Decision of the Austrian Financial Court regarding Transfer Pricing

On June 2, 2022, the Austrian Financial Court ruled on the arm's length nature of a) the liability commission in context with a shareholder loan, b) the Transfer Price of products and c) the crediting of trade receivables (GZ. RV/7102082/2009).

The German parent company assumed a guarantee vis-à-vis the Austrian group company (complainant) with regard to a loan which the latter took out with a third party. A guarantee commission of 0.5% p.a. of the guarantee amount was charged. The Austrian Financial Court found that both the guarantee commission per se and the amount were at arm's length. Through the guarantee, the parent company provides a service in the years in which the loan agreements are applicable (principle of accrual accounting), so that the Austrian complainant must take the accrual expense into account (by means of a provision).

For the years 2003 and 2004, the complainant reduced the Transfer Price for the goods with 70% of the net sales prices of the German sister company to 66%. The Austrian Financial Court found that the complainant had not complied with the “increased obligation to cooperate”, but nevertheless—in this specific case—considered the complainant's submissions regarding the arm's length nature of 66% of the net sales prices to be credible. The complainant submitted sales and contribution margin developments in this connection. Since the complainant's activity was assessed as an “extended workbench” and the price comparison method was not applicable due to a lack of comparability, the gross margin was moreover checked according to the cost-plus method.

No interest was paid on the outstanding trade receivables from the German sister company during the years in dispute, nor were any collection steps taken. The sister company achieved an interest advantage, so that the lost interest would have to be recognized by the complainant as increasing its income. Although the Austrian Financial Court considered a concession to be worthy of consideration due to the difficult market situation, it concluded that, in terms of an overall consideration, the non-interest payment was motivated by company law, so that there was a hidden distribution. With reference to the established case law of the Austrian Administrative Court, the asset allocation to the sister company is to be regarded as a distribution to the parent company with a simultaneous contribution to the sister company. Due to the lack of interest income, the person related to the parent company (sister company) obtained an advantage to the detriment of the complainant. The corresponding asset allocation is to be recognized off-balance sheet as a hidden distribution in the respective year.
 

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