On 14 July 2016, the second chamber of Austria’s Parliament, the Austrian Federal Council approved the European Union (EU) Tax Amendment Act 2016, including among other provisions, the new Austrian Transfer Pricing Documentation Law (TPDL). The TPDL had been approved by the Austrian National Council on 6 July. Before entering into force, the TPDL must now be authenticated by the Federal President as having been passed in good order, and then published in the Federal Law Gazette. The text of the TPDL as it now stands however can be considered as final.
The said legislative process follows the publication of the draft TPDL on 9 May 20161 as well as the draft regulation for the implementation of the TPDL on 25 May 20162 and the publication of the government bill on 14 June 2016.3 The approved TPDL contains only one amendment as compared to the government bill; the penalty provisions were deleted from the TPDL and included as a tax offense in the Austrian Criminal Tax Law.
Based on the TPDL, transfer pricing documentation has to be prepared for fiscal years starting on or after 1 January 2016. Transfer pricing documentation requirements for prior fiscal years as well as for local constituent entities not covered by the TPDL are based on the Austrian Federal Fiscal Code (FFC).
This Alert provides an overview of the final TPDL.
Obligation to prepare transfer pricing documentation
The obligation to prepare transfer pricing documentation stipulated in the TPDL depends on the turnover generated by the multinational group (MNE group) or the local constituent entity:
- A country-by-country (CbC) report has to be prepared if the total turnover generated by the MNE group stated in the consolidated annual financial statements of the previous fiscal year amounts to at least €750 million. The term “turnover” should be understood as the sum of revenues generated from activities in the market.
- The Master File and Local File have to be prepared by constituent entities resident in Austria if their turnover in the previous two fiscal years exceeded €50 million in each year. The obligation to prepare the Master and Local File ceases in a given year if the turnover of the constituent entities is below €50 million for two previous consecutive years.
- Constituent entities resident in Austria that do not exceed the stipulated turnover threshold have to file a Master File if a group entity resident in another state is required to prepare a Master File according to the respective domestic law of its resident state.
- Furthermore, the TPDL clarifies that documentation obligations existing in addition to the TPDL (e.g., accounting and filing obligations according to FFC) are not affected by the TPDL.
Obligation to file a CbC report
Basically, if an MNE group’s ultimate parent entity is resident in Austria, it has to file a CbC report with the competent Austrian tax office if the MNE group meets the global turnover threshold. Moreover, the TPDL stipulates that a constituent entity resident in Austria that is not an ultimate parent entity, may act as a surrogate parent entity under specific circumstances and would consequently be obligated to file a CbC report in Austria (see below).
Every ultimate parent entity resident in Austria or every surrogate parent entity that has to file a CbC report in Austria must inform the competent tax office about its obligation to prepare a CbC report by the last day of the fiscal year for which a CbC report is filed. Additionally, the TPDL stipulates that a constituent entity resident in Austria needs to inform the competent tax office about the identity and residence of the reporting entity by the last day of the fiscal year for which a CbC report is filed if the Austrian constituent entity is neither the ultimate nor the surrogate parent entity. Therefore, if the fiscal year of an entity is the calendar year, the competent tax office has to be informed by 31 December 2016 for the first time.
A constituent entity resident in Austria can act as a surrogate parent entity and file a CbC report in Austria, if one of the following conditions applies:
- The ultimate parent entity is not obligated to file a CbC report in its jurisdiction of tax residence.
- There is no qualifying competent authority agreement on the exchange of CbC reporting in force with the ultimate parent entity’s state of residence at the moment when the CbC report is to be filed (12 months after CbC reporting year-end).4
- There has been a systemic failure of the ultimate parent entity’s state of residence (i.e., there is a qualifying agreement in place, but the exchange of information was suspended or the other contracting state failed to automatically transmit CbsC reports).
The competent tax office has to officially designate by notice a constituent entity resident in Austria as the surrogate parent entity, if by the last day of the fiscal year covered by the CbC report one of the above requirements is fulfilled and no other Austrian constituent entity has notified its competent tax office that it will act as a surrogate parent entity and no other Austrian constituent entity was officially designated by notice as the surrogate parent entity.
The competent tax office does not have to officially designate a constituent entity resident in Austria as the surrogate parent entity if another constituent entity of the MNE group, which is not resident in Austria, filed a CbC report in its jurisdiction of tax residence and – if resident outside the EU – the following conditions are met:
- The resident state of the surrogate parent entity requires filing of the CbC report in line with the requirements of the Austrian TPDL.
- By the time the CbC report is due (12 months after CbC reporting year-end), a qualifying agreement between the responsible authorities is in effect.
- There is no systemic failure regarding the exchange of information.
- The surrogate parent entity has timely informed its state of residence about its obligation (by the last day of the fiscal year that the CbC report covers).
- The Austrian competent tax office received information about the identity and the residence of the surrogate parent entity by the last day of the fiscal year for which a CbC report is to be filed.
The surrogate parent entity needs to request all information from the ultimate parent entity that is necessary to fulfill its reporting obligation. If the ultimate parent does not provide the information, the surrogate parent entity needs to inform the competent tax office and file a CbC report including the information available.
Content of the CbC report
The CbC report enables tax authorities to get an overview of the global allocation of the income, the taxes paid and the business activities of MNE group. To ensure a standardized reporting format, three tables (Appendices 1-3) are attached to the TPDL as templates for the CbC report. These tables correspond to the tables provided in the OECD report on Base Erosion and Profit Shifting (BEPS) Action 13 and the EU directive on the automatic exchange of information.
Content of the Master File and the Local File
The TPDL does not define the exact content of the Master File and the Local File. However, it is stipulated that the Master File has to provide comprehensive information on the whole group and specifically address:
- Organizational structure of the MNE group
- Description of the MNE’s business
- Documentation of MNE’s intangibles
- Documentation of the intercompany financial activities
- Documentation of MNE’s financial and tax positions
The Local File has to provide specific information on the business activities and transactions of the local constituent entity and specifically address:
- Description of the local constituent entity
- Documentation of material controlled transactions
- Financial Information
The TPDL enables the Finance Minister to issue a regulation further determining the content of the documentation. A draft regulation was published on 25 May 2016.
The CbC report has to be filed electronically with the competent tax office within 12 months after the end of the respective fiscal year (via FinanzOnline). Both the Master File and the Local File have to be submitted upon request of the competent tax office within 30 days after the constituent entity files its tax return (i.e., the earliest deadline for the submission of the Master File and the Local File is 30 days after filing the tax return of the respective year).
The required documentation (Master File and Local File as well as the CbC report) generally has to be prepared for fiscal years starting from 1 January 2016. In cases where a constituent entity was officially designated by notice as the surrogate parent entity, the submitted information can refer to fiscal years starting from 1 January 2017.
According to the TPDL, the entire documentation has to be prepared in a language officially permitted for tax proceedings (typically German) or English. The TPDL enables the Finance Minister to issue a regulation determining that certain parts of the CbC report need to be prepared in English. The explanatory statements state that this authorization is necessary as parts of the CbC report need to be transmitted to foreign tax authorities in English.
The Austrian Criminal Tax Law stipulates that anyone who does not file the CbC report in time or does not file or incorrectly files the required items in the tables in appendices 1 to 3 of the TPDL due to intent, commits a tax offense. The Austrian Criminal Tax Law stipulates penalties of up to €50,000 for intent and up to €25,000 for gross negligence. While penalties are to be imposed, legal prosecution (by courts) for such tax offenses is excluded by the Austrian Criminal Tax Law.
Transmission of the CbC report to foreign authorities
Basically, CbC reports filed by ultimate parent entities and surrogate parent entities resident in Austria with the competent tax office are annually transmitted to the states of the constituent entities listed in the respective CbC report if a qualifying agreement is in place between Austria and the respective state. The transmission is performed at the latest 15 months after the last day of the fiscal year covered by the CbC report. The first transmission will at the latest be conducted within 18 months after the last day of the fiscal year, beginning on or after 1 January 2016.
1. See EY Global Tax Alert, Austria publishes draft Transfer Pricing Documentation Law, dated 17 May 2016.
2. See EY Global Tax Alert, Austria publishes draft regulation for implementation of Transfer Pricing Documentation Law, dated 3 June 2016.
3. See EY Global Tax Alert, Austria publishes government bill of new Transfer Pricing Documentation Law, dated 27 June 2016.
4. A qualified agreement obliges the contracting states to automatically exchange CbC reports. Currently, the following states have signed the Multilateral Competent Authority Agreement on the Exchange of Country by Country Reports (Source: Organisation for Economic Co-operation and Development (OECD) website, status: 30 June 2016): Argentina, Australia, Austria, Belgium, Bermuda, Canada, Chile, Costa Rica, Curacao, Czech Republic, Denmark, Estonia, Finland, France, Georgia, Germany, Greece, Iceland, India, Ireland, Israel, Italy, Japan, Korea, Liechtenstein, Luxembourg, Malaysia, Mexico, Netherlands, New Zealand, Nigeria, Norway, People’s Republic of China, Poland, Portugal, Senegal, Slovak Republic, Slovenia, South Africa, Spain, Sweden, Switzerland, United Kingdom, Uruguay.
EYG no. 02111-161Gbl