No Match Found
Update on thresholds for a permanent establishment in Austria
by Marlies Ursprung-Steindl and Nikola Breinhölder
Draft update of the Corporate Income Tax Guidelines
by Martina Gruber and Matthias Mayer
Recent decisions on group taxation by the Austrian Supreme Administrative Court
by Marlies Ursprung-Steindl and Christina Hirsch
Update: Tax Reform Act of 2020 and ‘quick fixes’ relating to VAT
Rupert Wiesinger and Melanie Kaltner
The Austrian Ministry of Finance (BMF) recently issued a letter ruling (EAS 3415) dealing with the question whether business activities carried out from home qualify as an Austrian PE under both national law and international tax treaties.
Austrian tax law
According to the BMF, a ‘home office PE’ is created under Austrian tax law if both of the following conditions apply:
However, ‘home-working activities’ (‘echte Heimarbeit’) do not create a PE risk under national tax law. In this letter ruling, the BMF clarified that only activities of manual character (i.e. packaging of goods) and low-skilled writing activities qualify as ‘home-working activities’.
Tax treaty perspective
Following the Commentaries on the OECD Model Convention 2017, the BMF has stated that a home office does not lead to the creation of an Austrian PE if the business activities carried out from home are only intermittent and incidental. In the view of the BMF, if the proportion of business activities carried out from home amounts to 50% (or more) of overall working time, these activities can no longer be considered incidental, thus leading to the creation of an Austrian PE for a non-resident employer. The PE exemption for preparatory and auxiliary activities does not apply.
Further, the BMF provides guidance on several indications which may trigger and increase the risk of an Austrian home office PE being created from a tax treaty perspective. These include the following:
Finally, the BMF has stated that the PE assessment also depends on whether Austria has taxation rights under the respective tax treaty and whether the assessment conforms with the provisions of that treaty. Nevertheless, a risk of double taxation may be anticipated in the event of conflicts about whether a home office constitutes a PE.
The German Federal Fiscal Court (I R 54/16, 23.10.2018) ruled in 2018 that managing directors/board members of corporations can also qualify as dependent agents and thus create a PE under both German tax law and international tax treaties.
The German court decision is in line with the position of the Austrian BMF in earlier letter rulings (EAS 1666 and EAS 2111). Activities of managing directors/boards members of non-resident companies may thus lead to the creation of an Austrian ‘dependent agent PE’ because these individuals have the power to conclude contracts, provided they habitually exercise this power in Austria.
In contrast to German case law, the Austrian BMF also qualifies individuals who are the sole shareholders/managing directors of single-shareholder corporations as dependent agents. These managing directors may thus also create a dependent agent PE in Austria, if they habitually act in Austria and are involved in negotiating and concluding contracts.
In May 2019, the Austrian Ministry of Finance (BMF) published a draft update of the Corporate Income Tax Guidelines, primarily to adjust the guidelines to incorporate the latest case law and legislative changes. The focus of the 2019 update is the new Austrian CFC taxation regime (Austria opted for Option A of the Anti-Tax Avoidance Directive (ATAD); see issue 61 and issue 62 of the Austrian Tax News). With this new draft, the Austrian tax office shares its initial line of interpretation. As the evaluation period for the draft update ended in September, it is expected that the final version will be published before the end of the year, just in time to prepare for the first tax returns to include CFC taxation and the new switch-over rule.
Selected key points of the BMF’s view on CFC taxation are described below. As the update is still only a draft, it is possible that changes will be made in the final update of the guidelines.
An Austrian resident group member with unpaid liabilities went bankrupt and had to be liquidated. In its decision (4.9.2019, Ro 2017/13/0009), the Austrian Supreme Administrative Court (VwGH) ruled that:
Furthermore, the Court stated that unpaid liabilities must be recorded in the closing liquidation balance sheet and thus reduce the taxable liquidation income. It reasoned that the purpose of calculating the liquidation profit is to ensure the final taxation of hidden reserves.
This decision contradicts the corporate income tax guidelines published by the Austrian tax authorities, which state that group members in liquidation still belong to the tax group. It is expected that the tax authorities will introduce transitional provisions to prevent hardship cases resulting from the changed situation.
In the underlying case, a tax group parent was merged upstream into a non-group member. According to the Austrian Supreme Administrative Court (15.5.2019, Ra 2018/13/0029), the financial participation of a group parent in its group members is transferred to the receiving company in the course of an up-stream merger. The relevant date for the succession is the (retroactive) effective date of the merger. Group membership depends on a qualified financial participation (of more than 50%) for the entire fiscal year of the potential group member. However, this requirement was not met in this case due to differing fiscal years of the respective group members. Seamless continuation of the tax group, with the receiving company as the new group parent, was therefore impossible. The original tax group was terminated. To build a tax group, the receiving company must separately observe the retention period for the financial participation.
On 19 September 2019, the Tax Reform Act 2020 (StRefG 2020) was passed by the Austrian Parliament. The following points are the most important proposed changes to the Austrian Value-Added Tax Act (UStG), which will enter into force from 1 January 2020.
Due to the harmonisation and simplification of taxation between the EU Member States, new rules on chain transactions, call-off stock and conditions for zero-rating of intra-Community supplies of goods will apply as of 1 January 2020.
The European Commission published explanatory notes on the ‘quick fixes’. The notes are intended to give a better understanding of the new regulations and provide more detailed information. However, the explanatory notes are not legally binding. For Austria, certain points will also be addressed in the update to the VAT Guidelines which will be finalised before the end of the year.
Changes for small businesses, e-books and electronic motorcycles
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