In review: corporate tax planning developments in Austria

An extract from The Corporate Tax Planning Law Review – Edition 3Local developmentsSome of the most important cornerstones of the Austrian corporate tax regime and, due to this fact, key elements of excessive significance in phrases of tax planning are addressed in this Section.i Entity typesCorporate enterprise is in the overwhelming majority of instances carried out in the type of an organization. In Austria there are two main types of firms: the restricted legal responsibility firm (GmbH) and the inventory company (AG). A 3rd, though not excessively common, potential kind could be the societas Europaea, whose regulation is harmonised throughout the EU. In the next, a number of the key variations between the 2 commonest types of firms shall be described:The GmbH as a personal restricted firm sometimes has a slightly low whole variety of shareholders and its shares can’t be traded on a inventory change. In addition, the transferability of its shares will be additional restricted by way of the company’s statute. In normal, there may be a variety of potentialities concerning the design of the company’s statute. The GmbH’s shareholders are entitled to intervene in corporate administration and are allowed to offer directions to the managing administrators. The share capital must be a minimum of €35,000 and there may be the potential of claiming a privilege for newly fashioned firms, which reduces the capital requirement to €10,000. There aren’t any residential necessities for managing administrators and, since 2018, there may be additionally the potential of forming a one-man company.The AG, nonetheless, is a public restricted firm, whose shares will be listed on a inventory change and are often held in financial institution deposits. Generally, an AG’s shares have a better diploma of fungibility, which in return comes with an elevated statutory strictness. A supervisory and a administration board are obligatory our bodies of the AG, they usually act largely independently from the shareholders in phrases of enterprise choices.These firms are handled as opaque authorized entities for Austrian (corporate) earnings tax functions and, due to this fact, are topic to Austrian corporate earnings tax. Income realised by these entities is taxed instantly on the stage of the company. These entities might also be topic to VAT in the event that they qualify as entrepreneurs for VAT functions.Partnerships, nonetheless, are additionally authorized entities, however are handled as clear for earnings and corporate earnings tax functions.The Offene Gesellschaft is designed as a normal partnership (with limitless legal responsibility of the companions), whereas the Kommanditgesellschaft (KG) features as a restricted partnership (with a minimum of one normal accomplice having limitless legal responsibility, whereas a restricted accomplice’s legal responsibility is proscribed to his or her contribution). A partnership will also be used as a ‘de-facto company’ if its sole normal accomplice is an organization (e.g., a GmbH, which is commonly known as a ‘GmbH & Co KG’).Apart from these partnerships, there may be additionally a Gesellschaft bürgerlichen Rechts, a normal partnership beneath civil regulation that’s not considered a separate authorized entity beneath Austrian regulation.Owing to the partnerships being considered absolutely clear, their earnings is taxed professional rata on the stage of the companions. Treatment for VAT functions, nonetheless, is dependent upon whether or not the partnership qualifies as entrepreneur.ii Taxation of corporate earningsIn normal, the willpower of the taxable corporate earnings is predicated on the Austrian GAAP account. However, changes are essential to adjust to particular tax provisions (e.g., deductions disregarded for tax functions or attributable to totally different depreciation intervals, and so forth.). However, the consolidation of the tax and business steadiness sheet has been meant for years, however has not been carried out thus far.The Austrian corporate earnings tax price at present is 25 per cent. Previously, the Austrian federal authorities had introduced that it meant to cut back this price to 21 per cent; nonetheless, in the sunshine of elevated authorities spending following the covid-19 pandemic, it’s unclear if these plans will nonetheless be pursued. An annual minimal corporate tax of €1,750 for restricted legal responsibility firms (with lowered minimal taxes for newly fashioned firms inside their first 10 years of existence) and €3,500 for inventory firms is levied. Corporate earnings is topic to corporate earnings tax no matter its supply, until a tax exemption applies (e.g., for dividends as addressed beneath).Under Austrian regulation, an organization is considered resident if it has its registered workplace or its efficient place of administration in Austria. The registered workplace is the place decided in the company’s articles of affiliation. The efficient place of administration is the place the place important enterprise choices are taken by the company’s managers. Dual-resident firms doubtlessly face limitless tax legal responsibility in each Austria and the opposite nation. If a double taxation settlement (DTA) applies, the double taxation of dual-resident firms is averted by tie-breaker guidelines. Pursuant to most Austrian DTAs, a dual-resident company is considered resident in the state the place its efficient place of administration is positioned. In this respect, Austria has not adopted Article 4 of the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI) with its new guidelines for dual-resident firms. If limitless tax legal responsibility applies, corporate earnings tax on all the company’s earnings (each home and overseas earnings) is levied. If there may be solely a everlasting institution in Austria, the company is barely obligated to pay Austrian corporate earnings tax on income arising from its home enterprise actions.A clear entity’s earnings is allotted on to its companions. Therefore, the taxation of a partnership’s earnings is dependent upon the residence of its companions (both people or firms).Individuals working a enterprise as sole proprietors are topic to non-public earnings tax at a progressive price beginning at 25 per cent (for web earnings above €11,000) and going as much as a most price of fifty per cent (for web earnings above €90,000). For web earnings above €1 million, a particular most tax price of 55 per cent applies. This particular most price at present applies till and together with 2025.iii Tax incentivesCurrently in Austria, no particular tax regimes resembling enterprise zones or beneficial tax regimes for monetary companies exist.There can be no patent field regime however as compensation, the Austrian tax regulation offers for a aggressive bonus system encouraging home analysis and growth actions. A cash-premium for certified expenditures is granted so far as they’re exercised domestically by Austrian firms or by Austrian everlasting institutions of overseas firms. This premium quantities to 14 per cent of the respective bills and is unrestricted for in-house analysis, however restricted to bills of €1 million for exterior analysis.Further reduction is offered by way of the potential of deducting curiosity bills incurred throughout transactions involving an Austrian company buying one other Austrian company. These curiosity bills incurred for the acquisition of an Austrian goal company might in normal be deducted from the Austrian corporate earnings tax base of the home buying company (though sure limits might apply). This chance will be additional enhanced by forming a tax group between the buying and the goal company, to switch future working income of the goal company to the extent of the buying company the place they are often set off with the present curiosity bills generated from the debt used for the acquisition (for tax teams see beneath).The carry-forward of tax losses is feasible with out limitation. This chance is, nonetheless, solely permitted with regard to business-related losses. The deduction of the loss carry-forward is proscribed to 75 per cent of the company’s annual taxable earnings, the remaining losses, nonetheless, are deductible in later intervals (once more making use of the identical 75 per cent limitation). The utilisation of carried-forward tax losses on the corporate stage is, in principal, potential regardless of shareholder modifications, till the purpose of a ‘change in possession’ is reached. According to this rule, loss carry-forwards are forfeited, if a considerable change in the company’s shareholder construction in mixture with a considerable change in its enterprise and administration construction happens. This rule, nonetheless, doesn’t apply in sure instances of corporate reorganisations. Generally, there is no such thing as a carry-back possibility out there. To mitigate the impacts of the covid-19 induced financial disaster, the Austrian legislator, nonetheless, offered for a one-time chance to carry-back losses occurred in the 12 months 2020. Accordingly, such losses could also be utilised in the years 2019 (as much as a most quantity of €5 million) and 2018 (as much as a most quantity of €2 million). Finally, sure corporate earnings tax exemptions concerning earnings from worldwide participations could also be relevant (for that see beneath).iv Tax groupingThe Austrian tax group regime permits the consolidation of a guardian company’s taxable earnings with the taxable earnings of their Austrian subsidiaries on the stage of the higher tier guardian company (the ‘tax group guardian’). As a tax group guardian solely an Austrian company or a certified everlasting institution of an EU or EEA entity could also be thought of. The tax group guardian should maintain greater than 50 per cent of the capital and voting rights in the Austrian subsidiary company (the ‘tax group member’) for the reason that starting of the subsidiary’s fiscal 12 months. Both direct and oblique participations are conceivable (e.g., by way of a partnership or additional tax group member). If the necessities are fulfilled, an utility for group taxation could also be submitted to the competent tax workplace. The total earnings of the subsidiary is then allotted to the taxable earnings of the tax group guardian, though there is no such thing as a want to truly switch the respective income. In this respect the earnings of every tax group member must be calculated individually, which additionally contains the submitting of annual corporate earnings tax returns to the Austrian tax authorities. The tax group guardian is then the one entity in opposition to which corporate earnings tax will likely be levied. For the tax group regime, a minimal length of three fiscal years applies, in any other case a recapture rule offers for retroactive taxation on a stand-alone foundation.With regard to overseas subsidiaries, the tax group regime is barely out there for first-tier tax group members in relation to which an Austrian tax group member or tax group guardian fulfils the participation requirement of greater than 50 per cent of capital and voting rights. Apart from this, a overseas tax group member is barely accepted if its residence is both in the EU or in another nation with which Austria has agreed on a complete mutual change of data (for instance, the United States or China). Another distinction in comparison with domestic-only tax teams is that the overseas losses might solely be offset from the Austrian tax base proportionally in relation to the precise share of the share held in the overseas company. However, sure recapture guidelines might apply in this context (e.g., for disposal of the overseas company).The Austrian tax system additionally offers for a gaggle for VAT functions, though totally different standards apply in this respect.v Taxation of dividendsWith regard to dividend earnings from overseas firms, a reduction (the ‘worldwide participation exemption’) might apply beneath the next circumstances: the overseas subsidiary is an EU-resident company listed in Annex 2 of the EU Parent–Subsidiary Directive or a overseas entity corresponding to an Austrian company; the respective participation quantities to a minimum of 10 per cent of the subsidiary’s nominal capital; and the participation is held for an consecutive interval of a minimum of one 12 months. The worldwide participation exemption is denied if the overseas company is taxed overseas at a low price (no more than 12.5 per cent) and primarily derives passive earnings. In this case, a ‘switch-over’ applies and the exemption of the dividend is changed by a crediting of the underlying overseas corporate tax on the Austrian corporate earnings tax levied on the dividend. On 1 January 2019, normal managed overseas firm guidelines (CFC guidelines) with regard to overseas subsidiaries entered into drive in Austria. Since then, the switch-over provision solely applies to participations in overseas subsidiaries of lower than 50 per cent. For participations exceeding this threshold, the CFC guidelines might apply. The CFC guidelines might outcome in an attribution of low-taxed passive earnings (e.g., earnings from curiosity, licences, dividends or earnings derived from the sale of shares) of the managed firms or everlasting institutions to the controlling home company. The goal is to stop revenue shifting to low or no tax international locations. However, exceptions exist for overseas entities with vital financial exercise in phrases of personnel, gear, property and premises. Furthermore, Austria has additionally made use of the choice offered for in the ATAD, pursuant to which CFC laws shall solely apply if the overseas subsidiary’s passive earnings accounts for greater than one-third of its whole earnings. Therefore, Austrian CFC laws doesn’t apply if a minimum of two-thirds of the subsidiary’s earnings originates from energetic sources.Even earlier than the introduction of the aforementioned CFC guidelines, normal anti-abuse provisions and the ‘substance-over-form’ strategy had been utilized by the Austrian tax authorities (and are nonetheless relevant subsequent to the appliance of CFC guidelines) in relation to overseas subsidiaries of Austrian firms. Pursuant to those provisions, a transparency strategy may very well be utilized, and the overseas subsidiary’s earnings might instantly be allotted to the Austrian shareholder in the case of ‘wholly synthetic preparations’ or utterly managed administration by the Austrian shareholder. These normal anti-abuse guidelines will stay of significance even after the implementation of the CFC guidelines, in instances the place the CFC guidelines don’t apply (e.g., in relation to people as shareholders of overseas firms).Dividend earnings from participations amounting to lower than 10 per cent (the ‘portfolio participations’) in overseas firms is exempt from corporate earnings tax beneath the next circumstances: the overseas firm is corresponding to an Austrian company; is both resident in a rustic with which Austria has agreed on a complete change of data, or is resident in the EU and listed in the annex to the EU Parent–Subsidiary Directive; and isn’t in the scope of the worldwide participation privilege. The portfolio participation exemption doesn’t apply on portfolio participations of greater than 5 per cent if the overseas company is taxed at a low price overseas (lower than 12.5 per cent) and primarily derives passive earnings.In normal, the exemptions of overseas dividends don’t apply in ‘hybrid’ conditions. A regulation focusing on hybrid mismatches entered into drive on 1 January 2020, aiming at neutralising so-called Deduction/No Inclusion (D/NI) and Double Deduction (D/D) conditions. In this respect D/D means an association, the place a deduction associated to the identical contractual obligation is claimed for earnings tax functions in two totally different international locations and D/NI an association that creates a deduction in one nation, however avoids a corresponding inclusion in the taxable earnings in one other nation.Regarding dividends paid from Austrian firms to overseas firms, strict guidelines beneath the EU Parent–Subsidiary Directive apply. The receiving EU guardian has to have workplace house and personnel and should conduct precise operative actions. If these standards aren’t met, tax must be withheld on the dividends in Austria. In principal, the identical guidelines apply for the eligibility of non-resident firms for reduction beneath DTAs.vi Withholding taxesIn Austria, a number of cross-border constellations might set off withholding tax. As talked about earlier than, withholding tax first applies if dividends are paid by an Austrian company to a overseas shareholder. The tax price quantities to 25 per cent (respectively 27.5 per cent if paid to a non-corporate shareholder), until a decreased price in keeping with a sure DTA applies. As already outlined above, dividends paid to sure kinds of firms listed in the EU Parent–Subsidiary Directive and which are resident in one other EU Member State are exempt from Austrian withholding tax if the EU guardian: holds a minimum of 10 per cent of the issued share capital of the Austrian subsidiary for an consecutive interval of a minimum of one 12 months; can show enough substance in phrases of workplace house and personnel; and conducts precise operative actions in its state of residence. If the necessities for the dividend reduction at supply aren’t met (e.g., attributable to lacking), the EU guardian might file a request for refund with the Austrian tax authority. The refund will likely be granted until in the occasion of an abuse. Apart from this normal reduction beneath the EU Parent–Subsidiary Directive, Austrian corporate earnings tax regulation additionally offers for a refund of Austrian dividend withholding tax upon the request of firms resident in the EU or EEA, whatever the share held in the Austrian company and the interval of holding. The refund solely takes impact to the extent that the Austrian dividend withholding tax shouldn’t be credited in the guardian’s Member State of residence.Furthermore, curiosity earnings paid by Austrian debtors is topic to a withholding tax of 25 per cent (respectively 27.5 per cent in case of people as earnings recipients). However, until the curiosity cost is obtained by way of an Austrian everlasting institution non-tax residents aren’t topic to tax legal responsibility in Austria if (1) the recipient is both a non-tax resident company or a non-tax resident particular person, resident in a rustic that’s dedicated to an computerized change of data with Austria; and (2) a certificates of residence is offered by the recipient. In these instances Austrian withholding tax doesn’t apply.Royalties paid to non-resident recipients (until these are exempt from withholding tax pursuant to the EU Interest and Royalties Directive) and costs for technical or business advisory companies are topic to a withholding tax of 20 per cent, until a decreased price applies beneath a DTA.A particular withholding tax of 8.25 per cent (respectively 10 per cent in case of people) applies on earnings derived from the letting of rights in reference to the transmission of power or the usage of cables in public curiosity.Interest funds to non-residents beneath plain vanilla loans are at present not topic to Austrian withholding tax, until the mortgage is secured with home actual property. Interest funds on financial institution deposit or sure publicly issued corporate bonds, nonetheless, set off withholding tax if an Austrian paying agent or custodian is concerned.vii Inbound financingIn Austria, there are at present no guidelines carried out that concentrate on skinny capitalisation (also referred to as ‘skinny cap’). Thin cap in this respect refers back to the scenario in which an organization is financed by way of a comparatively excessive stage of debt in comparison with fairness, to profit from the debt’s tax-lowering impact.The Austrian Supreme Administrative Court, nonetheless, has, by way of its previous case regulation, established pointers to find out whether or not the related-party financing was acceptable for Austrian tax functions. If the funding was regarded insufficient, curiosity bills for related-party debt was disregarded for tax functions. Interest funds made beneath this disregarded related-party debt was recharacterised into constructive dividends and in consequence was topic to withholding tax. In this respect a debt-equity ratio of 4:1 was seen as a typical sensible guideline. While the Austrian Supreme Administrative Court not follows this precept, the tax authorities nonetheless apply this case regulation.In normal, the financing construction of an Austrian company should be at arm’s size, in any other case the tax authorities might recharacterise related-party debt into fairness or regulate the rate of interest beneath related-party debt. Interest bills instantly referring to tax-exempt earnings aren’t deductible. Additionally, intra-group curiosity and royalties are non-deductible if the overseas receiving company is topic to a low tax price. After a prolonged controversy between the Austrian federal authorities and the EU fee, the Austrian legislator enacted an curiosity barrier regime in response to the duty set out in the ATAD on the finish of 2020. This new regime, which entered into drive in mid-January 2021 with retroactive impact from 1 January 2021, could be very a lot based mostly on the corresponding Article 4 of the ATAD and likewise accommodates almost all of the potential reliefs offered for therein.viii Transfer pricingIn normal, all transactions between associated events need to be at arm’s size. This implies that related-party transactions should be set in the identical approach as they’d be in a comparable transaction between unrelated third events. The Austrian understanding of the arm’s-length precept corresponds to the arm’s-length precept laid down by the OECD in the Transfer Pricing Guidelines. For all firms (and branches of overseas firms) resident in Austria documentation necessities exist.Pursuant to the Austrian Transfer Pricing Documentation Act, Austrian group firms with an annual turnover of greater than €50 million over two consecutive years have to arrange a grasp or native file, or each, alongside the traces of BEPS Action 13. The content material and kind necessities of the grasp file corresponds to these described in Annex I to Chapter V of the OECD Transfer Pricing Guidelines. The native file’s anticipated core info is described in Annex II to Chapter V of the OECD Transfer Pricing Guidelines. In addition, massive multinational enterprises with consolidated group income of a minimum of €750 million need to submit country-by-country reviews (CbCRs). The final guardian has to submit the CbCR on an annual foundation in keeping with the shape described in the Annexes I, II and III of the Austrian Transfer Pricing Documentation Act to the tax administration, which then shares the obtained info with all collaborating jurisdictions, the place entities of the multinational enterprise are positioned. Regardless of whether or not an Austrian affiliated entity falls beneath the elevated documentation necessities for MNEs it’s, nonetheless, at all times essential to preserve switch pricing documentation explaining the cross-border inter-company relations in an ample method. Regarding complete transactions, it’s additional very a lot really helpful to conduct a switch pricing examine in this respect.Finally, taxpayers might apply for a binding advance tax ruling with the competent native tax workplace concerning switch pricing issues, based mostly on the info and circumstances offered by the taxpayer previous to implementing the construction. To a sure diploma it is usually potential to achieve cross-border advance pricing preparations on a bilateral or multilateral foundation, though the taxpayer has no formal proper to request such mutual agreements.ix Other taxes (VAT, RETT and stamp duties)Corporations are topic to Austrian worth added tax if they’re considered an entrepreneur in phrases of VAT and perform transactions which are taxable in Austria. An entrepreneur has the fitting to deduct enter VAT for provides and companies obtained. Taxable transactions usually comprise the provision of products and companies. The normal price is 20 per cent; sure items and companies, nonetheless, are topic to a decreased tax price of 10 per cent (e.g., meals and books) or 13 per cent (e.g., crops and lodge lodging).Another tax generally incurring in reference to transactions is Austrian actual property switch tax (RETT) levied on the switch of authorized or financial possession in land or actual property positioned in Austria. In most transactional instances, RETT quantities to three.5 per cent of the gross sales value, respectively 0.5 per cent of the actual property’s market worth in sure instances of reorganisation. In this context it must be thought of {that a} switch of 95 per cent or extra of the curiosity or shares in a partnership or company holding Austrian actual property might set off RETT.Stamp duties are due on sure authorized transactions concluded in written kind. This applies if the written deed for the transaction is both arrange in Austria or arrange overseas and there are specific connections to Austria. The respective charges differ between 0.8 per cent and a pair of per cent of the underlying proper’s worth. Furthermore, there could also be registration charges in reference to transactions (e.g., 1.1 per cent of the gross sales value or market worth is due for the entry of a brand new proprietor of actual property into the Austrian land register).