Austria excluded from the List of countries falling under transfer pricing control during cross-border operations

7/13/15

At the suggestion of the Ministry of Finance, the Government of Ukraine has excluded Austria from the List of countries falling under the transfer pricing control during cross-border operations.

The goal of the Ministry of Finance is to increase the income of the state budget by expanding the tax base, encouraging economic activity out of the shadows, and fighting against tax avoidance. For this purpose the government strengthened control over transfer pricing rules, and as of 14 May 2015 it updated and accepted the list of countries regarding the rules for transfer price formation. Those countries are added to this List with whom operations are under control.

There are three legal criteria which countries fulfill in order to be added to this list. While forming the List, it was deemed that Austria met all requirements.

A country is added to the list, if:

1) The income tax rate is 5% lower of more with respect to Ukraine (while forming the List, the income tax rate in Austria was 25%, but some categories of business could have 0% or 2,5%);
2) There is no public information about the ownership structure of the companies;
3) The country does not have any international agreements with Ukraine, in particular regarding mutual information exchange. (Note: Today there is Convention between Ukraine and Austria regarding the omission of double taxation which foresees the restricted exchange of information).

However, after the formation of the List, the Government of Austria delivered a diplomatic note to the Government of Ukraine, announcing recent changes in the Austrian legal system. In particular, Austria:

- abolished privileges for the rate of income tax;
- made changes to the legal system regarding public information concerning the ownership structure of the companies. This is stated in the new report from the Global Forum on Transparency and Exchange of Information for Tax Purposes;
- agreed to review and to re-sign up the Convention regarding the omission of double taxation which foresees the restricted exchange of information.

Considering the changes to the legal system in Austria, it was felt it no longer meets the requirements for addition to the List. As of 1 July 2015, at the suggestion of the Ministry of Finance, the Government made the decision (Order # 677-p) to exclude Austria from the List.

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