3 June 2016 Global Tax Alert News from Transfer Pricing Austria publishes draft regulation for implementation of Transfer Pricing Documentation Law EY Global Tax Alert Library Access both online and pdf versions of all EY Global Tax Alerts. Copy into your web browser: www.ey.com/taxalerts Executive summary On 25 May 2016, the Austrian Ministry of Finance (MoF) published the draft regulation for implementation of the draft Transfer Pricing Documentation Law (TPDL). This follows publication of the TPDL on 9 May 2016 and its authorization for the issuance of a regulation to address the Master File and Local File content. 1 The draft regulation (like the TPDL) represents the domestic implementation of the recommended standards of the Organisation for Economic Co-operation and Development (OECD). The explanatory notes to the draft regulation highlight the main goal stipulated in the Base Erosion and Profit Shifting (BEPS) Action 13 final report, i.e., to provide tax authorities with the information necessary to conduct an informed transfer pricing risk assessment and to appropriately audit the transfer pricing practices of entities subject to tax in their jurisdiction. Moreover, according to the explanatory notes the draft regulation complies with European Union (EU) standards, namely with the resolution on a code of conduct on transfer pricing documentation for associated enterprises in the European Union. The content requirements stipulated in the draft regulation correspond to the suggestions specified in Annexes I and II to Chapter V OECD Transfer Pricing Guidelines (TP guidelines) contained in the BEPS Action 13 final report.
2 Global Tax Alert Transfer Pricing Detailed discussion The Master File The Master File should provide the tax authorities with highlevel information on a multinational enterprise (MNE) group s global business and its overall transfer pricing policy in order to place the MNE group s transfer pricing practices in their global economic, legal, financial and tax context. When the requirements of the Master File can be fully satisfied by specific cross-references to other existing documents, such cross-references, together with copies of the relevant documents, should be deemed to satisfy the relevant requirement. Basically, the Master File should provide the information for the MNE as a whole. However, organization of the information presented by line of business is permitted where justified by the facts, e.g., where the structure of the MNE group is such that some significant business lines operate largely independently or have been recently acquired. Where line of business presentation is used, care should be taken to assure that centralized group functions and transactions between business lines are properly described in the Master File. Even where line of business presentation is selected, the entire Master File consisting of all business lines should be available to each country. Like Annex I to Chapter V OECD TP guidelines contained in the BEPS Action 13 final report, Sec. 1 of the draft regulation groups the information to be presented in the Master File into five categories and stipulates the following content: Organizational structure of the MNE group (Sec. 2) Chart illustrating the MNE group including: Legal and ownership structure Geographical location of operating entities Description of the MNE s business (Sec. 3) Written description of: The important drivers of business profit The supply chain for the group s five largest products/ service offerings by turnover plus any other products/ services amounting to more than 5% of group turnover (description in the form of a chart or diagram is permitted) The important service arrangements between members of the MNE group, other than research and development (R&D) services; including a description of the capabilities of the principal locations providing important services and transfer pricing policies for allocating services costs and determining prices to be paid for intra-group services The main geographic markets for the products and services that are referred to in the supply chain description The principal contributions to value creation by individual entities within the group, i.e., the key functions performed, important risks assumed, and important assets used in the form of a brief functional analysis Important business restructuring transactions, acquisitions and divestitures occurring during the fiscal year Documentation of MNE s intangibles (Sec. 4) General description of the MNE s overall strategy for the development, ownership and exploitation of intangibles, including location of principal R&D facilities and location of R&D management List of intangibles or groups of intangibles of the MNE group that are important for transfer pricing purposes and which entities legally own them List of important agreements among identified associated enterprises related to intangibles, including cost contribution arrangements, principal research service agreements and license agreements General description of the group s transfer pricing policies related to R&D and intangibles General description of any important transfers of interests in intangibles among associated enterprises during the fiscal year concerned, including the entities, countries and compensation involved Documentation of intercompany financial activities (Sec. 5) General description of how the group is financed, including important financing arrangements with unrelated lenders Identification of any members of the MNE group that provide a central financing function for the group, including the country under whose laws the entity is organized and the place of effective management of such entities General description of the MNE s general transfer pricing policies related to financing arrangements between associated enterprises
Global Tax Alert Transfer Pricing 3 Documentation of MNE s financial and tax positions (Sec. 6) MNE s annual consolidated financial statement for the fiscal year concerned, if prepared for other purposes List and brief description of the MNE group s existing unilateral advance pricing agreements (APAs) and other tax rulings relating to the allocation of income among countries The Local File In contrast to the Master File, the Local File should provide more detailed information relating to specific intercompany transactions of the particular local constituent entity. The information provided in the Local File supplements the Master File and helps to meet the objective of assuring that the taxpayer has complied with the arm s length principle in its material transfer pricing positions. Where the requirements of the Local File can be fully satisfied by specific cross-references to other existing documents, such cross-references, together with copies of the relevant documents, should be deemed to satisfy the relevant requirement. Like Annex II to Chapter V OECD TP guidelines contained in the BEPS Action 13 final report, Sec. 7 of the draft regulation groups the information to be presented in the Local File into three categories and stipulates the following content: Description of the local constituent entity (Sec. 8) Description of the management structure of the local constituent entity, a local organization chart, and a description of the individuals to whom local management reports and the country in which such individuals maintain their principal offices Description of the business and business strategy pursued by the local constituent entity including an indication whether the local constituent entity has been involved in or affected by business restructurings or intangibles transfers in the present or immediately past year and an explanation of those aspects of such transactions affecting the local entity List of key competitors Documentation of material controlled transactions (Sec. 9) The documentation has to provide the following information for material controlled transactions in which the local constituent entity is involved: Description of the material controlled transactions (e.g., procurement of manufacturing services, purchase of goods, provision of services, loans, financial and performance guarantees, licenses of intangibles, etc.) and the context in which such transactions take place Amount of intra-group payments and receipts for each category of controlled transactions involving the local constituent entity (i.e., payments and receipts for products, services, royalties, interest, etc.) broken down by tax jurisdiction of the foreign payor or recipient Identification of associated enterprises involved in each category of controlled transactions, and the relationship among them Copies of all material intercompany agreements concluded by the local constituent entity Comparability and functional analysis of the taxpayer and relevant associated enterprises with respect to each documented category of controlled transactions, including any changes compared to prior years Indication of the most appropriate transfer pricing method with regard to the category of transaction and the reasons for selecting that method Indication of which associated enterprise is selected as the tested party, if applicable, and an explanation of the reasons for this selection Summary of the important assumptions made in applying the transfer pricing methodology If relevant, an explanation of the reasons for performing a multi-year analysis List and description of selected comparable uncontrolled transactions (internal or external), if any, and information on relevant financial indicators for independent enterprises relied on in the transfer pricing analysis, including a description of the comparable search methodology and the source of such information Description of any comparability adjustments performed, and an indication of whether adjustments have been made to the results of the tested party, the comparable uncontrolled transactions, or both Description of the reasons for concluding that relevant transactions were priced on an arm s length basis based on the application of the selected transfer pricing method Summary of financial information used in applying the transfer pricing methodology
4 Global Tax Alert Transfer Pricing Copy of existing APAs and other tax rulings which are related to controlled transactions described above Financial Information (Sec. 10) Audited annual financial statement of the local constituent entity for the fiscal year concerned. If no audited statements exist, an existing unaudited statement shall be supplied Information and allocation schedules showing how the financial data used in applying the transfer pricing method may be tied to the annual financial statements Summary schedules of relevant financial data for comparables used in the analysis and the sources from which that data was obtained Endnote 1. See EY Global Tax Alert, Austria publishes draft Transfer Pricing Documentation Law, dated 17 May 2016.
Global Tax Alert Transfer Pricing 5 For additional information with respect to this Alert, please contact the following: Ernst & Young Steuerberatungs- und Wirtschaftsprüfungsgesellschaft m.b.h., Austria Andreas Stefaner +43 1 211 70 1041 andreas.stefaner@at.ey.com Gerhard Steiner +43 732 790 790 5566 gerhard.steiner@at.ey.com Esther Manessinger +43 1 211 70 1177 esther.manessinger@at.ey.com Florian Henninger +43 1 211 70 1304 florian.henninger@at.ey.com Christina Fuchs +43 1 211 70 1231 christina.fuchs@at.ey.com Sebastian Haselsteiner +43 732 790 790 1472 sebastian.haselsteiner@at.ey.com Manuel Taferner +43 1 211 70 1104 manuel.taferner@at.ey.com
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