Lack of transfer pricing documentation as a risk in tax audits

The calculation of deliveries and services within a group of companies must be made in accordance with § 6 Z 6 EStG as if the business partner were a third party ("arm’s length principle"). In recent years, the trend has been observed that compliance with this principle is increasingly scrutinized during external audits. To avoid costly operational audits and possibly high tax liabilities, it is necessary to timely and proper documentation of the billing system of great importance.

In this context it should also be noted that with the URÄG 2008, starting on January 1, 2009, AGs and large GmbHs (in a more or less graduated form) are required to report on significant transactions with related parties if these are concluded under unusual conditions. The extent of this will unfortunately probably not be exactly what the company auditors will be reading.

Legal regulation in Germany

In Germany, the obligation to document price setting between closely related companies was already legally established several years ago in response to a BFH judgment. Closely related persons include, for example, operating sites or holdings in companies of at least 25%. The taxpayer must maintain records about the nature and content of their business relationships with closely related parties and is required to provide written documents necessary for assessing the reasonableness of the transfer prices. For the purpose of conducting an operational audit, the financial authorities may require the submission of the records within a specified period.

Legal situation in Austria

In Austria, in contrast to many other countries, there is no explicit legal obligation to document the transfer prices. However, the Austrian financial administration assumes that this obligation already arises from the accounting and recording obligations of the Federal Tax Code (BAO). If, during an audit, doubts arise regarding the legality of the transfer prices, the cooperation obligation of § 138 of the BAO also applies to the taxpayer.

EU Code of Conduct on Transfer Pricing Documentation

Given the above, it is strongly recommended in practice to properly document the reasonableness of the calculation prices. In this regard, it is advisable to refer to the (not legally binding) EU Code of Practice on calculation price documentation, which provides for two documentation units. The first unit is called "Masterfile" refers to and contains general descriptions of the company as well as the applicable pricing system. The second unit supplements the "master file" with regional specific information Whether this code of conduct will be legally binding in Austria remains to be seen.

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