A & W AG, a company based in Germany, had maintained a permanent establishment in Austria which provided “distribution and support of software” services. No profits had been attributed to the Austrian permanent establishment.
An assessment was issued where profits for FY 1998 to 2002 had been determined by the tax authorities using the cost plus method with a mark up of 9.5% to 7.5% for the years 1998 to 2002.
A & W AG appealed against the tax assessments and argued that a mark up of 2% would be more appropriate.
The Administrative Court of Appeal remanded the case to the Unabhängiger Finanzsenat.
Judgment of the UFS
The UFS decided predominantly in favour of A & W AG.
The tax office explained that, based on empirical values and relevant literature, mark up rates of between 5% and 15% should be regarded as customary.
The mere reference to these empirical values did not convince the UFS, since the facts to be assessed were not specifically addressed. The UFS explained that the disclosure of anonymous comparative values would not provide any indication of the respective taxpayer and would not violate the duty of confidentiality. The UFS came to the conclusion that mark up of 2% requested by A & W AG was appropriate.
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