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New Austrian TP guidelines: would your intercompany agreements pass the ‘prudent business manager’ test?

Intercompany Agreements

8 November 2021

Austria recently updated its transfer pricing guidelines in order to keep them in line with OECD guidance, among other reasons. It was the first such change for 11 years. This helpful article by Iris Burgstaller on the MNE Tax website looks in detail at what has changed, and one thing in particular jumped out for us.

The new Austrian guidelines emphasise that the actual economic substance of a transaction must be delineated contractually, taking into account both an economic approach and the general principles of income allocation. This must be done to the standard that "a prudent and conscientious business manager" would apply. A key part of this is that written contracts must be in place. These must be clear, unambiguous, and have the same conditions that apply in similar contracts with third parties. See paragraph 16 of the Austrian guidelines, available here.

The same guidelines also state at para 58 that, "In general, a tax deduction can only be allowed on the basis of clear and unambiguous agreements concluded in advance." (Emphasis added.)

All of this is just another clear example of the direction that things have been moving in for some time: the convergence of tax and governance, towards genuine substance. Tax and regulatory authorities are getting more demanding, and documentation that is not audit-ready exposes the group to a range of potentially serious risks.

If you think that a company you look after might have agreements which are not up to scratch, or not up to date, we can help. Click 'Enquire now' in the bottom right of this page and we'll organise a free and confidential session with you. Or use the box directly below to sign up for free weekly insights in our newsletter.

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Article by
Paul O’Regan

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