Transfer Pricing in the Crosshairs of Tax Criminal Law

Transfer prices are the prices that associated enterprises, for example within a (multinational) corporate group, charge one another on an arm’s length basis for supplies of goods and services. Their correct determination is intended, in particular, to prevent the artificial shifting of profits by companies operating across borders. Intra-group transactions must be priced in the same manner as transactions between unrelated parties would be under comparable circumstances (the arm’s length principle).

Breach of Disclosure or Duty of Truthfulness

Where a transfer price deviates from the arm’s length standard, the tax authorities will adjust the transfer prices applied by the company. From a tax criminal law perspective, the matter becomes relevant if, in connection with the transfer pricing arrangement, a disclosure obligation or the duty to provide truthful information has been breached and tax has consequently been understated.

Such an offence may also exist where a tax return is filed without disclosing to the tax authorities an objectively questionable or uncertain set of facts on which the return is based. Furthermore, since the Anti-Fraud Act 2025 (Betrugsbekämpfungsgesetz 2025) entered into force, unjustifiably declared tax losses may also trigger criminal prosecution, even where no tax has yet been underpaid in the respective tax year.

Criminal Consequences?

Whether a transfer pricing adjustment results in criminal consequences depends primarily on whether the conduct was intentional or grossly negligent.

Evidence of intent may exist in particular where:

• intra-group services are not charged at all or are charged using entirely arbitrary values;
• transfer pricing arrangements are deliberately applied without justification or in a manner that cannot be reconciled with recognised transfer pricing methodologies;
• a transfer pricing method that has already been challenged by the tax authorities continues to be applied; or
• favourable comparable data are deliberately selected in a one-sided manner.

Gross negligence may, in particular, be assumed where transfer pricing documentation is lacking or where group policies are adopted without proper review.

Issues may arise where subsidiaries implement transfer pricing models prescribed by the group headquarters without independent assessment. In such cases, local management may not necessarily be exposed to criminal liability if the transfer pricing model has been carefully reviewed at group level, complies with the OECD Transfer Pricing Guidelines, and is documented accordingly. Whether the respective tax authority ultimately accepts the model for tax purposes is a separate matter.

Measures to Mitigate Tax Criminal Risks

To ensure the greatest possible protection against allegations under tax criminal law, particular attention should be paid to the following:

• transparent calculation of transfer prices and legally compliant documentation;
• preparation of documentation in accordance with the Transfer Pricing Documentation Act where the relevant thresholds are exceeded;
• maintaining information on the overall economic impact within the group: a transfer pricing adjustment in Austria generally results in a corresponding adjustment at the level of the foreign group company. Where the tax rates in both jurisdictions are broadly comparable, the group as a whole may not have achieved any overall tax saving, which may serve as an argument against the existence of intent.

Conclusion

Transfer pricing arrangements may lead to discussions with the tax authorities and to adjustments during tax audits. However, businesses that can demonstrate an arm’s length, well-documented, and consistently applied transfer pricing system are generally on solid ground from a tax criminal law perspective.