Issue 60

Key points on tax in the Austrian government’s work programme, 2017-2022

In December 2017, the Austrian Federal Government agreed on a new work programme for the years 2017 to 2022. Here we present the key points of the tax-related measures included in this programme. The measures can be divided into five categories.

1.  Relief for individual taxpayers with a focus on families
  • The ‘Familienbonus Plus’ (‘Family bonus plus’) aims to reduce the annual tax burden for families by up to EUR 1,500. Families that are entitled to Austrian family allowance will be able to deduct EUR 1,500 per child and year from their  income tax burden (the child has to live in Austria and may not be older than 18 years). In return, the child allowance and the deductibility of costs for childcare will be abolished. The reimbursement of tax credits in connection with ‘Familienbonus Plus’ will not be possible.
2. Structural tax reform
  • The government plans to recodify the Austrian Income Tax Act (EStG) with the purpose of modernising and simplifying current tax law (‘EStG 2020’).
  • Austrian GAAP and tax standards will be aligned such that the adjustments from the Austrian GAAP balance sheet to the tax balance sheet can be minimised.
  • For the determination of income, it will only be possible to calculate the taxable income by using the net equity comparison method.
  • The determination of taxable income for partnerships will be simplified as well.
  • The two concepts of extraordinary burdens (Sections 34 and 35 EStG) and special expenses (Section 18 EStG) will be combined and simplified under the term ‘deductible private expenses’ (‘abzugsfähige Privatausgaben’).
  • The progressive income tax rate will be reformed leading to a reduction of the tax burden for individual taxpayers with low or middle income.
  • It is also intended to reduce the number of income categories from the current seven defined in Section 2 para 3 EStG.
3. Relief for corporations
  • The current corporate income tax rate of 25% will be reduced.
  • The government plans to harmonise rules for the depreciation of assets for tax purposes and for Austrian GAAP.
  • The old regulations on the tax treatment of dividend distributions and capital repayments before the Austrian Tax Reform Act 2015/2016 (StRefG) will be re-established, despite the recent amendment which included detailed new requirements for the qualification of distributional payments from a company to its shareholders (further information on this topic can be found in Issue 59, Austrian Tax News).
  • The transfer of businesses within families will be simplified.
  • In order to strengthen Austrian tourism, the government intends to reduce the VAT rate for overnight stays to 10% (currently 13%).
4. Simplification and modern services
  • The government intends to focus on simplifying the content and procedures of payroll accounting.
5. Reform of other taxes and preventing tax fraud
  • Double Tax Treaties will be amended with regard to digital permanent establishments.
  • The government intends to increase the tax transparency of multinational companies.
  • Data and information exchange will be enhanced to hinder tax fraud.

The family bonus and the reduction of VAT for overnight stays are already on the way to implementation.

Katharina Königseder

Sabrina Polanyi

nach oben

No application of loss-trafficking rules if de facto managing directors remain unchanged

The Austrian Federal Fiscal Court ruled on the term ‘substantial change of organisational structure’ in its decision dated December 4, 2017 (RV/7104666/2017) regarding Austrian loss-trafficking rules, and has held that only persons de facto managing a business are to be taken into account for a substantial change of organisational structure.

Loss-trafficking rule in Austria (‘Mantelkauf’)

In general, Austrian corporations can utilise tax loss carryforwards indefinitely, but these are limited to 75% of the profit of the financial year. However, if the identity of the taxpayer changes, the loss carryforward is forfeited. The identity of the taxpayer is no longer given in cases of:

  • a significant change of organisational structure (i.e. approx. 75% of the managing directors)
  • a significant change of economic structure (i.e. change of activity) and
  • a significant change of shareholder structure for consideration (approx. 75%; see also ATN no. 59/2017).

If, when taken together, all criteria are met, then the identity of the taxpayer has changed.

Decision of the Fiscal Court

The Austrian Federal Fiscal Court has ruled that  only those individuals who actually conduct the business are decisive for the criteria on the substantial change of organisational structure.

In the case at hand, even though all criteria for the change of economic identity would have been met formally, tax loss carryforwards have not been disallowed because the actual manager did not change from an economic viewpoint. The de facto managing director ran the business because the official managing director was not available. When authorised signatures were needed, the de facto managing person consulted a lawyer with power of attorney from the official managing director. The documentation clearly showed that business decisions were taken by a different person than the formal managing director.

In reaching this decision, the court has confirmed the opinion of the Austrian tax authorities, which have interpreted the criteria on organisational change in exclusively economic terms.

Martina Gruber
Nikola Breinhölder

nach oben

Austrian Supreme Administrative Court: Recapture taxation of foreign tax losses in the year prior to the dissolution of the CIT group

On 27 November 2017, the Austrian Supreme Administrative Court decided that recapture taxation of utilised foreign tax losses has to be recognised at the level of the CIT group parent in the year prior to the dissolution of the CIT group.

Background

  • A CIT group was established in the year 2005;
  • The Austrian CIT group parent held 100 % of shares in a French company and 65 % of shares in a Polish company. These companies were the only group members in the CIT group (‘foreign group members’);
  • The tax losses generated by the foreign group members in previous years were allocated to and utilised by the CIT group parent. Generally, these tax losses are subject to recapture taxation at the level of the CIT group parent if the foreign group members withdraw from the CIT group.
  • The shares of the two foreign group members were sold by the CIT group parent in November 2010.

Question

It is undisputable that the CIT group parent lost its financial participation (a condition for the formation of a CIT group) in the foreign group members after 10 November 2010. For this reason, the CIT group was only effective until the end of 2009 as a CIT group needs at least one group member. The tax losses generated by the foreign group members and utilised by the group parent in Austria in previous years therefore have to be taxed at the level of the CIT group parent.

Nevertheless, it was unclear in which period the utilised tax losses had to be recaptured. Was it the last year the CIT group was effective (2009) or the year of the CIT group’s dissolution (2010)?

The Supreme Administrative Court’s decision

Unlike the Austrian Federal Fiscal Court, the Supreme Administrative Court ruled that recaptured tax losses should be recognised in the year prior to the CIT group’s dissolution because the withdrawal of the CIT group is only possible while the CIT group is still effective (i.e. the financial year 2009).

The court argued that the recaptured tax losses should be recognised at the level of the group parent. Recapture taxation is thus only possible in the year prior to the dissolution of the CIT group for the reason that in the year afterwards there is no longer a CIT group parent due to the retrospective termination of the CIT group.

The Supreme Administrative Court confirmed the view of the Austrian tax authorities which already recognised the recapture of foreign tax losses at the level of the CIT group parent in the year prior to disposals, mergers and acquisitions of foreign group members. This remains the case if the CIT group is not dissolved after the disposal of foreign CIT group members.

Franz Rittsteuer
Niclas Thurnher

nach oben

Austrian Supreme Administrative Court Decision on the Attribution of Shares to a Permanent Establishment

Background

Two Austrian individuals held a participation in an Austrian private limited company (‘GmbH’) through a Slovak partnership (similar to an Austrian limited partnership (KG)). The activities of the Slovak partnership constituted a permanent establishment (‘PE’) of the Austrian partners in Slovakia. The question was whether the participation in the GmbH was attributable to the (Slovak) PE or directly to the (Austrian) partners. If the participation is attributable to the PE, dividends distributed by the GmbH would essentially end up tax-exempt in the hands of the Austrian ultimate shareholders.

Decision

The Austrian Supreme Administrative Court (VwGH 18.10.2017, Ro 2016/13/0014) decided that in accordance with the general scheme of the tax treaty between Austria and Slovakia, the attribution of participations between a PE and the head office has to be determined based (solely) on functional criteria. The court did not further specify these ‘functional’ criteria, but held that the treatment under domestic tax law is not conclusive in this regard. Even if a shareholding is an essential business asset under (Austrian) domestic tax law (‘notwendiges Betriebsvermögen’), it still has to be determined whether it can also be attributed to the Slovak PE from a ‘functional’ perspective. The case was referred back to the Austrian Federal Fiscal Court.

Implications

At first glance, the outcome of the decision does not seem surprising. The Austrian Ministry of Finance and parts of Austrian tax literature come to a similar conclusion concerning the application of the Authorized OECD Approach (AOA). In their view, participations can only be attributed to a PE if they are deemed to be essential business assets under domestic tax law.

However, it is noteworthy that the court stated that even if a participation qualifies as an essential business asset of a PE under domestic law, the attribution for tax treaty purposes has to be determined separately on the basis of functional criteria and the outcome need not be the same. On the contrary, in their transfer pricing guidelines the Austrian Ministry of Finance states that the functional criteria for the attribution of a participation to a PE are always met if the participation qualifies as an essential business asset of the PE.

The practical implication of this is the importance of documenting the functional connection of the participation to the activities of the PE. This is particularly true for ‘holding PEs’, but may also be of particular relevance for holding companies.

Thomas Schneider

Michael Wenzl

nach oben

Update on the VAT guidelines

The Austrian VAT guidelines have recently been updated to incorporate the latest legal changes and case law. The main changes are summarised below:

Reprography and storage media compensation

According to ECJ C-37/16, SAWP, reprography and storage media compensation paid by obligors to collecting societies falls outside the scope of VAT as of January 1, 2018. The sale between obligor and customer and the services provided by the collecting society to the copyright owner are not affected.

Tax-exempt services in connection with the import/export of goods

According to ECJ C-288/16, ‘L.Č.’ IK, other services in connection with the import/export of goods are tax-exempt if they actually contribute to an export/transit procedure and are provided directly to the consignor or the recipient of the goods to which the tax exemption for exports applies.

The requirement that the services must be provided directly to the consignor or recipient of the goods applies as of January 1, 2019.

Short-term rental of real estate

Rental of real estate for an uninterrupted period of no more than 14 days is subject to the standard VAT rate if the entrepreneur otherwise uses the real estate only to carry out transactions which do not exclude the input VAT deduction, for short-term rentals or to satisfy a housing need.

VAT treatment of intra-EU supply in an interrupted dispatch

Intra-Community supplies of goods can be treated as tax-exempt if both the supplier and the customer are involved in the transport of the goods (so-called ‘fractional transport or dispatch’ [‘gebrochene Beförderung/Versendung’] – i.e. an interrupted dispatch, in which goods are moved in a series of two or more transports or dispatches, rather than directly).

For two-party transactions (this will apply as of January 1, 2019 at the latest), interruptions in transport and a fractional transport or dispatch have no detrimental impact on taxation if the final recipient is already known at the time of transportation, there is a close link between the supply of goods and the transport of the goods, and the course of the transportation is continuous. In any case, a temporal connection is given if the transport or dispatch is interrupted for less than 14 days (e. g. interim storage for logistical reasons).

Rupert Wiesinger

Helene Breit

nach oben

Opinion of Advocate-General Bot on Austrian triangular transactions

On 19 October 2016, the Austrian Supreme Administrative Court (VwGH) submitted two questions to the ECJ in order to clarify the importance of the acquiring customer's domicile and timely declarations in the EU sales listing for the application of the simplification rule for triangular transactions. In his Opinion of 30 November 2017 on this case (Case C-580/16, Firma Hans Bühler KG), Advocate-General Bot concluded that restricting the simplication rule for triangular transactions on the basis of administrative law requirements was impermissible, as long as there is no intentional participation in tax evasion and the material preconditions are fulfilled.

Background

Initial situation

The company Hans Bühler KG, domiciled and identified for VAT purposes in Germany, used its Austrian VAT (UID) number for 'triangular transactions' under Section 25 Austrian Value-Added Tax Act (UStG). The company bought goods from suppliers domiciled in Germany on several occasions and sold these to customers domiciled in the Czech Republic. The initial German supplier delivered the goods directly to the Czech recipient customer. Hans Bühler KG submitted EU sales listing in which it stated its Austrian VAT number, that of the Czech recipient customer, and the sum of the tax bases.  Hans Bühler KG did not initially make any entries in the field 'Triangular transactions' provided for declaration purposes, but did later correct the EU sales listing by completing this same field to state the presence of triangular transactions.

Legal basis and problem

A triangular transaction only exists if three traders in three different EU Member States conduct sales transactions on the same goods, in accordance with the transposition of Article 141 of Directive 2006/112 (VAT Directive) into Austrian law under Section 25 para 1 UStG. Furthermore, under Section 25 para 3 item (c) UStG, the precondition for tax exemption for an intra-Community acquisition is that the goods acquired originate from a different Member State than that in which the trader (acquiring customer) is identified for VAT purposes. In the case at hand, both the supplier and the (intermediary) acquiring customer (i.e. Hans Bühler KG) are domiciled and registered for VAT purposes in Germany and possess German VAT numbers. Given the existence of a registration or domicile in Germany, the VwGH doubts whether the use of an Austrian VAT number is sufficient to fulfil the precondition of three participating Member States anticipated by Section 25 UStG.

Section 25 para 2 UStG states further that the application of the simplification rule for triangular transactions requires the timely fulfilment of declaration obligations in the EU sales listing.  In the case at hand, the declaration of a 'triangular transaction' in the EU sales listing was only made retrospectively using an adjustment.

Questions submitted

The VwGH's request for a preliminary ruling asks the ECJ to clarify whether the preconditions of Article 141 VAT Directive are fulfilled if the acquiring customer (Hans Bühler KG) is domiciled in the same Member State from which the goods are transported (Germany), but uses a VAT number of another Member State (Austria).

The VwGH is also seeking an answer to the question whether the simplification rule for triangular transactions may only be applied if the necessary disclosures were made in a timely fashion in the EU sales listing.

Opinion of Advocate-General Bot

In Advocate-General Bot's opinion, Hans Bühler KG's application of the simplification measures laid down by Article 141 VAT Directive cannot be refused with the justification that the company is identified for VAT purposes or resident in the goods' state of origin, or that the questionable transactions were not declared or adjusted in the EU sales listing within the necessary timeframe.

In the Advocate-General's view, there is only one restriction on the application of the simplification rule for triangular transactions.  No serious indications of tax evasion may exist and the material preconditions for the exemption must be fulfilled. Following this logic, the supply must demonstrably take place within a chain, the goods acquired must be used by the traders for their respective taxable transactions, the goods must be demonstrably transported from one EU Member State to another, and the final recipient in the destination state must properly tax their input transaction.

 

Implications

Previously, the Austrian Inland Revenue has taken a tough stance even on merely formal breaches of the preconditions for application of the simplification rules for triangular transactions under Section 25 UStG. For the most part, the Austrian Inland Revenue assumes that the possibility of applying this norm is forfeited irreversibly by relevant errors in the invoice or in the EU sales listing ('failed triangular transaction'). Only proof of taxation in the destination state can enable a 'restructuring' of the cumulative intra-Community acquisition.

Contrary to this view, the only decisive aspect in the Advocate-General's view is that the material preconditions for the simplification are fulfilled. Formal shortcomings, such as missing or late declarations in the EU sales listing, do not in themselves suffice to prevent application of the simplification rule for triangular transactions. In applying the simplification rule for triangular transactions, only the VAT number used for the concrete VAT transaction is of relevance, as long as the VAT number was not used improperly.

The ECJ's ruling in the Hans Bühler KG case is therefore anticipated with much interest.

Alois Prochaska

nach oben

Concurrent employment of managing directors by another group GmbH triggers a second social security contribution

In groups of companies, managers frequently take on leadership roles in multiple subsidiaries without a separate employment contract and without being entitled to extra pay. The company with which they have an employment relationship assigns them to a different group company as managing director. In a recent case (VwGH 07.09.2017), the Austrian Supreme Administrative Court (VwGH) ruled  that under Austrian social security law,  this set-up may imply the existence of two separate employment relationships and companies should pay social security contributions for both.

In the relevant VwGH case, a city administration made one of its department heads the managing director of a city-owned GmbH.   The city allocated a fixed percentage of the employee's time to the GmbH and charged the personnel costs to the GmbH on a pro rata basis. The VwGH judged that employment relationships existed with both the GmbH (user) and the city (assignor) that would mandate social security contributions.

This means that social security contributions are payable for two employment relationships, in both cases at the highest contribution rate.  The employee may submit a request for the refund of social security contributions that exceed the highest basic contribution rate. However, both employers must pay the social security contributions and these are not refundable.

According to the VwGH, social insurance law deems the employer in employee leasing arrangements to be exclusively the assignor as a basic principle because in this employment relationship the user is only exercising rights transferred by the assignor.

The same does not apply for the managing director of a GmbH. If an employee is appointed managing director, the GmbH has a direct right to the work rendered and not one derived from the assignor. Under the law of obligations, the employment contract only regulates the particular conditions according to which the work is to be completed. The terms of the contract may also be implied by fact.

Pay received by the managing director from the assignor should be regarded as  pay from a separate party for management duties in the GmbH if the party intended the pay as a consideration for these duties, which were also undertaken to benefit the GmbH.

We would be happy to advise you on the risk of additional contributions under social security law or if you think adding an explicit contractual provision might be advantageous.

Alexandra Platzer

nach oben

Austrian Tax Facts and Figures

Tax Facts and Figures
We encourage feedback on the newsletter and the content. Equally, we welcome any of your thoughts on topics that you would like to see addressed in future issues.

Tax Partners

Monika Berndl

Partnerin, Wien, PwC Austria

+43 699 123 900 78

E-Mail

Gerald Dipplinger

Partner, Digital Leader, Wien, PwC Austria

+43 676 833 773 648

E-Mail

Peter Draxler

Partner, Standort Linz, PwC Austria

+43 676 833 771 54

E-Mail

Peter Hadl

Partner, PwC Austria

+43 676 833 778 003

E-Mail

Bernd Hofmann

Partner, Wien, PwC Austria

+43 699 101 491 56

E-Mail

Martin Jann

Partner, Wien, PwC Austria

+43 699 151 020 71

E-Mail

Copyright and Publisher: PwC Österreich GmbH Wirtschaftsprüfungsgesellschaft, Erdbergstraße 200, 1030 Vienna, Austria

Editor: Christof Wörndl, christof.woerndl@at.pwc.com

The above information is intended to provide general guidance only. It should not be used as a substitute for professional advice or as the basis for decisions or actions without prior consultation with your advisors. While every care has been taken in the preparation of the publication, no liability is accepted for any statement, option, error or omission.

PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. Please see www.pwc.com/structure for further details.

Folgen Sie uns