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Austria tightens requirements regarding Transfer Pricing Documentation – EU-Tax Code Amendment Act 2016

15 Juli 2016

The Transfer Pricing Documentation Act (TPDA) has been passed by the Austrian parliament on 6th July 2016.

The TPDA is based on the BEPS Action 13 of the OECD and significantly increases the documentation burden for Multinationals having entities in Austria.

Accordingly, Austrian entities have to prepare a Master and Local file in case the sales exceeded EUR 50m in the two previous years. Also a Country-by-Country Report has to be prepared for Multinational Entities (MNEs) generating more than EUR 750m consolidated sales. Non-filing is penalised with up to EUR 50k.

This new law will be effective for FY commencing 1 January 2016. 

 

Austria tightens requirements regarding Transfer Pricing Documentation - EU-Tax Code Amendment Act 2016

BEPS (Base Erosion und Profit Shifting) is a keyword not only dealt with quite often in the media these days, but is now actually affecting the Austrian tax law landscape. The OECD recently started focusing on this topic and prepared an action plan how to tackle the issue of base erosion and profit shifting in the international tax landscape. One of these has now been incorporated by adopting the Transfer Pricing Documentation Act (TPDA).

The TPDA obliges multinational companies to prepare a three-tiered Transfer Pricing Documentation comprising a Master File, a Local File as well as a Country-by-Country Report (CbCR).

Master File

The Master File should contain comprehensive overall information on the whole multinational group, mainly comprising the following:· 

  • Organisational structure
  • Description of the business activity ·
  • Intangibles· Financing activities within the group·
  • Financial and tax position

Local File

The Local File shall contain specific information regarding the business transactions of the respective entity, in particular information about financial transactions as well as the comparability analysis. The content of both documents is also specified in more detail in the TPDA-by-law.

Austrian companies have to prepare a Master File and Local File in case the sales exceed 50m Euro in the two previous fiscal years. The TPDA does not only oblige separate legal entities to set up both documentation parts, but dictates the same obligation also for permanent establishments under specific circumstances which will mostly be fulfilled. However, an Austrian entity (separate company or permanent establishment) will only be covered by the TPDA in case it is part of a multinational group of companies, i.e. apart from a local Austrian entity another entity has to exist abroad. 

Country-by-Country 

ReportingGroups of companies that exceeded consolidated sales of 750m Euro in the previous fiscal year additionally have to prepare a Country-by-Country Report. This third part of the Transfer Pricing Documentation is supposed to provide a standardised overview of how the sales, the earnings before tax, the taxes paid, the number of employees, material assets and the separate business activities are distributed globally. This report has to be filed in Austria mandatorily in case 

  • the parent company is an Austrian resident company,
  • the parent company does not have to file the CbCR in the respective other country,·
  • no qualified agreement regarding the exchange of the CbCR exists or·
  • such a qualified agreement exists, but the automatic exchange was suspended or failed during a prolonged period.

Come into force

The three-tiered Transfer Pricing Documentation has to be prepared for fiscal years commencing 1 January 2016. The CbCR has to be filed electronically via FinanzOnline no later than 12 months after the last day of the fiscal year. The Master File and Local File have to be available at the moment of filing the tax returns as these have to be presented to the fiscal authorities within 30 days upon request. Generally, it is possible to prepare the Transfer Pricing Documentation in English.

Penalties

In addition to the administrative burden imposed by the TPDA, now taxpayers also face specific penalties. Companies, who deliberately refrain from filing the CbCR on time, file incorrectly or not at all face penalties of up to 50k Euro. Also gross negligence is punished in this context with penalties up to 25k Euro.

Summary

In short it can be concluded that the TPDA will lead to significant additional efforts and costs for multinational entities. According to the preamble of the initial draft of the TPDA the Austrian legislator estimates the one-off costs for setting up the CbCR with approximately 200k Euro and those for preparing the Master File and Local File with about 400k Euro.

In this context it seems further important to mention that currently changes to the EU accounting guideline are being discussed. These changes intend to oblige multinational enterprises (the sales of which globally exceed 750m Euro) to publish a separate income tax information report ("Ertragsteuerinformationsbericht"). The content of this audited report mostly coincides with the CbCR. However, whereas the CbCR has to be provided to the fiscal authorities only, the income tax information report should be made publicly available. 

Effective support by BDO 

The transfer pricing team of BDO Austria GmbH will gladly assist you in planning and implementing a transfer pricing system and meeting your statutory obligations regarding transfer pricing documentations. Should the need arise, we will involve colleagues from other service lines, e.g. if IT systems have to be adjusted or compliance structures need to be set up within the company. If necessary, we are also able to involve colleagues from our international network, which is active in more than 150 countries across the globe.
 

Authors: Mag. Reinhard Rindler LL.M. and Dr. Michael Huber