Draft Transfer Pricing Guidelines 2020

Just before year end 2020, the Federal Ministry of Finance published the draft of the Transfer Pricing Guidelines 2020 (VPR 2020). These guidelines are an update to the VPR 2010, which are currently in force. They incorporate the current case law and administrative practice as well as numerous updates that have been issued at the level of the OECD. The final version of the updated guidelines will be published during the course of this year. The numerous changes are relevant also for the past since the Transfer Pricing Guidelines follow a dynamic interpretation and the changes are, therefore, applicable retroactively.
 

Generally speaking, the concept of transfer pricing is relevant for the price and profit determination of related companies as well as their permanent establishments, which are all part of an international company group. It is based on the “arm's length principle” i.e. the terms of business relationships between related parties should correspond to the terms of comparable transactions between unrelated third parties.
 

In the following you will find a short overview of a selection of relevant modifications:
 

• Introduction of a regulation regarding year-end-adjustments. These are at arm’s length if certain criteria are met.
• Detailed specifications on database analyses.
• Intra-group services
  • The arm's length range for mark-ups on routine services was changed to 3% to 10% starting from 1.1.2021.
  • Companies have to obtain a benefit from the services (benefit test).
  • Simple allocation procedure for low value-adding intra-group services.
• Permanent establishment (PE)
  • Inclusion of the “painter example” of the OECD, which emphasizes that the actual power of disposal over a fixed place of business is relevant.
  • Agency PE even if no legal power of attorney exists and a factual power for concluding contracts is given.
  • Attribution of profits: AOA light still valid (Authorized OECD Approach). As opposed to Germany!
• Indication of a minimum standard for transfer pricing documentation, for companies which are not covered by the Austrian law on transfer pricing documentation (Verrechnungspreisdokumentationsgesetz – “VPDG”).
• Increased requirements for cash pooling agreements.
• Intangibles
  • Attribution based on value contribution of DEMPE functions – development, enhancement, maintenance, protection and exploitation.
  • Inclusion of the hard to value intangible (“HTVI”) approach.

We would be happy to assist you in analysing the impact of the changes on your company!