Issue 64

Austrian Federal Tax Court (BFG) clarified “intra-group acquisition” for purposes of tax-deductible expenses

The BFG recently took the opportunity to clarify what is meant by the term “intra-group acquisition” (Ger. Konzernerwerb). This is relevant for limitations of the tax deductibility of interest expenses and former goodwill depreciation in connection with share deals.

Facts: Group A acquired the Austrian company X from group B. Subsequently, but within the same sales and purchase agreement, group A acquired the remaining holding structure from group B. In Austria, a tax group was formed, goodwill on shares was depreciated, and interest expenses were deducted.

Before 1 March 2014, depreciation of goodwill on shares was permitted if, for example, the shares were acquired directly or indirectly within the same group. Such transactions also lead to non-tax-deductible interest expenses. However, the Austrian Ministry of Finance also applies these limitations to “staggered group acquisitions” (Ger. gestaffelter Konzernerwerb) meaning that tax deductibility will also be denied if a collective acquisition of a group is legally split up in such a way that first the domestic holdings and then the other group entities are acquired.

In the underlying case, however, the BFG denied a “staggered group acquisition”, since at the time of the acquisition of X, groups A and B were neither related nor was there an indirect acquisition via a related entity. Further, the BFG asserted that the acquisition process was neither unusual nor inappropriate and was thus not abusive, and confirmed existing non-tax reasons.

The case is currently pending at the Supreme Administrative Court. We therefore recommend reviewing equivalent acquisitions of shares in the light of possible tax-deductible expenses. Please contact us if you need special advice on this issue.

Ines Hofbauer-Steffel
Peymann Seyyed

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New Double Tax Treaty between Austria and United Kingdom / Japan

On 23 October 2018, the new double tax treaty between Austria and the United Kingdom was signed, which will replace the 1969 tax treaty. The new tax treaty was passed by the Austrian National and Federal Council in December 2018. However, there is currently no information on when it will enter into force.

The new tax treaty already takes into account BEPS measures. The changes from the previous tax treaty mainly relate to the Austrian position regarding the OECD Multilateral Instrument (MLI) (e.g. limitation of treaty benefits, together with the change of wording of the preamble and improvement of dispute resolution including arbitration).

The main changes compared to the previous tax treaty are as follows:

  • Article 4: According to the new tax treaty, the term “resident of a Contracting State” also encompasses pension schemes as well as organisations operated exclusively for religious, charitable, scientific, cultural, or educational purposes.
  • Article 5: The exemption for auxiliary and preparatory activities was adapted. Thus, in accordance with the new Article 5 (4) lit f, the exemption will only apply if the overall activity of the permanent establishment is really of a preparatory or auxiliary character.
  • Article 10: The withholding tax rate on dividends amounts in principle to 10%, except for dividends paid by a relevant investment vehicle. In this case the withholding tax rate amounts to 15%;
  • A withholding tax relief on dividends is granted where the beneficial owner of the dividends is either (i) a company (other than a partnership) which controls, directly or indirectly, at least 10% of voting power in the company paying the dividends or (ii) a pension scheme. Therefore, in the event that the United Kingdom leaves the EU, dividends can be still be exempt from Austrian withholding tax, despite the non-application of the EU Parent-Subsidiary Directive.
  • Article 12: The new tax treaty does not envisage withholding tax on royalties.
  • Article 13: Gains from the alienation of shares are to be taxed only in the state of residence, unless the shares derive more than 50% of their value directly or indirectly from immovable property situated in the source state (real estate clause).
  • Article 27: In line with the MLI and the BEPS measures, Article 27 contains specific provisions on the avoidance of treaty abuse (Principal Purpose Test).

New Double Tax Treaty between Austria and Japan

The new tax treaty between Austria and Japan entered into force on 27 October 2018 and is applicable from 1 January 2019. The new tax treaty basically follows the latest version of the OECD Model Convention and already contains some provisions in line with the new BEPS measures and standards.

For further details on the main changes compared to the previous tax treaty, please see Austrian Tax News Issue 59, December 2017.

Michael Wenzl
Andre Gusmao 

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Recent tax policy discussion & possible changes

After the annual closed-door meeting of the Austrian Federal Government in January 2019, the government presented two main new tax initiatives. Here we present the key points of the new work programme.

Programme “Entlastung Österreich”

The programme “Entlastung Österreich” should be implemented in two steps. The main goal of this programme is to provide tax relief for small and medium-sized businesses as well as for employees. The first part of this programme should come into effect in 2020 and aims to provide a tax relief for employees, retirees and self-employed persons with low incomes. This relief should be achieved by reducing the health insurance contribution and increasing the blanket deduction for income-producing expenses. Additionally, the first step of this programme includes an increase of the small-business threshold for VAT purposes from EUR 30,000 up to EUR 35,000. The second step of “Entlastung Österreich” should be implemented in 2021/2022 and aims to reduce the first stage of the Austrian income tax scale, resulting in a relief for taxpayers. Moreover, this step should also focus on increasing the attractiveness of Austria as a business location, through simplifying the local tax regime.

Programme “Digitales Besteuerungspaket”

As no European solution for digital taxation was found during Austria’s EU presidency, Austria is planning to introduce its own levy on internet and technology companies. The programme includes the following three measures:

3% tax on online advertisement: Where tech groups reach a consolidated group revenue of at least EUR 750m and a revenue in Austria of at least EUR 10m, profit resulting from online advertisements in Austria should be subject to 3% tax.

VAT on online trading with non EU-member countries: Currently, packages sent from non-member countries are subject to VAT if they reach a minimum value of EUR 22. In future, these packages should be subject to VAT from the first cent on.

Reporting obligation: Entities active in the “sharing economy” should be subject to a reporting obligation, in order to provide the Austrian tax authorities with a full picture of tax liabilities resulting from these activities.

We will keep you updated on the legal implementation of the programmes.

Wolfgang Prehal
Jakob Jaritz

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Austrian VAT Guidelines: The most important changes from the Amendment Decree 2018

In the context of the Amendment Decree 2018, which was published on 22 November 2018, amendments were made to the Austrian VAT Guidelines (UStR) to incorporate new legislation, case law from the high courts and changes in the EU Directives. The most important changes and amendments for international companies are summarised below.

Vouchers

The UStR now incorporates the provisions of Council Directive (EU) 2016/1065 regarding the treatment of vouchers. In specific cases, there may be differences in the classification of vouchers as single-purpose or multi-purpose after 31 December 2018.

Single-purpose vouchers will now be defined as vouchers for which the place of supply and the VAT owed have already been determined at the point of issue. This also applies if the voucher can be redeemed at various suppliers. Revenue from single-purpose vouchers is realised at the point of transfer of the voucher. This will also apply if the voucher is transferred by a third party or if the voucher is never ultimately redeemed. If a third party transfers the single-purpose voucher in his/her own name, but the service is performed by another company, it will be assumed that the company provides this service to the third party.

For multi-purpose vouchers, the service subject to VAT will take place at the point at which the service is provided (redemption of voucher) and not at the point of transfer. Any sales and procurement services incurred will be subject to VAT and are therefore not VAT-exempt. If a multi-purpose voucher relates to a service that has not yet been specified, the transfer will neither represent an action subject to VAT, nor will it be subject to tax on down payments. Vouchers that entitle the holder to services in multiple countries (with different places of supply) also qualify as multi-purpose vouchers.

Procurement of cross-border transport services

As of January 2019, the provision of such services is tax-exempt in Austria solely in cases where a taxable person is directly engaged with a transport to a third country. In case of procurement of such services, the procurement is not exempt from Austrian VAT.

Electronically supplied services

Electronically supplied services are taxable in the country of origin if the supplier does not exceed the VAT threshold of EUR 10,000 for services provided in other EU Member States. The shift of the place of supply to the destination state only takes place when the threshold is exceeded.

Furthermore, the obligation to provide two forms of evidence of the customer’s location for electronically provided services is reduced to one form of evidence, as long as the supplier does not exceed the threshold of EUR 100,000 for supplies within the EU.

Additionally, taxable persons from third countries can use the MOSS procedure even if they are already registered for VAT purposes in another EU member state. The changes apply from 1 January 2019.

Invoicing

Taxable persons, who are established outside of Austria and declare Austrian VAT via MOSS, must comply with the invoicing regulations of the Member State in which the taxable supplies in Austria are declared via the MOSS scheme.

Further, the address of the supplier provided on the invoice must not necessarily be identical to the address from which the supplier carries out his business activities. It is sufficient if the supplier stated on the invoice actually provides the service and is identifiable through the address indicated on the invoice.

Triangular transaction

In the context of triangular transactions, the intra-Community acquisition by the intermediary trader will be deemed to have been taxed even if the recapitulative statement is submitted late, as this only represents a formal criterion. This follows from the decision by the ECJ in the case Hans Bühler (C-580/16, April 19, 2018).

Additionally, the regulations for triangular transactions also apply from an Austrian VAT point of view if the second purchaser is already registered for VAT purposes in the country of departure, but uses a different and foreign VAT identification number.

Import VAT

Import VAT is due monthly, even if VAT is reported quarterly.

Rupert Wiesinger
Vanessa Henschel

 

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Austria to promptly implement the ATAD interest limitation rule

In brief

The European Commission (EC) announced on December 7 that it did not consider the Austrian rules on the limitation of the interest deduction to be as effective as the interest limitation rule based on Article 4 of the Anti-Tax Avoidance Directive (ATAD or the Directive). It therefore has become mandatory for Austria to transpose the ATAD interest barrier into national law no later than December 31, 2018.

In detail

ATAD requirements

Under the interest limitation rule applicable in Austria since March 2014, interest paid to affiliated companies in low-tax countries (where the receiving company is taxed at a rate that is lower than 10%) cannot be deducted for tax purposes.

Article 4 of the ATAD requires the Member States to introduce interest limitation rules into national law by December 31, 2018. The ATAD interest cap provides that interest expenses are fully deductible for tax purposes up to the amount of interest income and, in addition, only up to 30% of EBITDA, subject to a number of optional provisions (e.g. exemption limit  and group ratio rule). However, countries with national targeted rules for preventing base erosion and profit shifting (BEPS) risks that are equally effective to the interest limitation rule set out in the Directive, may apply these targeted rules at the latest until January 1, 2024.

The Annual Tax Act 2018 of Austria covers the implementation of several ATAD provisions — in particular, the introduction of CFC rules, changes in the definition of the abuse for the purposes of the general anti-avoidance rules, and modified exit taxation rules. That Act does not include implementation of an interest limitation rule in line with that outlined by the ATAD, as the Ministry of Finance took the position that the existing national targeted rules were equally effective as the interest cap rules under the Directive.

EC decision

However, in its December 7 decision the EC considered only the following five Member States to have equally effective measures to those under ATAD, leaving all other EU member states obliged to have national legislation transposing interest limitation rules in line with the Directive into national legislation:

  • Greece
  • France
  • Slovakia
  • Slovenia
  • Spain

In its assessment, the EC compared the criteria of legal similarity and economic equivalence of national deductions with the ATAD interest barrier and concluded that the existing Austrian rules on interest deduction did not meet the requirements. Only measures limiting the deductibility of excess borrowing costs in terms of the taxpayer's profitability factors were considered equivalent to qualify for an extended implementation period. No separate appeal against this assessment of the EC is allowed.

Therefore, in the EC’s view, Austria must implement the ATAD interest barrier rules into national law by December 31, 2018. It remains to be seen whether the Austrian legislator will actually do so on such short notice.

If late with the implementation, Austria may face infringement proceedings by the EC. Under such proceedings, Austria could argue its case for comparability of the existing national rules with those of the Directive before the European Court of Justice.

The takeaway

In its December 7 decision, the EC did not deem the Austrian interest limitation rules equivalent with the ATAD measures. In principle, therefore, the rules should be implemented in Austria by December 31, 2018. However, the measures should only apply to Austrian taxpayers once they are transposed to national law since the Directive only binds the Member State, but does not impose an immediate obligation on the taxpayer. If Austria is late with the implementation, several practical
issues may arise, such as possible classification of non-implementation as state aid or constitutional issues in the case of retroactive implementation, which must be analysed in detail.

Nevertheless, taxpayers should carry out a high-level modelling of the potential impact of the ATAD interest limitation rules taking into account the 30% EBITDA threshold, given that it is likely that the rules will become effective in Austria before January 1, 2024 and may potentially apply for periods as early as those starting January 1, 2019.

Marianna Csongrady Dozsa

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Social security and multiple managing director functions – legislative solution

Based on Austrian Supreme Administrative Court (VwGH) case law, multiple managing director functions in corporate groups would have resulted in deemed employment relationships under Austrian social security law. Corporate groups faced considerable social security contribution risks for the past and considerable administrative challenges in implementing this new interpretation of the law. Fortunately, a change in social security law effective January 10, 2019 provided relief. 

Background

In corporate groups, managers frequently take on a managing director function in multiple subsidiaries without a separate employment contract and without entitlement to additional remuneration. The company with which they have an employment relationship (lessor) assigns them to a different group company (lessee) for a managing director function.

Based on VwGH case law (VwGH 07.09.2017, Ro2014/08/0046), this setup created the risk of additional social security contributions, as an additional employment relationship with the lessee company was deemed to exist for each managing director role.

In many cases, groups would have had to set up a shadow payroll in the respective companies for social security contributions only and to allocate the remuneration on a pro-rata basis. 

Change in social security law

Effective January 10, 2019 a change in legislation resolved this issue for personnel lease arrangements for a managing director function within a corporate group and for corporate bodies under public law.

  • Only the lessor qualifies as the employer under social security law in cases of intra-group assignments between companies under common control for a managing director function. This applies correspondingly to corporate bodies under public law.
  • No retrospective application of the provision has been implemented. However, the explanatory notes to the law point out that the regulation is meant as a clarification.
  • Social security risks continue to exist for personnel leases for a managing director function between companies that are not part of the same corporate group as well as for cases where it is unclear due to a lack of written agreements whether the parties intended a personnel lease or an employment relationship. 

Alexandra Platzer

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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

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Gerald Dipplinger

Partner, Digital Leader, Wien, PwC Austria

+43 676 833 773 648

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Peter Draxler

Partner, Standort Linz, PwC Austria

+43 676 833 771 54

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Peter Hadl

Partner, PwC Austria

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Bernd Hofmann

Partner, Wien, PwC Austria

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Martin Jann

Partner, Wien, PwC Austria

+43 699 151 020 71

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

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