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1. In your jurisdiction, what are the legal bases for eliminating double taxation further to a transfer pricing reassessment (European Arbitration Convention, mutual agreement procedures provided for by tax treaties)? In addition to the procedures set forth by such tax treaties, is there any other (formal or informal) domestic procedure in your jurisdiction?
An Austrian company may apply for a unilateral correlative adjustment procedure in accordance with Art 25 (2) of the relevant Double Taxation Treaty. Such application may be filed with the Austrian tax authority and will lead to an elimination of the double taxation provided the Austrian tax authority agrees with the transfer pricing reassessment issued by the foreign tax authority. The Austrian tax authority conducts a diligent review of the foreign tax reassessment. In this regard, the Austrian tax authority may (repeatedly) request documents or information in order to approve the foreign tax reassessments. This process may take several months.
If the Austrian tax authority agrees with the foreign tax reassessment, a transfer pricing adjustment may be achieved by way of a unilateral procedure without the requirement of initiating a mutual agreement procedure. Otherwise, a mutual agreement procedure in accordance with Art 25 (2) of the relevant Double Taxation Treaty or the European Arbitration Convention may be initiated. Such mutual agreement procedure is carried out between the two states, from a legal perspective the taxpayer is not party. In practice the taxpayer is however usually involved by the tax authorities and may bring forward its arguments.
If the two above mentioned measures are not successful, the taxpayer may finally apply for a tax waiver in accordance with sec. 48 Austrian Federal Tax Code (Bundesabgabenordnung) (hereinafter “FTC”). Such waiver is a unilateral Austrian measure applied by the Austrian tax authority (in its sole discretion) to protect Austrian companies in cases of insufficient international protection.
The taxpayer may also apply for forbearance with the argument that a tax collection in the respective single case would be unreasonable (cf. § 236 FTC). In practice this instrument is however rarely successful, the decision lies within the sole discretion of the Austrian tax authority.
2. In addition – as the case may be – to the European Arbitration Convention, did your jurisdiction sign tax treaties with other States including an arbitration procedure? If yes, can you give the list of such States?
Based on the updated article 25 sec. 5 of the OECD Model Tax Convention (hereinafter “OECD-MTC”), Austria has incorporated the arbitration clause up to now in the following Double Taxation Treaties (hereinafter “DTT”): Armenia, Azerbaijan, Bahrain, Bosnia and Herzegovina, Germany, Macedonia, Mongolia, San Marino and Switzerland. These clauses have all in common that an arbitration procedure may be initiated only after a mutual agreement procedure based on article 25 of the OECD-MTC has remained unsuccessful for a period of (usually) two years (exception Germany: three years).
3. In your experience, in your jurisdiction, how long does it take generally to eliminate the double taxation under the European Arbitration Convention and/or mutual agreement procedures set forth by tax treaties (and/or the domestic procedure if it exists)?
A unilateral correlative adjustment procedure may take a few months up to one year depending whether the responsible tax officer is satisfied with the submitted information in regard of the foreign tax assessment. The tax officers may request repeatedly information from the taxpayer in order to review the foreign tax assessment.
A mutual agreement procedure usually takes between one and two years. The pace of such procedure depends on the two tax authorities involved in such procedure.
4. In your jurisdiction, what are the starting point and time limit to initiate a procedure to eliminate double taxation resulting from a transfer pricing reassessment?
In both procedures, the mutual agreement procedure under the DTT as well as the mutual agreement procedure under the EU Arbitration Convention, the application for commencement of a procedure must be filed within three years after the “first notification” of the action which results or is likely to result in double taxation. Austrian commentators take the opinion that such “first notification” may be (i) the meeting where the results of the tax audit are finally notified by the tax authority to the taxpayer, or (ii) the date of the relevant tax assessments or (iii) the actual taxation of the taxpayer at the latest.
The preferred timing of initiating a procedure may vary as such decisions depends on the circumstances of the single case.
5. If a reassessment is issued by your tax authorities, which State must receive the application for the international procedure to eliminate double taxation
The terms “international procedure to eliminate double taxation” mean the European Arbitration Convention or a mutual agreement procedure set forth by a tax treaty. (your State? the other State concerned? both States?)
The Austrian tax authorities take the opinion that a mutual agreement procedure should be commenced in the contracting state where the headquarters of the group is located.
However, an Austrian subsidiary may apply for a unilateral correlative adjustment procedure with the competent Austrian tax authority.
6. What are the formal conditions to initiate an international procedure to eliminate double taxation? Is there a list of documents to provide? To which department of the tax authorities (name, address) must the request be sent?
The prerequisite for initiating an international procedure is a breach or likely breach of a DTT. The application needs to be submitted in writing. There are no specific formal requirements.
The application should contain:
Name of the applicant;
Address of the applicant or legal seat;
Competent tax authority of the applicant;
Detailed statement of the facts;
Relevant tax period(s);
Statement why (in the opinion of the applicant) the taxation breached a DTT;
Statement about pending appeals (if any);
Attachments such as tax resolutions or tax reassessment reports; i.e. each documentation which may be relevant for the procedure.
The competent Austrian tax authority is the department No VI/8 – International Tax Law – at the Federal Ministry of Finance, Johannesgasse 5, 1010 Vienna.
7.In which cases would the competent authority of your jurisdiction refuse to engage/participate to the international procedure to eliminate double taxation?
Mutual Agreement Procedure pursuant to DTT
Prior to commencing a mutual agreement procedure, the tax authority will review the case at hand and determine whether the material prerequisites for such procedure are fulfilled (Pre-trial). In such pre-trial, the tax authority will also review the possibility of resolving the tax issue at hand on a national level. The material prerequisites are in particular:
Legal capacity of the applicant to apply for a mutual agreement procedure;
An occurred breach of a DTT or the likelihood of such breach;
Compliance with the respective statute of limitation (e.g. three-years term);
Justification of the objections made in the application.
Only if the tax authority finds the prerequisites fulfilled, it may initiate a mutual agreement procedure. The decision whether to initiate such procedure lies within the sole discretion of the tax authority. The tax authority may decline the commencement of a procedure in case of tax abuse or tax fraud. A mutual agreement procedure is also excluded if serious penalties were imposed on the taxpayer. In the interpretation of the Austrian tax authorities, such serious penalties are intentional or reckless tax abuses subject to the Austrian Financial Penal Code.
Subject to an arbitration procedure is generally every dispute in the framework of transfer pricing that may be subject to a mutual agreement procedure (cf. OECD-MTCcommentary recital 68). Hence, the purpose of the arbitration procedure is to resolve all questions, which could not have been resolved in the course of the mutual agreement procedure. Subsequently, however, an arbitration procedure is excluded if serious penalties were imposed on the taxpayer (as in such case the commencement of a mutual agreement procedure was already excluded from the beginning).
8. Is tax collection suspended during the procedure?
For the duration of a mutual understanding procedure, the collection of the taxes may be suspended. Such suspension may be valid up to two years, although subsequent suspensions may be granted. The taxpayer has to apply for such suspension. The prerequisite for the suspension is (i) that the instant collection of the respective tax would lead to a disproportionate financial turmoil of the taxpayer and (ii) that the tax collection will not be endangered by the suspension. In case of a tax suspension, interest is triggered in the amount of 4.5% plus the basis rate
The basis rate is published by the Austrian national bank on a monthly basis..
9. Assuming the procedure results in an agreement on a way to cancel double taxation, how is generally such agreement implemented in your jurisdiction?
In Austria :
Correlative adjustments are performed over the years reassessed in the other state;
The taxpayer receives interest on the tax credit at a rate of 2% plus the basis rate;
In case of hidden profit distributions, withholding tax may be triggered at a rate of 25% or reduced rates on the basis of DTT.
10. In your jurisdiction, is it possible to engage concomitantly an international procedure to eliminate double taxation and litigation in front of courts? If yes, is it necessary at some stage to abandon the litigation in order to conclude/finalize the international procedure?
In Austria, tax procedures are administrative procedures in the first instance. Such administrative procedures turn into court procedures in case the taxpayer appeals the first-instance decision.
Simultaneous mutual agreement procedure and administrative/court procedure: the taxpayer may simultaneously exercise its national remedies against a decision of a tax authority regardless of the request to initiate a mutual agreement procedure. As the outcome of a mutual agreement procedure is rather uncertain, some Austrian scholars recommend halting the national proceedings until the mutual agreement procedure has come to a result. On the other hand, the taxpayer may also exhaust the national remedies before requesting a mutual agreement procedure.
Simultaneous arbitration and national appeals procedure: the commencement of an arbitration procedure is excluded if a court or tribunal in one of the involved jurisdictions has ruled on the tax issues at hand. In such case, the taxpayer should suspend the appeals procedure as such suspension will allow the commencement of the arbitration procedure. After the arbitration award has been rendered, the taxpayer may accept the arbitration award or continue with the national appeals procedure.