AUSTRIA Law and Practice Contributed by: Clemens Philipp Schindler and Mohamed Hemdan, Schindler Attorneys
ensuring the fulfilment of formal requirements when issuing the obligatory reports. The Austrian tax authorities strictly apply the arm’s length principle (as included in Austrian tax law) in most DTTs, as elaborated on in the OECD’s Trans - fer Pricing Guidelines and further amended under the OECD/G20 Base Erosion and Profit Shifting Project (BEPS). Accordingly, transactions between affiliated companies should be at arm’s length, and proper documentation should be available to substantiate the arm’s length nature of the transactions. 4.5 Challenges to Related-Party Limited Risk Distribution Arrangements The Austrian tax authorities will examine related-party arrangements where a local entity acts as a limited- risk distributor or provides services with only routine functions. While such arrangements are not prohibited per se, the authorities will examine whether the alloca - tion of risks, functions and remuneration reflects the arm’s length principle. Overall, all transactions within a group of companies must meet the requirements of the arm’s length principle. 4.6 Local Transfer Pricing Rules and OECD Standards Austria generally follows the OECD’s Transfer Pricing Guidelines. In particular, Austria makes explicit refer - ence to the OECD standards in the guidelines issued by the Ministry of Finance. 4.7 Transfer Pricing Disputes and Mutual Agreement Procedures The Austrian tax authorities have increasingly empha - sised transfer pricing compliance and documentation, particularly following BEPS-related reforms. Inter - national transfer pricing disputes involving Austria are generally addressed through Mutual Agreement Procedures (MAPs) under applicable DTTs. In this respect, Austria has concluded DTTs with more than 90 countries, most of which follow the OECD Model Tax Convention, which contains MAP provisions. Bilateral Advance Pricing Agreements (APAs) – like MAPs – are usually requested by the taxpayer. How - ever, the taxpayer has no legal entitlement to a (suc - cessful) MAP outcome. Bilateral APAs are written
agreements between the Austrian tax authorities and the tax authorities of a treaty partner, governing the appropriate transfer pricing method. As noted, Austria has an extensive treaty network, and MAPs are often available when double taxation arises. Nonetheless, MAP cases, like APAs in general, may take several years to resolve. There is no charge for bilateral APAs or MAPs. In cases where a taxpayer exercises economic activi - ties in a state with which Austria has not yet con - cluded a DTT, the Austrian Ministry of Finance may mandate that taxpayers subject to double taxation be partly or fully exempt from certain items of taxation. 5. Taxation of Non-Local Corporations 5.1 Compensating Adjustments Generally, in cases where a transfer pricing claim is settled, the Austrian tax authorities act in accordance with the settlement. However, compensating adjust - ments must be based on a previously agreed pric - ing method that is applied in predefined scenarios of uncertainty and must lead to an arm’s length result. 5.2 Local Branches and Local Subsidiaries Local branches (permanent establishments in fiscal terms) are generally taxed on the basis of the same rules and principles as subsidiaries of non-local cor - porations. In practice, there are usually problems ‒ or at least discussions ‒ regarding the allocation of income/expenses and assets. 5.3 Capital Gains of Non-Residents Austrian income tax law differentiates between unlim - ited and limited tax liability. Non-residents are liable to Austrian tax only on Austrian-sourced income under the rules on limited tax liability. In principle, this includes capital gains realised by a non-resident on the sale of shares in an Austrian corporation where the shareholding amounts to at least 1% (or amounted to at least 1% within the last five years). Such capi - tal gains are subject to capital gains tax at a rate of 27.5% for individuals and 23% for corporations. However, where the shareholder is resident in a coun - try with which Austria has concluded a DTT, Austria
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