Transfer pricing - Local File made easy

In accordance with the regulations in force in Austria Standardized reconciliation price documentation requirement Austrian companies – assuming cross-border intra-group performance relationships – must comply with the OECD’s three-stage documentation approach follow and Master file, Local file as well Country-by-Country Report Although the obligation to create the Country-by-Country Report is due to 750 million € limit (consolidated group turnover last year) will rather be the exception and that Master file often by the foreign parent company Many companies have to deal with the Preparing the Local File deal with. That Transfer Pricing Documentation Act as is known, provides for the so-called Business units (includes Austrian branches of foreign companies) have to create a (standardized) Local File, provided that Sales revenue in the two previous economic years exceeded 50 million € each have.

Austrian companies that below this limit remain, however, Not of that freed, to create a reconciliation price documentation. Even if not in the form of a standardized Local Files, these companies still need to describe intra-group transactions and their Uniqueness prove. As has been the case so far, it is therefore necessary to ensure that prices within the group are set in a way that is consistent with those set within the company itself. Third parties or would be imposed by a third party.

Specific content of the Local Files is included in the regulation

The Specific content of the Local Files are not included in the clearing price documentation law itself, but were included in the Accounting Price Documentation Act Implementation Order Finalized at the end of December 2016. The regulation is very closely aligned with the OECD standards and provides for the Local File as follows: three sub-areas „Description the domestic Business unit“, Documentation the essential intra-corporate Business transactions with regard to the determination and examination of appropriate intra-group pricing arrangements and„Financial information“ before.

The Description of the domestic business unit is intended to provide an overview of the structure and most important activities of the Austrian company. As is the case for all areas of Local Files, references to existing documents are possible, so that in the course of creating the billing price documentation, existing documents do not have to be prepared anew for the Local File. However, existing documents must of course be submitted together with the Local File. The Regulation sees the following among other things here Information also substantially:

• Description of the management structure,
• Organogram,
• Description of the persons to whom the domestic business unit reports, as well as the states or territories in which these persons are based,
• Description of the business activities and Business strategy,
• List of essential Competitors,
• if applicable, further details on inclusion in Restructuring or transfers of intangible assets, provided that they took place in the current or preceding tax year.

The issue of the reasonableness of the transfer prices (still) in focus

The second part of the Local File is called Documentation of the essential intra-company business transactions Simply put, it is about the Description of the key intra-group transactions, where, as before, the Uniqueness the intra-group Reconciliation prices to support it. It is notable that neither in the law nor in the regulation is there a Materiality threshold exists, in the event of its being exceeded (the transaction volume), the intra-group transaction must not be documented at all or must be simplified. The taxpayer self must therefore be Significance the intra-group transaction evaluate and then build the reconciliation pricing documentation. The regulation details the steps that are required for the Support for the foreignness The Reconciliation prices the respective transaction necessary are. An important component here is a Description the essential intra-corporate business transactions – these may, for example, involve the procurement of production services, the purchase of goods, the provision of services, the granting of loans, financial and performance guarantees, licenses for intangible assets, etc. In addition to describing the intra-group transaction itself, it is also necessary to explain how it was carried out. Relationship to business activity the transaction takes place. The presentation of the data is also crucial here. Transaction volumes of the payments made as well as those received. In this context, the regulation requires at least a breakdown by the respective states or regions of the foreign payer or payee. An important component of the documentation of the essential intra-corporate business transactions is, ultimately, the provision of Copies all major intra-company agreements, which the domestic business unit has completed.

Functional and risk analysis as the „core“ of the adequacy analysis

As part of the Functional and risk analysis The functions and risks assumed by the parties involved are described and assigned for each intra-group transaction. Likewise, the material resources used and, above all, the costs incurred must be clearly identified. intangible economic goods should be taken into account, as they – like functions and risks – are crucial for the Allocation of profits to the respective company within the group. As a rule, it is the case that one company receives Higher share of the result belongs to the transaction if it more functions exercises, more risks wearing and corresponding Intangible economic assets The regulation stipulates that the functional and risk analysis also includes (significant) changes compared to previous tax years.

Building on the functional and risk analysis, as has already been the practice, the Selection the calculation method to justify and also the Determination the so-called „Tested Party“ to describe. At the Tested Party, it is regularly the corporate unit involved in the transaction that is the one with the most influence. less features, risks and (intangible) economic assets. It is therefore the less complex corporate unit and thus it is easier to find comparable non-affiliated companies (e.g. other routine distribution companies) that achieve comparable results (e.g. a certain net margin) like Tested Party. The regulation also states Further information, which must be provided, if necessary, as part of the adequacy analysis. This includes, for example, an explanation of the reasons for conducting an Multi-year analysis (typically in database studies), a description of all the factors involved in achieving comparability made adjustments or a summary of the financial information used in applying the accrual method. Finally, in accordance with the regulation, documentation of the significant intra-group transactions must also include: Copy of existing preliminary agreements with the Austrian financial administration regarding the pricing of the transfer of value („Advance Pricing Arrangements“) as well as other preliminary rulings relevant to the domestic business unit with foreign financial administrations included.

For the third Sub-area of the Local Files – Financial information – the regulation requires the submission of a reviewed annual financial statements the domestic business unit or, if applicable, an unaudited annual financial statement. In addition, the relevant Financial data will be provided, which is in Appropriateness analysis The data used in the study is also provided in the form of a database, and the relevant sources are also mentioned. In a database study, this is, for example, the results (e.g., EBIT margins) of comparable independent companies. Finally, the regulation stipulates that the local file also includes information and a distribution key from which the Link between the one when applying the cost-accounting method used financial data and the Annual financial statements emerges. The requirement of the regulation apparently called for Link between business law results and (tax) Reconciliation prices could apply to several different intra-corporate transactions of a company Accurate analyses as well as the use of segmented numbers (Expenses and revenues per transaction) are necessary.

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