As there are no specific transfer pricing documentation regulations in Austria so there is some uncertainty in practice. This makes rulings such as this all the more important.

“It is rare for the Administrative High Court to rule on transfer pricing matters,” said Herbert Greinecker, a partner at PricewaterhouseCoopers in Vienna. “Rulings like this help to give an indication of the expectations. This one is another confirmation that standards for transfer pricing documentation are high in Austria.”

The case involves Colas, a company involved in the production and sale of bitumen emulsion. In 1998 and 1999 the French parent company of this international group rendered services to its Austrian subsidiary based on a technical assistance agreement.

The services consisted of the provision of technical know-how including patents as well as assistance with marketing, financing, administration, legal, tax, human resources, risk management and the use of brands. The Austrian subsidiary paid a fee of 3.3% of its yearly turnover for these services.

During a tax audit in 2002, the Austrian tax authorities accepted only those services rendered under the title “provision of technical know-how” amounting to 1.8% of the domestic subsidiary’s turnover as tax deductible expenses as being in line with the arm’s-length principle. Officials ruled that all other expenses paid for the further services (1.5% of turnover) were qualified as a hidden profit distribution to the French parent company since the actual provision of these services by the parent company was not documented adequately .

The court decided that the tax authority should require the Austrian subsidiary to prove evidence on all of its expenses in a comprehensible and detailed way. The submission of a large amount of files consisting of several (stand alone or incoherent) documents cannot be accepted as sufficient. The documents have to demonstrate satisfactorily and to represent clearly the content and the market price of each service received.

This additional guidance will be appreciated by taxpayers, their advisers and tax inspectors who are eagerly awaiting the outcome of government work on new transfer pricing guidelines.

“They [the guidelines] are expected in the first quarter of 2010,” said Greinecker. “There will be some documentation requirements included.”

The court case illustrates the need for adequate transfer pricing documentation for intercompany transactions involving Austrian companies.

“Taxpayers should invest in quality transfer pricing documentation,” said Greinecker. “It should be consistent and reasonably complete in advance of audit.”

Another key focus for multinational companies with operations in Austria is benchmarking.

“Austria has specialist teams reviewing benchmarking studies, they are very strict on comparables,” warns Greinecker. “There have been instances where entire benchmarking studies have been rejected.”