International Tax Planning and Transfer Pricing Planning: Austria from a US perspective

Autor:Professor Dr. Rainer Zielke
Cargo del Autor:Professor in business economics at Østfold University College, Halden, Norway
Actualizado a:April 2017
 
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Contenido
  • 1 Abstract tax planning
  • 2 Abstract transfer pricing planning
    • 2.1 Introduction
    • 2.2 The high tax country Austria in the OECD context
    • 2.3 Transfer pricing rules of Austria
      • 2.3.1 Laws and rules
      • 2.3.2 Arm's length principle
      • 2.3.3 Transfer pricing methods
      • 2.3.4 Definition of related companies
      • 2.3.5 Reporting requirements
      • 2.3.6 Documentation requirements
      • 2.3.7 Cost sharing
      • 2.3.8 Business restructuring
      • 2.3.9 Interaction between customs valuation and transfer pricing
      • 2.3.10 Dispute resolution
    • 2.4 Calculation of the case studies in international tax planning between Austria and the USA
      • 2.4.1 Design of the tables
      • 2.4.2 The treaty Austria-USA in brief
      • 2.4.3 BEPS Project progress
      • 2.4.4 Austria in brief
      • 2.4.5 The USA in brief
      • 2.4.6 Design of case studies
      • 2.4.7 Case study 1: Dividends from Austria to the US
      • 2.4.8 Case study 2: Interests from Austria to the US
      • 2.4.9 Case study 3: Royalties from Austria to the US
      • 2.4.10 Case study 4: Management and technical service fees from Austria to the US
      • 2.4.11 Case study 5: Capital gains with Austria as asset country to the US as seller country
      • 2.4.12 Case study 6: Dividends from the US to Austria
      • 2.4.13 Case study 7: Interests from the US to Austria
      • 2.4.14 Case study 8: Royalties from the US to Austria
      • 2.4.15 Case study 9: Management and technical service fees from the US to Austria
      • 2.4.16 Case study 10: Capital gains with the US as asset country and Austria as seller country
    • 2.5 Concluding remarks
  • 3 Notes
Abstract tax planning

According to the International Monetary Fund, Austria confirms in 2016 with a gross domestic product (GDP) of US$ 387,299 million the tenth-highest GDP of the European Union. In Austria, Corporate income is taxed at a rate of 25%, and Austria has a classical system of taxation of corporate profits.

Thus, Austria is a high tax country. Especially for multinational enterprises, it is therefore interesting to realize profits in lower taxing countries by means of tax planning measures. Austria has introduced numerous anti-avoidance rules to avoid erosion of the taxable basis and to avoid profit shifting. According to the OECD, in Austria, after four years of disappointing growth, economic activity picked up in 2016. It has been supported by a fiscal reform that boosted household disposable income, a catch-up of investment and solid job creation, especially among elderly, women and immigrants. These factors will continue to support growth in 2017 and, to a lesser extent, in 2018. Easing restrictive entry regulations in retail trade and liberal professions would improve labor market prospects, including for migrants, and intensify competition, innovation and growth. Further consolidation of banks would improve cost efficiency, but care would have to be taken to avoid reductions in competition and the creation of institutions that are too big to fail. This chapter provides a survey on the actual tax law frame conditions in Austria and practical support in international tax planning and transfer pricing planning between Austria and the US based on cross border case studies.

Abstract transfer pricing planning

With respect to transfer pricing Austria applies the arm’s length principle and follows the OECD Guidelines, the following transfer pricing methods are applicable: the comparable uncontrolled price method (CUP), the resale price method, the cost-plus method, the profit split method, and the transactional net margin method. There is no hierarchy between the methods. Although if all methods provide the same degree of certainty the standard methods are preferred to the transactional or profit methods. Transfer pricing rules apply to all cross-border transactions between related parties with an ownership of 25% or more, as well as to all transactions between a branch or PE and a headquarter. There are reporting and documentation requirements. Cost sharing is allowed and business restructuring possible according to OECD standards. There is interaction between customs valuation and transfer pricing. Advance pricing agreements, APAs, can be made in accordance to provisions in a double tax treaty, if applicable. Further, domestic tax rules provide for the opportunity to receive unilateral APAs.

Introduction

International tax planning and transfer pricing planning between Austria, as 12th richest country in the world in terms of GDP (Gross domestic product) per capita, with a well-developed social market economy, and a high standard of living, and the US as most important national economy of the world based on cross-border case studies is of central importance. In addition, the USA confirm with a population of 321 million inhabitants in 2016 3rd place of the most populous countries in the world (4.40% of the world population).

According to the International Monetary Fund, [1] Austria confirms in 2016 with a gross domestic product (GDP) of US$ 387,299 million the tenth-highest GDP of the European Union. In Austria, Corporate income is taxed at a rate of 25%, and Austria has a classical system of taxation of corporate profits.

Thus, Austria is a high tax country. Especially for multinational enterprises, it is therefore interesting to realize profits in lower taxing countries by means of tax planning measures. Austria has introduced numerous anti-avoidance rules to avoid erosion of the taxable basis and to avoid profit shifting.

According to the OECD, [2] in Austria, after four years of disappointing growth, economic activity picked up in 2016. It has been supported by a fiscal reform that boosted household disposable income, a catch-up of investment and solid job creation, especially among elderly, women and immigrants. These factors will continue to support growth in 2017 and, to a lesser extent, in 2018. Easing restrictive entry regulations in retail trade and liberal professions would improve labor market prospects, including for migrants, and intensify competition, innovation and growth. Further consolidation of banks would improve cost efficiency, but care would have to be taken to avoid reductions in competition and the creation of institutions that are too big to fail. The fiscal stance is expansionary in 2016 owing to the tax reform and migrant-related spending, and is projected to be broadly neutral in 2017 and 2018. Past support for the banking sector has pushed up public debt and population ageing will entail fiscal costs. Nevertheless, the current low interest rate environment provides fiscal space that should be used to increase public expenditure on early child care and broadband infrastructure to better prepare Austria for the future.

According to Orbitax, [3] (Daily Tax News Digest of 22 July 2016) on 14 July 2016, the Austrian parliament approved the EU Tax Amendment Act, which provides for new three-tiered transfer pricing documentation requirements in line with Action 13 of the OECD BEPS Project, as well as the exchange of cross border tax rulings and advance pricing agreements in the EU (previous coverage), and certain other measures. The new transfer pricing documentation requirements include Country-by-Country (CbC) reporting, Master file and Local File. The main aspects of the new requirements are summarized as follows.

The CbC reporting requirements are in line with the guidelines developed under Action 13, and the requirements included in the EU directive for the exchange of CbC reports (previous coverage). The requirements apply for fiscal years beginning on or after 1 January 2016 for MNE Groups operating in Austria with consolidated group revenue in the previous year meeting a EUR 750 million threshold.

If the ultimate parent of the MNE group is resident in Austria, it is responsible for submitting the CbC report. If the ultimate parent is not resident in Austria, a secondary filing requirement will apply if:

  • The ultimate parent is not required to file a CbC report in its jurisdiction of residence;
  • The ultimate parent's jurisdiction of residence does not have a competent authority agreement in place for automatic exchange of CbC reports with Austria; or
  • There is a systemic failure of the jurisdiction of residence of the ultimate parent for automatic exchange.

If any of the above three conditions is met, a constituent entity of the group resident in Austria must be designated as a surrogate parent entity to fulfill the reporting obligation. However, the obligation may be waived if a constituent entity in another jurisdiction has been designated as a surrogate to file a CbC report for the fiscal year, Austria is able to obtain the report from such other jurisdiction through exchange, and proper notification has been provided by the end of that fiscal year.

The new requirements also include that all constituent entities resident in Austria must provide notification to the Austrian tax authorities on:

  • Whether the entity is the ultimate parent of the group or acting as surrogate; or
  • The identity and residence of the entity submitting a CbC report on behalf of the group.

The notification must be provided by the end of the fiscal year concerned.

When required, the CbC report must be submitted electronically within 12 months following the end of the ultimate parent's fiscal year. An ordinance will be issued that sets out the exact method and form of filing.

The new requirements will enter into force after the legislation is approved by the president and published in the Federal Gazette. [4]

The pivotal question is therefore, how groups of affiliated companies with group companies in Austria and in the US can – before the background of ant-avoidance legislation and other tax law frame conditions – optimize their strategies of international tax planning based on cross-border case studies.

Therefore and first of all the high tax country Austria is to be reviewed in the OECD context (see section 2) – also with respect to the transfer pricing rules of Austria (see section 3), and constructive hereon 10 case studies in...

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