Austria: New transfer pricing documentation, country-by-country rules effective for 2016

Austria: New transfer pricing documentation effective

The second chamber of Federal Council on 14 July 2016 accepted legislation introducing country-by-country reporting and formal transfer pricing documentation requirements in Austria. The legislation will be enacted on publication in the federal law gazette (this publication is simply a formality).

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There were no major changes made to the draft text of the law, and it was considered and approved at a rapid pace. The measures will be effective for fiscal years starting on or after 1 January 2016. 

KPMG observation

The legislation constitutes a major change to the rules for transfer pricing documentation in Austria. Previously, Austrian law did not provide specific statutory documentation requirements. Rather, the transfer pricing documentation rules were only provided by administrative guidelines. 

Overview of the final transfer pricing documentation law

The new legislation follows the three-tier documentation approach contained in the OECD’s final report on “Transfer Pricing Documentation and Country-by-Country Reporting” issued in October 2015. The new legislation, therefore, includes a requirement to prepare the following documents for fiscal years starting on or after 1 January 2016:

  • Country-by-country report
  • Master file
  • Local file

Country-by-country report

Austria is requiring Austrian parented multinational enterprises (MNEs) or a local subsidiary (described below) with a global consolidated group turnover of at least €750 million in the previous year to file a country-by-country (CbC) report containing the information in Annex III of the OECD’s BEPS Action 13 final recommendations.

In accordance with OECD recommendations, the CbC report will have to be filed with the tax authorities of the jurisdiction where the ultimate parent entity in the MNE group is a tax resident and then be automatically transmitted by that jurisdiction to each jurisdiction where the MNE group conducts business through applicable exchange of information provisions.

In general, the ultimate parent company of a MNE group will be required to file the CbC report. For determining the ultimate parent company, consolidation principles apply. However, in certain instances, the foreign ultimate parent company could also appoint another foreign entity (see below) or an Austrian company or permanent establishment to file the report on behalf of the MNE group.

In instances when the ultimate parent company is not resident in Austria, the relevant Austrian tax office would have to nominate an Austrian entity (company or permanent establishment) to satisfy the CbC reporting obligation, if one of the following requirements is fulfilled:

  • The ultimate parent company is not required to prepare a CbC report in its country of residence.
  • There is no existing agreement regulating the exchange of information between Austria and the country of residence of the ultimate parent company.
  • Due to a systemic failure in the country of residence, there is no possibility to receive the information. 

In such instances, the relevant tax office would issue a notification and inform the Austrian entity of its filing obligation.

In addition, a foreign EU resident group entity can also subsume the obligations of an ultimate parent company for CbC reporting purposes. For non-EU resident group entities that in fact subsume the CbC reporting, additional conditions must be fulfilled—including that (1) it is subject to CbC reporting under its domestic law; (2) there is an exchange of information between its state of residence and Austria; (3) no systemic failure exists; and (4) both the domestic and the Austrian tax administration were informed of the entry of this foreign entity into the obligation before reporting fiscal year-end. 

If none of these provisions is fulfilled, the Austrian competent tax authority must require, by notification, the Austrian resident legal entity to file the CbC report. If not all necessary information can be gathered by this entity, it must inform the competent authority of this circumstance and, nevertheless, file the report with the information available.  

Timing

The CbC report is due within 12 months after the year-end of the ultimate parent company. For instance, the CbC report for the fiscal year ending 31 December 2016 would be due by 31 December 2017. 

The CbC report is to be filed electronically via FinanzOnline. Further details are expected to be provided by regulation. 

According to the law, each Austrian entity covered needs to inform the competent tax authority if it has to file a CbC report, and if not, who will file the report before the fiscal year-end. Only in situation if an Austrian resident legal entity is required by formal notification to fulfill the obligations of the CbC report, the report can be based on 2017 information.

Master file, Local file

In general, all entities (including permanent establishments) belonging to a MNE group that are tax residents in Austria are to prepare a Master file and a Local file. The Master file is to provide comprehensive information of the MNE group. In contrast to the Master file, the Local file is to provide detailed information on specific intercompany transactions including a comparability analysis.

The general contents of the Master file and the Local file are defined in the legislation, and will be further specified by future regulations issued by the Ministry of Finance. The draft regulation available on the Ministry of Finance’s website homepage shows that the information to be presented in the Master file and Local file would be in line with the new OECD standard and would reflect the information specified in Annex I and Annex II of the OECD’s BEPS Action 13 final recommendations.

KPMG observation

Assuming the law is enacted and the regulation is finalized as drafted, the Austrian tax authorities will receive much more information on foreign aspects of the group activities—e.g., on restructurings, the group’s strategy concerning R&D, on group internal financing—all areas that frequently were the subject of past controversies during tax audits. Tax professionals in Austria expect the tax authorities will move to gather and compare data received centrally. 

Exclusion for small entities

Under the new legislation, an Austrian entity will only be subject to the Master file/Local file documentation requirement if it has had a turnover exceeding €50 million in each of the two preceding years. For entities not exceeding this threshold, the documentation rules would remain unchanged—i.e., these entities would have to prepare transfer pricing documentation based on the administrative guidelines (but without the obligation to follow the formal requirements for preparing a separate Master file and Local file). 

Timing

The Master file and Local file documentation are to be filed with the tax authorities within 30 days from the date of a request for these files from the tax authorities. A request can only be made after the filing of the tax return for the relevant year.

Other issues

Language

In general, the transfer pricing documentation is to be prepared in the German language. However, English language files may be accepted. No translation is required. If necessary, the Ministry of Finance can issue a regulation for language issues relating to the CbC report.

Penalties for non-compliance

The legislation includes a maximum penalty of €50,000 if the CbC reporting requirements are not met. Unlike the proposals in the draft law, the penalty provision were deleted from the transfer pricing documentation law, but were included as a tax offense under the Austrian criminal tax law. With respect to the Master file and the Local file, the Austrian draft legislation did not include any specific penalties. However, the general provisions of the Austrian administrative law and the Austrian fiscal penal law will apply.

 

Read a July 2016 report [PDF 105 KB] prepared by the KPMG member firm in Austria

 

For more information, contact a tax professional with KPMG’s Global Transfer Pricing Services group in Austria:

Mag. Sabine Bernegger | +43 1 31332-3286 | sbernegger@kpmg.at

Mag. Werner Rosar | +43 1 31332-3621 | wrosar@kpmg.at

Mag. Florian Rosenberger | +43 (732) 6938-2318 | frosenberger@kpmg.at

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