Issue 68

Austrian Ministry of Finance: Restrictions to withholding tax relief at source for distributions to intermediate holding companies

According to a legal opinion recently published by the Austrian Ministry of Finance (EAS 3422), in relation to non-EU countries, withholding tax exemption can only apply if the direct beneficial owner is active beyond mere asset management.

Facts

A US holding company (asset management only) holds 100% of the shares in a limited liability company (“GmbH”) based in Austria. The US holding company itself is fully held by the operating and listed US parent company.

Question

Can a dividend payment by the “GmbH” to its US holding parent company be made without levying withholding tax (exemption at source)?

Legal opinion of the Austrian Ministry of Finance

In general, under the DTT Austria-USA, a withholding tax right of 5% applies (provided that the US holding company as the beneficial owner holds at least 10% of the voting shares in the GmbH). However, exemption from withholding tax at source can only be granted if the documentation requirements, as set out in the Austrian DTT relief ordinance (DBA-Entlastungsverordnung), are met. This requires proof of substance, including proof of an activity beyond mere asset management. Therefore, if the holding company performs mere asset management, no exemption at source is possible.

Conclusion

With this, the Federal Ministry of Finance draws a distinction in the treatment of non-EU cases and EU cases (application of the Parent-Subsidiary Directive):

In EU cases, the withholding tax exemption at source is accepted if the conditions for the exemption are met by the higher-level operating (grandparent) company. This seems to be based on ECJ case law, as the prohibition of an exemption at source cannot be justified by general suspicions of abuse.

Since this restriction does not apply in relation to non-EU cases, the Austrian tax authorities intentionally apply a stricter standard for such DTT cases.

Michael Wenzl
Christina Hirsch

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Austrian Ministry of Finance announces further change in tax law on wage tax withholding for employers without a permanent establishment in Austria

As of January 1, 2020, the Austrian Tax Amendment Act 2020 (AbgÄG 2020) extended the requirement to withhold Austrian wage tax to employers of individuals subject to unlimited tax liability in Austria even if the employer does not have a permanent establishment (PE) for wage tax purposes in Austria.

The new tax regulation has received criticism since it subjects foreign employers to wage tax withholding obligations, even in cases where the employee does not perform any work for the employer in Austria at all.

On November 26, 2019, the Austrian Ministry of Finance published information announcing the intention to amend this new legal provision soon. It is planned that wage tax withholding will be mandatory in these cases only if both the following conditions are fulfilled:

• The employee physically carries out activities for the employer in Austria
• The taxation rights on the employment income are allocated to Austria under the applicable double taxation treaty.

This view is also reflected in the non-binding Austrian wage tax guidelines issued on December 17, 2019. However, legal certainty will only be achieved once this further amendment has been passed and becomes effective.

If the legal changes are introduced as announced, employers without an Austrian wage tax PE will mainly be obliged to withhold wage tax for employees with unlimited tax liability in Austria in the following cases:

• Employees sent on assignment to Austria for more than six months, if the employee has a residence or habitual abode in Austria.
• Austrian resident employees working partly from a home office in Austria.

Alexandra Platzer
Benedikt Hörtenhuber

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Austrian government programme 2020: The future of the Austrian tax system

At the beginning of the year, the new Austrian coalition government formed by the conservative People’s Party (ÖVP) and the ecologist Green Party published its government programme. The government took office on January 7, 2020.

On matters of fiscal policy, the programme represents a compromise between maintaining and strengthening Austria as a business location and ‘greening’ the tax system.

Stronger business location / tax relief

The following measures were announced in particular:

• Reduction of corporate tax rate to 21% (currently 25%), at the lower end of the range of corporate tax rates in the EU
• Reduction of individual income tax rates for the first three brackets (25% to 20% for the first bracket, 35% to 30% for the second, and 42% to 40% for the third bracket)
• Introduction of an employee profit participation model without the need to acquire shares (details still open)
• Measures simplifying the Austrian tax system and modernising dealings with the tax administration
• Review of possibility of reducing payroll-related employer taxes
• Abolition of the minimum corporate income tax
• Abolition of the sparkling wine tax
• Increase of the limit for the immediate depreciation of low-value assets to EUR 1,000
• Review of different measures to support SMEs such as the simplification of business transfers within the family or the implementation of (tax) incentives for granting of private risk capital

Additionally, the new coalition emphasised its commitment to fight tax evasion.

Green taxation

In the government programme, the government has committed itself to combatting the climate crisis using fiscal/ tax policy. In this, Austria is part of an international trend and in line with the European Green Deal of the new European Commission.

The aim is to lead the way in ‘greening’ the tax system, particularly in relation to the pricing of CO₂ emissions. At the same time, the government also acknowledges its responsibility to maintain Austria’s ability to compete internationally. As a result, industry-specific relief measures and incentives are intended to ensure that companies do not face additional burdens.

A two-tier approach is planned, with transport-related measures to be introduced first. This includes the ‘ecologisation’ of various areas such as the commuter allowance, taxation of company cars, car registration tax and car tolls. Subsequently, it is planned to implement instruments to price the real cost of CO₂ emissions.

Apart from transport-related measures, no specific details of the planned changes have been announced yet. A task force will be set up to propose new rules, which are expected to take developments on the European level and in neighbouring countries into account. In addition, coordination on the European level will help prevent double pricing of CO₂ emissions.

Timing

At their first government retreat session at the end of January, the new coalition presented an initial timetable for the implementation of the tax plans. The reduction of individual income tax brackets will be spread across 2021 (first bracket) and 2022 (second and third bracket). Additionally, in 2021 the government will present its plans to change the taxation of company cars and car registration tax, as well as the instruments to price the cost of CO₂ emissions.

No further details on timing have been presented. In particular, no date for the reduction of the corporate income tax rate has been set. It seems that this measure is currently not the primary focus of the new coalition and will be deferred to a later stage of the coalition period.

Michael Wenzl

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