Posted: 17 Jan. 2022 7 min. read

Austrian Transfer Pricing Guidelines 2021 Part 4 – Intangibles and location savings


As part of our series of articles on the new Austrian Transfer Pricing Guidelines (Austrian TPG 2021), the purpose of this article is to take a closer look at further material changes in the area of intra-group transactions – in particular on the topics of intangibles and location savings.

Intangibles - implementation of the DEMPE approach and the HTVI approach

The Austrian TPG 2021 adopt the DEMPE approach already known from the OECD TPG 2017. The DEMPE approach provides that all group companies involved in the development, enhancement, maintenance, protection and exploitation of an intangible must be remunerated at arm's length in accordance with their contribution to intangible value creation. Mere legal ownership of an intangible is therefore not sufficient to be entitled to any intangible-related returns. Similarly, merely financing the development of an intangible without the performance of any other functions only entitles to a risk-free return. Conversely, however, it is not the case that the legal owner of an intangible alone must perform all DEMPE functions in order to be entitled to the intangible-related returns. The legal owner can still outsource functions as long as it controls the outsourced functions through competent personnel in the respective matter and it also assumes the risks associated with these functions.

In addition, the approach for the valuation of hard-to-value intangibles (HTVI approach) was also transferred from the OECD TPG 2017 to the Austrian TPG 2021. HTVI are intangibles for which no reliable comparable data exist and for which, at the time of the transaction (ex ante), the forecasts of future cash flows are highly uncertain. This is often the case, for example, if the development of the intangible has not yet been completed when it is transferred or if the commercial exploitation of the intangible does not take place until several years after its transfer.

Due to the existing information asymmetry between the taxpayer and the tax administration regarding the valuation of HTVI, the tax administration may use ex post results as circumstantial evidence to assess whether the pricing was ex ante at arm's length. However, ex post results should not be used if the taxpayer provides full insight into the ex ante forecast calculation and the taxpayer could not reasonably have known the information on which the ex post results were based at the time of the transaction (prohibition of “use of hindsight”) or the probability of occurrence of foreseeable results was not significantly over- or underestimated. The HTVI approach is also not applied if the transfer of an HTVI is agreed in a bilateral or multilateral APA, if the difference between ex ante and ex post results does not have the effect of reducing or increasing the compensation by more than 20 % or if the difference does not exceed 20 % during the first five years from the commercialization of the HTVI to third parties.

In practice, the valuation of intangibles is regularly associated with uncertainties due to their uniqueness. Problems often arise in the assessment of future developments, such as the length of time until market maturity, any competing products that may already exist at that time, the useful life of the intangible, the cash flows that can be generated with the intangible etc., the weighting of the corresponding probabilities of occurrence or the selection of an appropriate discount rate. In order to prevent future disputes in a tax audit, it is crucial to document the assumptions made when transferring an intangible in a timely, detailed and comprehensible manner. It should also be borne in mind that the transfer of HTVI triggers an unconditional reporting obligation under the EU-Mandatory Disclosure Act.

Location savings and subsidies

Location savings regularly influence transfer prices indirectly. For example, when applying cost-based transfer pricing methods, it is necessary to consider whether and how location savings that reduce the costs of the service provider should be included in the transfer pricing calculation. Inclusion would likely be to the benefit of the service recipient, as it would reduce the cost base and profit markup. Non-inclusion, on the other hand, would mean that the service provider would charge the unreduced costs including the profit markup. The location savings would therefore be allocated in their entirety to the service provider. In addition to possibly lower personnel costs following the relocation of functions to low-wage countries, these location savings also include tax benefits and government subsidies.

The Austrian TPG 2021 generally provide that location savings are to be allocated on an arm's length basis between the involved group companies. Particularly in the context of the Covid-19 pandemic, the urgent question arises as to whether and to what extent subsidies, such as the government support provided due to the pandemic, should be treated from a transfer pricing perspective. Unfortunately, the Austrian TPG 2021 do not contain any specific statements on how subsidies should be allocated in a manner that is customary for third parties. The specific allocation must therefore be assessed on a case-by-case basis.


With the implementation of the DEMPE approach in the Austrian TPG 2021, it is emphasized - as already in the OECD TPG 2017 - that group companies involved in the creation of intangibles are to be remunerated according to their share in value creation. It is therefore important to analyze which companies perform value-creating activities in the group and to document this precisely.

With regard to the HTVI approach, it is not yet possible to estimate how it will be applied in practice in tax audits. In view of the uncertainties inherent in the valuation of intangibles, it would be desirable for ex post results to really only be used if the documentation of the relevant business transaction as well as the valuation considerations carried out were not conducted properly. However, this remains to be seen. Overall, it can be stated that in the area of intangibles, there are also significantly higher requirements for a transfer pricing analysis and, as a result, significantly increased documentation requirements.

Concerning the explanations on locational savings and subsidies, more concrete statements – especially with regard to the arm's length allocation of specific Austrian subsidies – would have been welcome from a practical point of view. On the other hand, the lack of concrete statements also leads to room for interpretation by taxpayers. This can be particularly advantageous in the case of more specific regulations in the country of the transaction partner. 

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Dr. Florian Navisotschnigg, BSc (WU)

Dr. Florian Navisotschnigg, BSc (WU)

Senior Assistant Steuerberatung

Florian Navisotschnigg ist in der Steuerberatung im Transfer Pricing Team bei Deloitte Wien beschäftigt. Dabei berät er multinationale Unternehmen bei verrechnungspreisspezifischen Fragestellungen.

Daniel Gloser, MSc (WU)

Daniel Gloser, MSc (WU)

Senior Assistant Tax | Deloitte Österreich

Daniel Gloser ist seit 2017 Berufsanwärter in der Steuerberatung bei Deloitte. Als Teil des Verrechnungspreis Teams unterstützt er in der Beratung von multinational agierenden österreichischen Unternehmen und österreichischen Geschäftseinheiten ausländischer Unternehmensgruppen. Der Tätigkeitsumfang reicht hierbei von der Erstellung über die Dokumentation bis hin zur Verteidigung von Verrechnungspreissystemen in Außenprüfungen.