Austrian publishes Ministerial Draft for Pillar II Implementation Law

On 3 October 2023, the Austrian Ministry of Finance has published its draft for a Pillar II implementation law (Mindestbesteuerungsgesetz – MinBestG). According to the explanatory remarks, Austria expects tax revenues of about EUR 100 Mio. In this Tax Flash, we give a first overview of the main issues included in the Ministerial Draft.

• Austria intends to implement Pillar II by means of a separate law rather than amending the Austrian Corporate Income Tax Act. It will include an Income Inclusion Rule (IIR, applicable for fiscal years starting on or after 31 December 2023), an Undertaxed Profits Rule (UTPR, applicable for fiscal years staring on or after 31 December 2024) as well as a Qualified Domestic Minimum Top-Up Tax (QDMTT). Moreover, all Safe Harbours as suggested by the OECD in its various Pillar II publications (e.g. temporary safe harbours, permanent safe habour for Non-Material Constituent Entities, QDMTT safe harbour, temporary UTPR safe harbour) will be implemented.

• The temporary Safe Harbours (de-minimis test, simplified ETR test, routine profits test) require a qualified CbCR. This means the CbCR data have to be based on a qualified financial reporting. Considering the wording of the Ministerial Draft, it is to be expected that CbCRs that are based on (e.g. IFRS) Reporting Packages should fulfill this requirement. Thus, for Austria, typically no amendment of the CbCR process should be necessary.

• There will also be a temporary UTPR safe harbour so that Austria will not apply the UTPR for fiscal years starting on or after 31 December 2025 and ending before 31 December 2026 if the nominal corporate income tax rate of the other jurisdiction amounts to at least 20 percent.

• The QDMTT safe harbour will also be implemented. Thus, if a Austrian group has foreign Constituent Entities (CE) which are resident in a jurisdiction that has implemented a QDMTT, the Austrian CE’s can apply a safe harbour so that they neither have to make Pillar II calculations nor have to pay a top-up tax for a potential low taxation in the other jurisdiction. From a practical perspective, this is insofar important as it means that Pillar II (at least from an Austrian perspective) is not necessarily an issue that has to be dealt with centrally by the Ultimate Parent Entity. Rather, the main responsibility rests with the respective foreign jurisdiction, i.e. a decentralized approach is possible (if not advisable).

• The Pillar II calculations have to be based on accounting information which have to be compiled based on the reporting standard of the Consolidated Financial Statements. Thus, Austria has not opted for applying Austrian GAAP for its QDMTT.

• Austrian Constituent Entities are, in general, required to file a GloBE Information Return (GIR) within 15 months after the end of the Reporting Fiscal Year (18 months for the transitional year). However, the draft also provides the option to transfer the obligation to file the GIR to another Austrian Constituent Entity. Thereby, it is possible that only one GIR is filed for all Austrian Constituent Entities. In addition, a top-up tax return and the payment of any top-up tax due must be filed and paid within 24 months after the end of the calendar year in which the fiscal year ends. According to the draft, the top-up tax liability will be centralized in one of the Austrian Constituent Entities. The draft provides for the option to identify a local group member that is responsible for filing the local tax return and to pay the top-up tax on behalf of all minimum tax group members. Where no such group member has been identified, the obligation would be passed on to the top domestic parent or the economically most significant local group member. Since the tax liability is thereby centralized, it is legally required to conclude an internal agreement between the Austrian Constituent Entities on how to split up this centralized tax liability amongst them, based on their individual “responsibility” for the top-up tax that has to be paid.

• Failures to comply with the administration of the GloBE rules can be sanctioned with a fine of up to EUR 100,000 (EUR 50,000 in case of gross negligence).