The Austrian Transfer Pricing Documentation Act (Verrechnungspreisdokumentationsgesetz, VPDG) was enacted on August 2, 2016, and is effective for fiscal years starting from January 1, 2016. This law implements the OECD’s Base Erosion and Profit Shifting (BEPS) Action Plan 13 recommendations and establishes mandatory transfer pricing documentation requirements for multinational enterprise (MNE) groups with entities in Austria.

Key Features of the VPDG

1. Three-tiered Documentation Approach: The VPDG requires a three-tiered documentation structure consisting of:
   • Master File
   • Local File
   • Country-by-Country Report (CbCR)
2. Thresholds for Documentation:
   • Master File and Local File: Required for Austrian entities with turnover exceeding EUR 50 million in each of the two preceding financial years.
   • CbCR: Mandatory for MNE groups with consolidated turnover of at least EUR 750 million in the previous financial year.
3. Language: Documentation can be prepared in either German or English.
4. Penalties: The Act stipulates a maximum penalty of EUR 50,000 for intentional failure to file or satisfy the country-by-country reporting requirements.

Scope and Application

The VPDG applies specifically to Austrian entities that are part of an MNE group. For entities below the thresholds, general documentation requirements as outlined in the Austrian Federal Fiscal Code (Bundesabgabenordnung, BAO) still apply.

Transfer Pricing Methods

Austria relies on the general recommendations of the OECD Transfer Pricing Guidelines for determining appropriate transfer pricing methods. The Austrian Transfer Pricing Guidelines, updated in 2021, ensure the implementation of the OECD Guidelines in Austria.

Importance of Arm’s Length Principle

All business transactions between affiliated companies must be carried out in accordance with the arm’s length principle. If a transaction is deemed not to correspond to arm’s length principles, the transaction price may be adjusted for Corporate Income Tax (CIT) purposes.

The VPDG has significantly increased the documentation burden for multinationals with entities in Austria, aligning the country’s transfer pricing documentation requirements with international standards and enhancing transparency in cross-border transactions within MNE groups.