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AUSTRIA: An Introduction to Tax

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Chambers Europe 2019: Practice Area Overview
Austria: Tax

Austria has strong commercial links to countries all around the globe. The economic growth was roughly 2.7% in 2018. For 2019 an economic growth of approximately 2% is projected. In relation to GDP, the debt ratio falls from year to year. For the coming year, Austria anticipates a general government Maastricht balance in surplus. Investment activity is on the increase and the positive economic climate is also contributing to falling unemployment. It is fair to say that Austria's business sector is optimistic for the years to come and tax revenues are expected to be high.

Since the election of a new government in 2017 a variety of changes regarding the tax legislation were presented. Some of the changes have already been adopted. In addition and following the initiative of the EU to create a comprehensive framework of anti-abuse measures and in order to implement the Anti-Tax Avoidance Directive (ATAD), substantial changes to Austria's international tax law were made by means of the Annual Tax Act 2018:

The most important amendment is the first introduction of a controlled foreign company (CFC) regime. Under the new CFC regime low-taxed passive income (interest income, licence income, dividends, income derived from sale of shares, income from finance leasing, income from activities of banks and insurance companies) realised by controlled corporations and permanent establishments of a controlling domestic corporation becomes subject to Austrian corporate income tax. The objective is to deter profit shifting to low or no tax countries. Income is considered to be “low-taxed” if the effective taxation is less than or equal to 12.5%.

Due to the implementation of the new Austrian CFC regime, the existing regime for dividend taxation had to be amended.

Like many countries, Austrian tax law allows for advance tax rulings. This means taxpayers can obtain a binding upfront clearance regarding complex tax issues. By the Annual Tax Act 2018 the scope for advance tax rulings was extended. While in the past it was only possible to obtain advance tax rulings for transfer prices, restructurings and group taxation, taxpayers can now also obtain upfront clearance in the areas of international tax law and tax abuse. By 2020 taxpayers will also be able to obtain advance tax rulings on VAT issues.

In addition, the general anti-avoidance rule (GAAR) was amended by the Annual Tax Act 2018. The legislature introduced an explicit definition of the term “abuse” to ensure that the Austrian GAAR fully complies with the requirements of ATAD. From a practical point of view, it remains to be seen how the new definition will be interpreted by the Austrian courts and – since the Austrian GAAR applies to cases outside of the scope of ATAD – how the future case law of the ECJ will affect the interpretation of the Austrian GAAR. The implementation of the ATAD led also to insignificant changes with respect to exit taxation.

ATAD obligates the member states to enact rules limiting interest deduction as of 1 January 2020. However, if a member state already has an equally effective regime in place, such obligation is postponed to 1 January 2024. While the Austrian government, who pushed for the introduction of this grandfathering in the ATAD, took the position that the Austrian interest deduction regime was equally effective, the EU Commission took a divergent view. Consequently, Austria would have been obligated to introduced an ATAD conforming interest limitation rule into national law by 31 December 2018. However, no bill in this respect has been published so far. Hence, it remains to be seen how the Austrian Federal Government and/or the legislature will react.

On 21 March 2018 the European Commission proposed new rules to ensure that digital business activities are taxed in a fair and growth-friendly way in the EU. The intended effect of the proposed concept included also the avoidance of unco-ordinated unilateral solutions creating a legal minefield and tax uncertainty for cross-border business activities. In January 2019 the Austrian Federal Government announced a plan to no longer wait for co-ordinated actions by the member states but to introduce three unilateral measures: (i) A digital corporate tax on online advertising that shall apply in regard to digital groups with international turnover of EUR750 million and Austrian turnover of EUR10 million; (ii) Effective regulations regarding online trading from third countries; as well as (iii) Taxation and more stringent reporting requirements for online intermediary platforms. However, no bill in this regard has been published so far.

With the purpose to strengthen the Austrian export trade and its economic relation with China a renegotiation of the double taxation convention with China commenced in 2018. The new convention shall define effective regulations in the fight against tax avoidance and tax fraud, closing any gaps in the current agreement as well as strengthening legal and investment security.

As with all other European Union member states, Austria has implemented a register of the ultimate beneficial owners of corporate and other legal entities incorporated within its territory pursuant to the Directive (EU) 2015/849. The ultimate beneficial owners, intermediaries as well as the members of different organs of the legal entity have to be disclosed in the register. The inspection of the register of beneficial owners is activated for companies and persons that must meet the due diligence requirements for the prevention of money laundering and terrorist financing (e.g. credit institutions, tax advisors, lawyers). For data protection reasons, there is no provision for public inspection of the register. However, other persons who have a legitimate interest can be permitted to inspect the register. In case of fulfilling of certain requirements, the beneficial owner can apply for restriction of inspection of the register.

Also, the Austrian Federal Government has announced a comprehensive tax reform. One of the core parts of the envisaged tax reform is the reduction of the tax rate, in particular in relation to the corporate income tax. The Austrian corporate tax rate was continually lowered from 55% in the 1980s to around 30% in the 1990s to currently 25%. The proposal also addresses an overall tax structure reform, tax relief for companies and the simplification and modernisation of the system. Yet, the details of such tax reform have not yet been published.