Corresponding TP correction: Direct contact between Austrian and German tax authorities

The necessity for corresponding transfer price (TP) corrections in the bilateral context between Austria and Germany is steadily increasing. Based on the strong international economic integration between Austria and Germany, most TP conflicts exist with Germany. If the German tax authority intends to correct the TP, the Austrian taxpayer has the following possibilities:

1. Advance Pricing Agreement (APA) or § 118 BAO Ruling in advance, or
2. at post Joint Audit; direct contact between Austrian and German tax authorities; mutual agreement procedure under double tax treaties or EU Arbitration Convention (in connection with § 48 BAO application); or domestic remedies.

Austrian taxpayers should act promptly if the German tax authorities intend to correct the TP, as a mutual agreement procedure is a time and cost-consuming instrument. Based on the mutual legal assistance agreement of 4 October 1954, Article 4 (2) between both countries “in urgent cases” – which is always the case in tax audits – a direct contact between the competent tax authorities of both countries is possible in a mutual agreement procedure.

On the Austrian side, the auditor of large-scale undertakings is involved according to an internal tax directive in Austria. Every taxpayer who is confronted with a TP correction in Germany (correction draft of German tax auditor exists) is therefore well-advised, even before the issuance of the formal German decision, to get in contact with his competent Austrian tax authority and/or his tax advisor and to suggest such procedure thereto. In so-called “bona fide” cases, the tax authorities will normally follow such a suggestion of the taxpayer. A mutual agreement procedure is, however, necessary in statute of limitation. Such a direct contact between the tax authorities, based on the mutual legal assistance agreement of 1954, is therefore an uncomplicated way to avoid long and complex mutual agreement procedures.