Issue 66

08/30/19

Draft of Austrian DAC 6 implementation law

As part of the Austrian Tax Amendment Act 2020, a draft of the new EU Reporting Obligations Act (EU-MPfG) was introduced to the Austrian Parliament on 3 July 2019. The EU-MPfG is intended to transpose the EU’s DAC 6 Directive into Austrian law. We expect the draft law to be adopted in September 2019.

The wording of the draft bill mainly follows that of the DAC 6 Directive. It regulates the reporting obligation for (potentially) aggressive cross-border tax arrangements if these fulfil certain “hallmarks”. The reporting obligation applies either to the intermediary or directly to the taxpayer.

Key points

The EU-MPfG applies only to cross-border arrangements, meaning that purely domestic arrangements are not reportable. The only notable difference from the directive is that Section 4 EU-MPfG provides for a general limitation of the reporting obligation to transactions that entail a “potential risk of” tax avoidance, circumvention of reporting under common reporting standards, or avoidance of UBO identification. However, it remains to be seen how this regulation will be enforced in practice.

The EU-MPfG will enter into force on 1 July 2020. If the first step in the implementation of a given arrangement took place in the period between 25 June 2018 and 30 June  2020, the arrangements will have to be reported by 31 August 2020. Arrangements commencing on or after 1 July 2020 will have to be reported within 30 days of the triggering event.

Failure to observe the reporting obligation could incur penalties of up to EUR 50,000 for an intentional breach and up to EUR 25,000 for gross negligence. There is no possibility of avoiding these penalties by filing a voluntary self-disclosure.

Form of reporting

The reporting must be made via the online service (FinanzOnline) of the Austrian Ministry of Finance (BMF). Reporting can be made either in English or in German, although certain information must always be provided in English. If the arrangement has already been reported in another Member State or by another intermediary, only the reference number issued by the relevant Member State needs to be submitted.

Professional privilege

The draft act also envisages implementation of a “professional privilege” for intermediaries, which would mean that under certain circumstances the reporting obligation would be shifted from the intermediary to the taxpayer. However, if certain conditions are met the taxpayer could shift the obligation back to the intermediary.

Outlook

The wording of the draft law leaves many open questions, especially in connection with the definition of an intermediary and the concrete scope of the hallmarks. The BMF will issue a decree with explanatory examples after the law has been adopted.

Richard Jerabek
Christine Schellander
Nikolaus Neubauer

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Main expected changes to Austrian tax law from 2020

It is currently expected that the new tax legislation will be enacted in autumn 2019, the majority of which will enter into force from 1 January 2020 (the legislation should be enacted by the Austrian Parliament before the elections at the end of September 2019). The Austrian EU Financial Adaptation Act 2019 (EU-FinAnpG 2019) was enacted in July 2019. The main changes will be as follows:


Tax Reform Act 2020 (StRefG 2020) (VAT changes)

  • Implementation of anti-hybrid rules in accordance with Article 9 of the EU Anti-Tax Avoidance Directive (ATAD), as amended in ATAD II.
  • Tax-deductibility for low-taxed interest and royalty payments, if interest/royalty income is subject to the Austrian CFC rules.
  • Recapture (write-up) of acquisition costs to the previous level (if higher) for tax purposes following a tax-neutral reorganisation.
  • New lump-sum income tax regime for small businesses (revenues of up to EUR 35,000).
  • Low-value assets of up to EUR 800 are fully deductible in the year of acquisition.

Tax Amendment Act 2020 (JStG 2020)

  • Implementation of a digital services tax: The digital services tax of 5% on online advertising revenues generated in Austria will apply to digital groups with annual worldwide group revenues exceeding EUR 750m and domestic (Austrian) revenues deriving from sales of online advertising space (such as banner advertising and search engine advertising) exceeding EUR 25m.
  • New disclosure and VAT rules for digital retail platforms, especially on B2C supplies.
  • The Austrian EU Reporting Obligations Act (EU-MPfG), implementing DAC 6, (see above) creates an obligation to report certain aggressive cross-border structures.

EU Financial Adaptation Act 2019 (EU-FinAnpG 2019 – enacted)

  • Implementation of the Council Directive on Tax Dispute Resolution Mechanisms in the European Union. The provisions apply to disputes relating to income or capital generated in a tax year commencing on or after 1 January 2018.
  • Implementation of VAT penalties for missing trader fraud and cross-border carousel fraud if the total loss of VAT revenue within the European Union is EUR 10m or more. Infringements may incur severe sanctions, including imprisonment and fines between EUR 2.5m and EUR 8m.

Martina Gruber
Matthias Mayer


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Austrian Supreme Administrative Court overrules the decision of the Federal Fiscal Court regarding abuse of the withholding tax refund under the Parent-Subsidiary Directive

In its ruling of 4 December 2017 (RV/7106377/2016), the Austrian Federal Fiscal Court (BFG) held that the interposition of Luxembourg holding companies in the given case was abusive, as no evidence for their economic purpose was provided. In its subsequent ruling of 29 March 2019 (Ro 2018/13/0004), the Austrian Supreme Administrative Court (VwGH) overruled the BFG.

Circumstances

A Luxembourg company (LuxCo1), a holding company with no substance, held approx. 40% of the shares in an Austrian joint-stock company (L-AG). Another Luxembourg company (LuxCo2), which had its own office premises and employed three qualified staff members, held 100% of the shares in LuxCo1. An Australian fund held 100% of LuxCo2 via a trustee domiciled on the Cayman Islands. The Australian fund has a consulting contract with the Australian company B Pty Limited. In course of a dividend distribution, withholding tax (WHT) was deducted by the Austrian entity and LuxCo1 filed for a WHT refund. However, the refund was declined by the Austrian tax authority, which argued that the business structure was abusive – for further details see Issue 62.

Decision of the BFG

According to the BFG, the explanation that LuxCo2 serves as a platform for several investments in the infrastructure sector does not fulfil the requirement of an intermediary role for an EU company. Further, the BFG concluded that LuxCo2 did not perform management activities itself, but that such activities were rather performed by the Australian fund, which had the necessary financial resources and know-how (via the consulting contract with B Pty Limited). The BFG therefore ruled that LuxCo2 was not an operative entity and denied the WHT refund due to the lack of business rationale for the interposition of the EU companies.

Decision of the VwGH

The VwGH held that the BFG misjudged the present case by disregarding the Parent-Subsidiary Directive (PSD) and relevant CJEU case law. In particular, the VwGH concluded that LuxCo2 should be qualified as an operative company given that it has its own personnel and own premises and given the activities it carries out. In this regard, the fact that the ultimate shareholders influence the investment policy of LuxCo2 is by itself not harmful. In addition, the VwGH rejected the BFG’s assessment that the business rationale of a given arrangement requires the impossibility of setting up an alternative arrangement (i.e. that in the case in question, the transaction would have failed without the interposition of an EU company). Instead, the VwGH takes the view that a valid business rationale is given if the corporate structure enables a group to achieve its desired economic goals in a better and more reliable way.

Conclusion

This landmark decision of the VwGH highlights the crucial role of the substance (i.e. office premises, qualified staff and operational activities) and valid business rationale of a given structure for the application of the PSD.

Andre Gusmao
Nicholas Walters

 

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Changes to refund claims procedure for Austrian withholding taxes

The Austrian Annual Tax Act 2018 (JStG 2018) altered the refund procedure for Austrian withholding taxes (WHT) (see Section 240a Austrian Federal Fiscal Code, BAO). As of 1 January 2019, the amended procedure requires advance notification using an online form, to be submitted electronically via the website of the Austrian Ministry of Finance. The new refund procedure applies for WHT on dividend, interest, royalties and personnel lease compensations as well as for wage taxes of foreign tax residents.

As a first step, the new refund procedure requires electronic submission of the online forms available on the website of the Austrian Ministry of Finance (e.g. for WHT on dividend from an Austrian public limited company, the form DIGMBH should be used). The information to be provided in the forms is similar to the information that was required in the old forms ZS-RD1 (German version) and ZS-RE1 (English version).

Once the form has been submitted online, an application number will be automatically issued and noted on the advance notification. As a next step, the notification has to be printed and signed by the applicant. In addition, written confirmation of tax residency from the tax authorities of the country of the entity receiving the income needs to be provided as part of the advance notification procedure.

Finally, the completed advance notification has to be sent by post together with the required supplementary documentation (i.e. excerpt from the Austrian Commercial Register, confirmation of payment etc.) to the Bruck Eisenstadt Oberwart Tax Office. The Tax Office requires original copies of the certificate of residence and the signature of the applicant on the advance notification. Only applications submitted in this way are admissible and will be processed by the Tax Office.

Wolfgang Prehal
Nicolas Stangl


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Austrian Supreme Administrative Court (VwGH) confirms recent CJEU rulings on the distinction between supply of goods and supply of services under a lease contract

In its ruling of 30 April 2019 (Ra 2017/15/0071), the Austrian Supreme Administrative Court (VwGH) held that a supply of goods under a lease contract only exists if a purchase option or an automatic transfer of ownership has been agreed between the lessor and the lessee.

Background

Before 30 April 2019, there was legal uncertainty on the VAT treatment of leasing contracts, more precisely on whether the supply under a lease contract qualifies as a supply of goods or as a supply of services. In order to determine whether a supply of goods or a supply of services has been made, the transfer of economic ownership is taken into account, in particular to whom the leased goods are attributable. If the goods are attributable to the lessor, the supply qualifies as a supply of services. If the leased goods are attributable to the lessee, the supply qualifies as a supply of goods. However, so far there have been no specific requirements for the attribution of the leased asset to the lessee.

Ruling of the VwGH

The subject of the case at hand was the VAT treatment of a real estate leasing contract for a bank building. The leasing company renovated the building and subsequently leased it to the bank based on a leasing agreement. The bank provided a deposit of around 40% of the total cost for the renovation of the building. The banking group refinanced the leasing company.

The Austrian Federal Fiscal Court (BFG) decided that this transaction qualifies as a supply of goods, since the leased building was attributable to the lessee. However, the VwGH did not share this opinion.

The VwGH ruled that the economic owner of the leased asset should be taken into account. Therefore, the economic substance and the value of the leased asset have to be attributable to the lessee for the leasing arrangement to qualify as a supply of goods.

The VwGH referred to the CJEU ruling ‘Mercedes-Benz Financial Services UK Ltd’ (C-164/16), which states that the following two criteria must be met in order for the supply under a lease contract to be considered a supply of goods:

  • The lease contract has to be a finance lease.
  • Either a purchase option or an automatic transfer of ownership has to be agreed upon. Further, the exercise of the purchase option has to be the only economically rational option for the lessee.

In the case at hand, however, neither a purchase option nor an automatic transfer of ownership was agreed. Therefore, the supply under the lease contract qualifies as a supply of services.

Conclusion

The above-mentioned decision of the VwGH is the first Austrian tax case confirming the recent CJEU ruling on the distinction between supply of goods and supply of services under a lease contract. Following the CJEU, the VwGH ruled that a supply of goods under a leasing contract only exists if a purchase option has been agreed in favour of the lessee and its exercise is the only economically rational choice.

Christine Weinzierl
Magdalena Holzer

 

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Update: Legislative proposal for the Tax Reform Act 2020 and quick fixes in the area of VAT

On 3 July 2019, members of the Austrian Parliament introduced the legislative proposal for the Tax Reform Act 2020 (StRefG 2020). The proposed legislation largely corresponds with the consultation draft of the Tax Reform Act 2019. The following points represent the most important proposed changes to the Austrian Value-Added Tax Act (UStG), which (if passed) would enter into force from 1 January 2020:

Changes for small businesses, e-books and electronic motorcycles

  • The threshold for the exemption for small businesses will be increased from EUR 30,000 to EUR 35,000 per annum. The obligation to submit VAT returns and annual VAT returns will only apply from this threshold.
  • The supply of electronic books, newspapers and magazines will be subject to a reduced rate of 10% – the same rate as for printed works.
  • Supplies of goods or services in connection with electronic motorcycles such as e-bikes and e-scooters will entitle businesses to deduct input tax. The decisive factor is CO² emissions of zero grams per kilometre.

Quick fixes

As of 1 January 2020, new rules on chain transactions, call-off stock and conditions for zero-rating of intra-Community supplies of goods will apply, due to the harmonisation and simplification of taxation between EU Member States.

  • A chain transaction occurs when the same goods are supplied successively and those goods are dispatched or transported from one Member State to another Member State directly from the first supplier to the last customer in the chain. The goods supplied in the chain are subject to a single intra-Community transport. The intra-Community movement of goods may only be ascribed to one of the supplies within the chain and only this supply will be subject to VAT exemption. Under the legislation, the dispatch or transport will be ascribed only to the supply made to the intermediary. An exception will exist if the intermediary discloses a VAT identification number of the Member State of dispatch to his supplier, in which case the dispatch or transport will be ascribed to the supply of goods made by the intermediary.
  • The simplification rule for call-off stocks will apply under certain conditions and transactions under call-off stock arrangements will constitute a single intra-Community supply of goods. The simplification rule results in an intra-Community acquisition for the recipient and the foreign supplier will not be obligated to register for VAT purposes in the Member State of destination.
  • The provisions on proof of transportation and dispatch for intra-Community supplies of goods will be harmonised by the EU Member States.

The Austrian Parliament plans to vote on the Tax Reform Act 2020 in September 2019.

Christine Weinzierl
Melanie Kaltner

 


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

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