English Summary 05+06/2022

Government bill of the Tax Amendment Act 2022: Key changes in tax law

On June 15, 2022 a government bill of the Tax Amending Act 2022 (“AbgÄG 2022”) was brought before the Austrian parliament. The AbgÄG 2022 includes some welcome changes in Austrian tax law. The aim is (in particular) to support companies and individuals, adapt Austrian tax law to the provisions of the EU law and facilitate research and development.

Most of the new provisions shall become effective on January 1, 2023. However, some of the provisions shall be applicable in 2022. 

C. Plott / M. Milekic

Green Taxes – tax exemptions for renewables, pricing of CO₂ emissions

Via the Eco-Social Tax Reform, Austria extended the electricity tax-exemption for renewable power: It is no longer limited to a volume of 25 000 kWh, and also covers the consumption by members or shareholders of the producer. The electricity-tax-exemption for railway-power has been extended to tramways, trolleybuses, sky-trains, the underground and similar railways. Private producers operating photovoltaic-assets selling their production-surplus will also be exempt from Income Tax. Taxation of CO₂-emissions will only start from October 2022 - the climate bonus for 2022 will be raised to EUR 500 per person (irrespective of residence). 

B. Matzka / K. Nadlinger

Transfer of excess borrowing costs and unused interest capacity for the purposes of the ATAD-EBITDA-interest deduction restriction

The Austrian Ministry of Finance recently published an ordinance on provisions for the transfer of excess borrowing costs and unused interest capacity in reorganizations for the purposes of the ATAD-EBITDA-interest deduction restriction.

F. Brugger / L. Franke

Group taxation: Horizontal offsetting of results between Austrian subsidiaries of a German parent company

The Austrian Federal Finance Court (BFG) permitted in its ruling of 31 March 2022, RV/7104573/2020, a foreign parent company without a branch in Austria as a group parent to form a tax group with its domestic subsidiaries as group members under Art 9 Austrian Corporate Income Tax Act, thus enabling a horizontal offsetting of results between the Austrian sister companies. According to the Austrian Federal Finance Court, the obligation for a registered domestic branch constitutes a prohibited restriction under European Union law.

F. Kleemann / N. Skala / E. Kara

No general withdrawal from CIT tax group in the event of a merger with a corporation outside the tax group

Under Austrian tax law, financially related corporations may form a tax group for CIT purposes. If a group member is merged into a non-group corporation (merger under Art I Austrian Reorganization Tax Act), this group member generally leaves the tax group (if the statutory minimum period of three years is not fulfilled, there is a reversal for tax purposes – the corporation is treated as if it had never been a member of the tax group). According to the Austrian tax authorities, this is also the case if the acquiring corporation is a member of the tax group on the day after the merger date. The acquiring corporation can be included in the group (if the legal requirements are met), but the transferred group member leaves the group beforehand.

In its recent ruling, the Austrian Federal Finance Court (BFG) has now opposed this view. In the case underlying the ruling, a corporation that was a member of a tax group was merged with a sister corporation that was not included in the group until after the merger date. According to the BFG, there should be no withdrawal from the tax group if the acquiring corporation is part of the tax group on the day after the effective date of the merger (and the beginning of the business year of the acquiring corporation coincides with the day after the effective date of the merger). 

L. Andreaus / J. Derflinger

Austrian Federal Finance Court: No profit realization prior to the profit distribution resolution

Profit distributions that have not yet been resolved or determined based on reasonable judgment as of the balance sheet date are not to be allocated to the parent company's profit or loss. Whether the distribution of a certain share of profit has already been determined on the balance sheet date has to be assessed based on objective, verifiable and externally visible criteria. A profit from the liquidation of a subsidiary is only realized at the time of the termination of the liquidation, thus with the deregistration of the corporation in the commercial register.

E. Rohn / E. Hemetsberger

Withholding tax in case of cross-border software licensing arrangements – change in Austrian administrative practice

The Austrian Ministry of Finance (BMF) has recently issued an opinion (EAS 3436) in respect of withholding tax issues arising from cross-border software licensing arrangements. Hereby, the opinion expressed represents a significant shift from the previous prevailing Austrian administrative practice. Based on the BMF’s present view, the licensing of application software – ie software used in the licensee’s enterprise (without any additional right of exploitation or modification) – shall no longer be considered as “industrial equipment” in the meaning of the royalties article of relevant Double Tax Treaties (following the OECD-MC prior to 1992), as the term “industrial equipment” shall (from now on) only refer to tangible assets (and no longer also cover intangible assets). This new legal interpretation of the Austrian Ministry of Finance (BMF) has a significant potential to lead to negative tax implications for Austrian entities involved in cross-border software licensing arrangements. This would especially be true in cases, in which the underlying DTT contains an “equipment clause” in the royalties article (Art 12), as income arising from relevant software licensing arrangements might be classified as “royalties” by the relevant (foreign) DTT partner and in consequence trigger foreign WHT. Such WHT would, however, no longer be creditable at the level of the Austrian licensor, given the Austrian BMF’s shift in interpretation. Against this background, double taxation conflicts are already predictable and will potentially lead to time-consuming mutual agreement procedures. Therefore, from a company’s point of view, increased diligence will be required in respect of future tax returns, as part of which foreign WHT resulting from software licensing arrangements shall be credited. 

T. Hahn

Austrian VAT refund for tax payers situated in non-EU-countries

Non-EU tax payers may apply for a VAT refund regarding the year 2021 in Austria until June 30, 2022. Please note that any applications filed after this date will be rejected by the tax authorities. 

F. Kleemann

Austrian Federal Finance Court and Austrian Administrative Supreme Court on extraordinary depreciation of real estate

In its decision of August 26, 2020 (RV/5101409/2019), the Austrian Federal Finance Court permitted the depreciation of 2 difficult-to-sell apartments in a new development project, due to their unfavorable location within the building and external influencing factors (e.g. noise), which also existed at the start of the construction work. The Austrian Administrative Supreme Court remanded the respective decision and stated, that an extraordinary depreciation on real estate needs to be substantiated through appropriate supporting documents (to be provided by the taxpayer). The Austrian Federal Finance Court further stated that e.g. experts opinions would be appropriate. Such appraisals further require detailed elaborations on the decreased value of the respective real estate. 

M. Vaishor / K. Postlmayr

Missing justification of a relevant fact by the Austrian Federal Finance Court is a material procedural violation

The Austrian Federal Finance Court assessed the estimation of taxes as lawful and decided in particular based on the testimony of two former workers. In the hearing on the case, other former workers, presented by the appellant, supported the opinion of the appellant that the estimation was not correct. Consequently, the Austrian Federal Finance Court had to substantiate, why the testimonies of these persons could be neglected form the Court’s point of view. If this is not done, the decision of the court has to be suspended by the Austrian Administrative Supreme Court due to an infringement of procedural rules.  

C. Endfellner

Austrian Administrative Supreme Court on the failure to forward submissions by the tax authority: illegality of the Austrian Tax Court decision

During proceedings before the Austrian Federal Finance Court, the tax authority and the complainant are equally obliged to immediately inform the Austrian Federal Finance Court of all circumstances relevant to the decision. In this specific case, the tax authority did not forward the complainant's request for evidence to the Austrian Federal Finance Court. Therefore, the decision of the Austrian Federal Finance Court was unlawful and annulled according to a recent decision by the Austrian Administrative Supreme Court.

S. Papst / W. Gurtner / S. Rettenbacher

Supreme Administrative Court on the liability of the managing directors for irrecoverable taxes of the company: lack of justification of discretion makes decision by tax office unlawful

If taxes cannot be collected from the company, the managing directors shall be liable in accordance with Art 9 Austrian General Federal Fiscal Code (BAO). The authority has discretion in making use of this liability. According to the established case law of the Austrian Administrative Supreme Court the managing director, who bears the responsibility under tax law in the company, is to be held liable. However, if there is a reason to doubt the proper management of the responsible managing director, the other managing directors must take remedial action. Otherwise, they may be held liable themselves according to a recent decision by the Austrian Administrative Supreme Court

S. Papst / W. Gurtner / S. Rettenbacher

Austrian Federal Finance Court on tax liability of death benefit payment: NO intentional tax evasion

The recipient of a death benefit payment misjudged his tax liability. The payment was therefore unlawfully not included in the tax return. However, since the death benefit payment corresponds to the character of a tax-exempt life insurance, it is qualified as an excusable error and thus, there is no intent for the purposes of financial criminal law according to a recent decision of the Austrian Federal Finance Court. NO intent 

S. Papst / W. Gurtner / E. Hemetsberger

Special flat tax rate for income from non-securitized derivatives

Up to now, the income generated from non-securitized derivatives was subject to the progressive income tax rate, if trading was handled by a foreign bank. In case of domestic banks, there is a special flat tax of 27.5 % applicable if the domestic bank voluntarily withholds capital gains tax on the positive income from non-securitized derivatives. As this voluntary withholding is only available for domestic banks, the same income generated through a foreign bank was always subject to the progressive income tax rate in Austria. This regulation therefore puts foreign banks at a disadvantage compared to domestic banks, as Austrian investors pay higher taxes on the same kind of income. Therefore, the Austrian Administrative Supreme Court decided that this is an infringement the freedom to provide service and income from non-securitized derivatives processed via a foreign bank within the EU is also subject to the special flat rate of 27.5%.

Even before publication of the Administrative Supreme Court judgement, a tax reform was enacted in Austria that extends the rule for voluntary withholding of capital gains tax and consequently the access to the special flat tax rate. The voluntary withholding of capital gains tax is now also applicable not only to banks from EU Member States, but also to investment firms, payment service providers and e-money institutions with whose country of residence Austria has concluded a comprehensive administrative assistance agreement. It can already be applied to investment income from non-securitized derivatives received by Austrian investors after 1 March 2022.

F. Kleemann / N. Skala / L. Unterluggauer

Publicly Traded Partnerships included in QI Agreement effective 2023

The IRS has released proposed changes to the QI Agreement to include Sections 1446(a) and (f) in the definition of Chapter 3. The changes would apply to sales of an interest in a publicly traded partnership (PTP) or receipts of a distribution from a PTP by a QI for its customers and would become effective on 1 January 2023 together with the required renewal of the QI Agreement. The proposes changes will impact the documentation, withholding and reporting responsibilities of QIs from 2023 onwards.

P. Rümmele