Issue 67

11/29/19

In this issue

Direct Taxes

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

Indirect Taxes

Update: Tax Reform Act of 2020 and ‘quick fixes’ relating to VAT
Rupert Wiesinger and Melanie Kaltner

Tax Fact and Figures

Update on thresholds for a permanent establishment in Austria

Low threshold for home office PE in Austria

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:

  • The employee carries out business activities from a home office.
  • The employee is only provided with a laptop and a mobile phone by his/her employer.

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:

  • Activities carried out from home belong to the core business of the enterprise.
  • An employee claims home office expenses in his/her personal tax return.
  • The employee is not provided with an office although the nature of the business clearly requires an office.

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.

Managing directors as dependent agents

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.

Marlies Ursprung-Steindl
Nikola Breinhölder

nach oben

Draft update of the Corporate Income Tax Guidelines

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.

  • According to the ATAD, income from invoicing companies is a passive income item if the companies earn sales and services income from goods and services purchased and sold to associated enterprises, and if the companies add no or little economic value. However, the Austrian understanding of invoicing companies seems to be broader. Austrian CFC taxation will still apply if transactions with third parties are made only to a minor extent. However, the draft update does not provide details on what might be regarded as a minor extent.
  • When determining the passive income of the controlled foreign company to be included in the tax base of the Austrian taxpayer, expenses directly linked with an income source need to be taken into account, i.e. income is generally seen as a net position. Neutral expenses (lacking a direct link to an income source) are to be apportioned according to the ratio of the active income to the passive income in that year.
  • In the case of a foreign company which is a member of a group taxation regime abroad and hence does not pay taxes, the assessment of whether this company is taxed at a rate of or lower than 12.5% may be based on the statutory tax rate of the state of residence. Information on taxation of total group income by the group parent is expected in the final update.
  • Transparent entities (e.g. partnerships or AIFs) are regarded as associated enterprises of the Austrian taxpayer if the Austrian taxpayer holds a stake of 25% or more.
  • The substance exception in Austrian CFC taxation is available for both EU and non-EU companies and includes an indicative effect in favour of the taxpayer. However, responsibility for proof of substance lies with the Austrian taxpayer and can be demonstrated using financial statements, tax returns and partnership agreements of the controlled foreign company, as well as other evidence such as transfer pricing documentation. A binding ruling request to safeguard the classification of sufficient substance is not envisaged.
  • Where a company is resident in two states, the tax residency under the respective treaty is decisive, i.e. low-taxed, passive income of a company registered in Austria with its place of effective management abroad is subject to Austrian CFC taxation if the treaty follows OECD standards.

Martina Gruber
Matthias Mayer

nach oben

Recent decisions on group taxation by the Austrian Supreme Administrative Court

Liquidation of a group member with unpaid liabilities

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:

  • Liquidation proceeds should not be allocated to the tax group parent.
  • Only the profits and losses of operating companies should be offset under the group taxation regime.
  • When liquidation starts, group members can no longer be part of the tax group.

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.

Tax group membership created by universal succession?

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.

Marlies Ursprung-Steindl
Christina Hirsch

nach oben

Update: Tax Reform Act of 2020 and ‘quick fixes’ relating to VAT

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.

Quick fixes

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.

  • Chain transactions refer to successive supplies of the same goods (which means that there are two or more consecutive supplies) where the goods supplied are subject to a single intra-Community transport between two Member States. The general rule lays down that the dispatch or transport of the goods is ascribed to the supply made to the intermediary operator. However, it is possible to derogate from the general rule. If the intermediary operator provides the supplier with a VAT identification number issued by the Member State from which the goods are dispatched or transported, the dispatch or transport of the goods will be ascribed to the supply made by the intermediary operator.
  • The simplification rule for call-off stocks establishes that no (deemed) intra-Community supply of goods and no (deemed) intra-Community acquisition are effected by the supplier at the time of dispatch or transport of the goods to the stock located in another Member State. The zero-rated intra-Community supply of goods by the supplier in the Member State of departure, and the intra-Community acquisition of goods by the acquirer in the Member State where the stock is situated, only take place at a later stage when the acquirer takes ownership of the goods. Therefore, the foreign supplier will not be obligated to register for VAT purposes in the Member State of destination. To use this simplification rule for call-off stock arrangements, the supplier has to record the dispatch or transport of the goods in a register and declare the VAT identification number of the intended acquirer in the recapitulative statement submitted for the period of the transport of the goods and the period of withdrawal of the goods from the call-off stock.
  • For the exemption of intra-Community supplies of goods, the taxable person or non-taxable legal person for whom the supply is made has to be identified for VAT purposes in a Member State other than that in which the dispatch or transport begins, and the taxable person or non-taxable legal person for whom the supply is made must indicate the VAT identification number to the supplier. In the event that the acquirer does not provide a VAT identification number to the supplier, or if the VAT identification number is invalid or if it is not stated in the recapitulative statement, the exemption of intra-Community supplies of goods will not apply.
  • The provisions on proof of transportation and dispatch for intra-Community supplies of goods will be harmonised by the EU Member States.

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

  • The threshold for the exemption for small businesses will increase 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 is 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, entitle businesses to deduct input tax. The decisive factor is carbon dioxide emissions of zero grams per kilometre.

Rupert Wiesinger
Melanie Kaltner

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

Marianna Dozsa

Partnerin, PwC Austria

+43 676 833 773 239

E-Mail

Peter Draxler

Partner, Standort Linz, PwC Austria

+43 676 833 771 54

E-Mail

Johannes Edlbacher

Partner, PwC Austria

+43 699 199 167 83

E-Mail

Peter Hadl

Partner, PwC Austria

+43 676 833 778 003

E-Mail

Copyright and Publisher: PwC Österreich GmbH Wirtschaftsprüfungsgesellschaft, Donau-City-Straße 7, 1220 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