Austria: Proposed legislation, transfer pricing documentation and country-by-country reporting

Austria: transfer pricing, country-by-country proposals

The Austrian Ministry of Finance on 10 May 2016 published, for public consultation, draft legislation to implement recommendations under Action 13 of the OECD base erosion and profit shifting (BEPS) initiative on transfer pricing documentation and rules for the automatic exchange of country-by-country (CbC) reports.

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The legislation includes a requirement to prepare a Master file, Local file(s), and CbC reports. The new requirements are expected to be effective for financial years beginning on or after 1 January 2016. The Ministry of Finance has requested comments be submitted by 31 May 2016.

Read the draft legislation (German)

Overview

The pending legislation proposes a change to the Austrian transfer pricing documentation rules. Currently, Austrian law does not provide for specific statutory documentation requirements; rather, these rules are only stated in administrative guidelines. 

The proposed draft legislation follows the three-tier documentation approach contained in the OECD’s “Transfer Pricing Documentation and Country-by-Country Reporting Final Report” issued in October 2015. The draft legislation, therefore, includes a requirement to prepare the following documents:

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

Overview of transfer pricing documentation

Under the draft legislation, for fiscal years starting on or after 1 January 2016, the Austrian transfer pricing documentation would have to include the following items.

Country-by-country report

Austria is considering requiring Austrian parented multinational enterprises (MNEs) or a local subsidiary (described below) with a global consolidated group turnover exceeding €750 million in the previous year to file a 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 would have to be filed with 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 would be required to file the CbC report. However, in certain instances, the foreign ultimate parent company could also appoint 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 a 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 an assessment note and inform the Austrian entity of its filing obligation.

Timing

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

Master file, Local file

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

KPMG observation

The detailed contents of the Master file and the Local file have not been defined in the draft, and would be determined by future regulations issued by the Ministry of Finance. Based on informal communications with the Ministry of Finance, it is expected that the information that would be presented in the Master file and Local file would be in line with the new OECD standard and reflect the information specified in Annex I and II of the OECD’s BEPS Action 13 final recommendations.

Exclusion for small entities

Under the draft legislation, an Austrian entity would be exempt from the Master file documentation requirement if it has a turnover equal to or below €50 million or intragroup sales commission equal to or below €5 million. 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 general rules under the Austrian tax code (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 would be filed with the tax authorities within 30 days from the date of a request for these files from the tax authorities, made after the filing of the tax return for the relevant year.

Other issues

Language: In general, the transfer pricing documentation would be prepared in the German language. A transfer pricing documentation in English filed within the deadline would be considered to be timely filed; nevertheless, tax authorities could request a certified translation at the cost of the taxpayer.

Penalties for non-compliance: The draft legislation proposes a maximum penalty of €80,000 if the CbC reporting requirements are not met. With respect to the Master file and the Local file, the Austrian draft legislation does not include any penalties.

KPMG observation

The draft legislative measures for specific Austrian transfer pricing documentation are significantly more demanding than the current general rules with respect to both specific information to be provided and the timing when that information must be provided. If enacted, this draft legislation and its required annual documentation preparation rules for transactions between related parties would impose significant additional transfer pricing documentation and reporting requirements in Austria and exposes local entities to increased scrutiny by the Austrian tax authorities.

The Austrian transfer pricing documentation requirements, as proposed, adopt the format and standard recommended by the OECD. A key challenge for Austrian taxpayers would concern the Master file and Local file requirements and, together with the CbC reporting requirements, how to manage the potential risk for MNE groups arising from an increased level of disclosure on intercompany arrangements.

While the legislation is currently at the draft stage, it is expected that some form of the legislation would be enacted, possibly with some minor modifications. If enacted, this legislation may require Austrian companies to apply significant resources and planning to meet the proposed documentation and CbC reporting requirements on an accurate and timely basis.

What would prudent Austrian companies do now? They could evaluate how they and their MNE groups can address possible risks and costs for the group and consider what steps to take now to be ready to meet the new reporting and documentation requirements.

 

For more information, contact a tax professional with KPMG's Global Transfer Pricing Services practice 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

Dr. Georg Gottholmseder | +43 732 6938 2340 | ggottholmseder@kpmg.at

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