisions on bookkeeping and record keeping (Sec 124
and 131 Federal Fiscal Code [FFC]) and enhanced obligation to
cooperate in cross-border transactions (Sec 138 FFC)
supposed to serve as legal basis for obligatory TP-documentation (paras 302 et seq AT TPG 2010)
Interpretation of FFC according to Chapter V. OECD-TPG?
Chapter V. OECD TPG 2010 itself does not provide sufficient guidance
on form, content and structure of documentation
Austrian Supreme Administrative Court confirms obligation to document
transfer prices (VwGH 8.7.2009, 2007/15/0036)
EU-TPD according to EU-JTPF (master file +
country-specific appendices) accepted
TP Documentation Requirements II
Content of documentation
Underlying facts (general company information, controlled
transactions, analysis of functions and risks, etc)
Analysis of TP (selected method, arm's length analysis)
No statutory submission deadlines
Public letter ruling No 3198 (24.1.2011)
Obligatory documentation to be prepared until filing of tax
return (at the latest)
Submission upon request of tax authorities (usually during tax
audit) without delay
No specific penalties if documentation missing or
inappropriate
Compliance and TP Audits I
Cooperation obligation of taxpayers relating to TP?
Tax authorities ex officio obliged to investigate factual and
legal circumstances relevant for levying taxes (Sec 115 FFC)
However: in case of cross-border transactions enhanced
obligation of taxpayer to cooperate
Implications in case of non-cooperation:
Reduced standard of proof to be applied by tax authorities
Free appraisal of evidence: exceptional and ambiguous facts may
not be accepted (taxation of false facts to detriment of taxpayer)
Conclusion: the greater complexity and unusualness of the
case, the more significance will attach to documentation (para 5.14 OECD-TPG)
Compliance and TP Audits II
Burden of proof that transfer price not arm‟s length
Lies with tax authorities
Qualified counter-evidence required by finance authorities
Mere reference to experience insufficient (VwGH 20.10.2009,
2006/13/0116)
Formal deficiencies of intercompany agreements
Burden of proof de-facto transferred to taxpayer
Case law (VwGH) on contracts concluded between close
relatives applicable on relationship shareholder - corporation
Rebuttable presumption of hidden profit distribution / capital
contribution
Even if TP at arm‟s length (!)
Compliance and TP Audits III
TP adjustment to median if taxpayer„s transfer
price not within arm„s length range (para 49 AT TPG 2010)
No legal basis for adjustment to median –
adjustment to taxpayer‟s most preferential value
within range (?)
Not arm„s length: any point within the range
acceptable
Conclusion: tax authority‟s attempt to prevent
taxpayer from favorable transfer pricing
arrangements
Compliance and TP Audits IV
TP Adjustments
Corresponding adjustment
Based on primary adjustment by other contracting state
Obligatory according to Art 9 (2) OECD-MC (para 322 AT TPG 2010)
Without mutual agreement procedure according to Art 25
(2) OECD-MC (“on short way”)
Only if finance authorities consider primary adjustment
to be justified both in principle and as regards the
amount
Not automatically: taxpayer must document accuracy of
foreign primary adjustment
Procedural problems may occur (statute of limitation)
Compliance and TP Audits V
TP Adjustments (cont)
Secondary Adjustment
May be avoided by posting an account receivable or account
payable (paras 326 et seq AT TPG 2010)
Hidden profit distribution
If no corresponding account payable abroad accepted
25% withholding tax
No relief at source under EC Parent-Subsidiary-Directive in
case of “obvious” hidden profit distributions (refund
procedure)
Reduction of withholding tax rate according to DTT applicable
(relief at source: certificate of residence and proof of
substance of foreign company required)
Hidden capital contribution
If transfer of profit not corrected abroad
Advance Pricing Agreement
Unilateral Advance Ruling (Sec 118 FFC)
Scope: Transfer pricing, reorganizations, group taxation
Written filing required (pre-filing recommended)
Binding effect if identity between alleged and actual facts
Expiration of ruling if underlying tax provisions amended
Fees: EUR 1,500 – 20,000 depending on revenue of
applicant
Bilateral APA
On basis of Art 25 OECD-MC (MAP)
Austria: first bilateral APA concluded at the end of 2011
Contact
Dr. Clemens Nowotny
International Tax Partner
T +43 732 70 93 - 359
LeitnerLeitner GmbH
Wirtschaftsprüfer und Steuerberater
Ottensheimer Straße 30
4040 Linz Austria
www.leitnerleitner.com