This country-specific Q&A provides an overview to tax laws and regulations that may occur in Austria.
It will cover witholding tax, transfer pricing, the OECD model, GAAR, tax disputes and an overview of the jurisdictional regulatory authorities.
This Q&A is part of the global guide to Tax. For a full list of jurisdictional Q&As visit http://www.inhouselawyer.co.uk/index.php/practice-areas/tax-2/
How often is tax law amended and what are the processes for such amendments?
Usually the tax law is amended annually or every second year. The Ministry of Finance formulates what is called a ministerial proposal, which is sent out to interested parties, entities likely to be affected and expert groups and at the same time published on the parliamentary website. The next step is an expert review, whereby interest groups, authorities and organisations can present their views and criticisms, all of which is also published on the internet.
The draft then goes to parliament in the form of a government bill. After the expert review the ministry may, but is not forced to, modify its draft. If the latter is approved by the federal government it is introduced in the National Council as a government bill and then approved or disapproved with a majority vote by the Parliament.
What are the principal procedural obligations of a taxpayer, that is, the maintenance of records over what period and how regularly must it file a return or accounts?
In general, income tax is assessed for the calendar year on the basis of an individual’s or a corporation's tax return. The tax return has to be filed by 30 June of the following year. An automatic extension up to 31 March of the next following year is granted if the individual or the corporation is represented by a tax professional. Further extensions are available on request in special circumstances.
Who are the key regulatory authorities? How easy is it to deal with them and how long does it take to resolve standard issues?
The Ministry of Finance (Bundesministerium für Finanzen) is the regulatory authority for tax matters. In Austria there are 40 local tax offices which represent the Ministry of Finance in 80 locations. The tax offices are entitled to collect taxes and also audit tax payers within their jurisdiction. Standard issues can usually be resolved by telephone or by e-mail exchange with the tax inspector in charge. Communication with the tax officials is easy and straight forward.
Are tax disputes capable of adjudication by a court, tribunal or body independent of the tax authority, and how long should a taxpayer expect such proceedings to take?
The court of first instance for tax disputes is the Bundesfinanzgericht. A procedure at the court of first instance typically takes one to two years. The court of second and also the final instance is the Verwaltungsgerichtshof (Administrative Supreme Court). Procedures at the Supreme Court usually require two to four years.
Income tax is prepaid in quarterly instalments based on the tax payable in the prior year. Generally appeals do not have an automatically postponing effect. However, suspension may be requested in the case of a first instance appeal and is typically granted by the court of first instance. The Administrative Supreme Court grants suspension of the tax payment only in exceptional circumstances.
Is taxpayer data recognised as highly confidential and adequately safeguarded against disclosure to third parties, including other parts of the Government?
Yes, tax payer data are subject to the highest level of confidentiality and may only be disclosed to other parts of the governments in case of a Judge's order (e.g. if required as evidence in a criminal procedure).
Is it a signatory (or does it propose to become a signatory) to the Common Reporting Standard? And/or does it maintain (or intend to maintain) a public Register of beneficial ownership?
Austria implemented the Common Reporting Standard with the Gemeinsamer Meldestandard-Gesetz. The act came into force on 1 January 2016. Austria is not an early adopter country. It is the only EU member state which under the Directive has to start exchanging information in 2018 (instead of in 2017). Austria has voluntarily agreed to apply the new account due diligence to all accounts opened on October 1, 2016 or later. It will exchange information with respect to such new accounts in 2017 already with other EU member states. With respect to other Common Reporting Standard jurisdictions, information will be exchanged only in 2018.
There is no public register of beneficial ownership in Austria.
Are there any plans for the implementation of the OECD BEPs recommendations and if so, which ones?
A number of OECD BEPs recommendations are already implemented in the tax framework of Austria. Austria has already implemented country by country reporting (CbC). Austria is one of the countries that signed a multilateral competent authority agreement for the automatic exchange of CbC reports.
In addition in the field of corporate tax interest and royalty payments paid to related companies in low tax jurisdictions are not tax deductible in Austria.
Is there a GAAR and, if so, how is it applied?
The Austrian General Fiscal Code (Bundes¬abgabenordnung - BAO) contains a general anti-abuse provision. The provision – Art 22 – incorporates the substance-over-form principle into Austrian tax law and generally allows the tax authorities to disregard transactions or structures which have been chosen solely for the purpose of avoiding or reducing.
Apart from this general provision several more specific anti-abuse provisions can be found in a variety of Austrian tax laws. Examples are the principle of “actual place of management” in the field of corporate taxation, anti-abuse rules in the participation exemption, which take away the benefit of the participation exemption from dividends received from passive tax haven companies, or CFC legislation for offshore investment funds etc.
Does the tax system broadly follow the recognised OECD Model?
Does it have taxation of; a) business profits, b) employment income and pensions, c) VAT (or other indirect tax), d) savings income and royalties, e) income from land, f) capital gains, g) stamp and/or capital duties.
If so, what are the current rates and are they flat or graduated?
Taxation of corporations
Austrian resident corporations are subject to corporate income tax at a flat rate of 25% on worldwide income. A corporation is resident if it is incorporated in Austria or managed and controlled in Austria.
Taxation of personal income and pensions
Personal income tax generally is taxed at a progressive tax rate between 25% and 55%. Tax on employment income and pensions is withheld by the employer or the pension payer. Certain types of investment income are not included in the computation of the taxpayer's income but are subject to a special withholding tax of 25% or 27.5%. Other income is self-assessed and has to be reported in annual tax returns.
VAT (or other indirect tax)
VAT is levied on the sale of goods and the provision of services. The standard rate is 20%. A lower rate of 13% (introduced as from 1 January 2016) applies to – among others – accommodations (as from 1 May 2016) and cultural services (as from 1 May 2016); a 10% rate generally applies to foodstuffs, pharmaceuticals, agricultural products, rent for residential purposes and entertainment. Banking transactions are exempt, and a VAT exemption applies to exports.
Taxation of savings income and royalties
For personal savings income see taxation of personal income. Royalties are subject ot a 20% withholding tax, but the rate may be reduced under a tax treaty or the EU interest and royalties directive.
Taxation of income from land
Personal income from land has to be included in the annual tax return and is taxed at the progressive tax rate. Income from land derived by corporations is subject to corporate income tax.
Taxation of capital gains
Capital gains generally are taxed at the same rate as ordinary income for corporations. For individuals capital gains from investment assets are taxed at s special rate of 27.5% and capital gains derived from the disposal of real estate are taxed at a special rate of 30%. Various exemptions apply.
Stamp and/or Capital duties
Stamp duties are levied at a rate ranging from 0.8% to 2% on special transactions (important are the assignment of receivables, and rent and lease contracts) if the transactions are evidenced in a stamp duty relevant deed in Austria. Loan/credit contracts are not subject to stamp duty (nor are securities for such loans). The capital duty was abolished recently.
Is the charge to business tax levied on, broadly, the revenue profits of a business as computed according to the principles of commercial accountancy?
Yes, the commercial accounts are the basis for the calculation of the taxable income of a business.
There is a large number of deviations though. Examples are:
- Restrictions on the deductibility of expenses, such as interest or royalties, if paid to low tax jurisdictions or if not at arms' length;
- tax exemptions for dividend income from domestic and non domestic subsidiaries;
- exemption from capital gain income derived from non Austrian participations.
Losses may be carried forward indefinitely, but generally may be offset against only 75% of the profits of a year. The carryback of losses is not permitted.
Are different vehicles for carrying on business, such as companies, partnerships, trusts, etc, recognised as taxable entities?
Partnerships are not taxable, since they are transparent and taxed on the level of the partners. Trusts are not recognised in Austria. However, Austria Private foundations, which are conceptually similar to trusts, are taxed in a special regime. They are subject to corporate income tax but on the basis of the principle of the taxation of individuals (since they are not allowed to carry out any business).
Is liability to business taxation based upon a concepts of fiscal residence or registration?
Business taxation is based upon a concept of fiscal residence. A corporation is resident if it is incorporated in Austria or managed and controlled in Austria. An individual is resident if he/she is domiciled or has a habitual abode in Austria.
Are there any special taxation regimes, such as enterprise zones or favourable tax regimes for financial services or co-ordination centres, etc?
Are there any particular tax regimes applicable to intellectual property, such as patent box?
The Research and Development Tax Credit grants an additional bonus deduction of 12% of the costs of eligible expenses for research and experimental development and is a legal entitlement for any innovative company that pays tax in Austria. Once approved by the tax office, the incentive is paid in the form of a tax credit.
Is fiscal consolidation employed or a recognition of groups of corporates for tax purposes and are there any jurisdictional limitations on what can constitute a group for tax purposes? Is a group contribution system employed or how can losses be relieved across group companies otherwise?
The requirements for an Austrian tax group are the following:
- the group parent must be either an Austrian corporation or an Austrian registered branch of an EU resident corporation. Several companies may jointly act as a group parent, provided that at least one company holds at least 40% and the other companies hold at least 15% in the prospective group member;
- Austrian or foreign companies which are in a legal form comparable to an Austrian corporation may participate as group members. Foreign companies can only be a member of the group if they are directly held by the Austrian group parent or if they are a member of an Austrian group;
- to qualify as a tax group, the group parent has to hold a direct or indirect participation of more than 50% in the share capital as well as a majority of the voting rights of the Austrian or the foreign subsidiary ("financial integration"). The requirement of financial integration must be met during the entire business year of the participating subsidiary;
- the group parent and the group members must file a written application for group taxation with the revenue office. The application is binding for at least three years; and
- group taxation is optional. The option can be exercised separately by each company that is a potential group member.
Under the tax group rules, all taxable profits and losses of the Austrian group members are attributed to the group parent.
The tax group regime allows direct foreign subsidiaries of Austrian tax group members to be included in an Austrian tax group. As a result, tax losses of non-Austrian group members can be used temporarily in Austria but are subject to recapture and taxation in later years if: (i) they are available to be used or actually used in the foreign jurisdiction; (ii) the foreign subsidiary ceases to be a tax group member or to exist at all; or (iii) the foreign subsidiary’s business is scaled down significantly.
From 1 January 2015, this regime is restricted insofar as the total amount of foreign tax losses that can be used in a given year is limited to 75% of the taxable income of Austrian tax group members (including the Austrian head of the group). Foreign losses that cannot be used in a particular year become part of the tax loss carry forwards of the head of the group. Also from 1 January 2015, income generated by the recapture of previously utilized foreign losses can be fully offset against tax losses carried forward (previously such income was subject to the general 75% limitation on utilizing tax loss carry forwards).
Since 1 March 2014, foreign tax group members may only be subsidiaries resident in EU countries or countries with broad mutual assistance in tax matters. The membership of existing group members resident in non qualifying countries was automatically terminated as at 31 December 2014. As a result, any foreign losses of such subsidiaries previously utilized by the Austrian head of the tax group which had not yet been subject to recapture and taxation as at that date were subject to recapture and taxation as at 1 January 2015. To mitigate the impact of this provision, income generated through this tax pick-up is spread over three years and 100% utilization of any tax loss carry forwards is possible.
Is there a CFC or Thin Cap regime?
Austria does not have "controlled foreign company" rules. This applies with the exception of the look through approach for investments in non-registered foreign investment funds.
There are no specific thin capitalisation rules, but, in accordance with case law, interest may be reclassified as a dividend in certain situations. The tax authorities usually accept a debt-equity ratio of 4:1 in tax audits, although this is not considered a safe harbour.
Is there a transfer pricing regime and is it possible to obtain an advance pricing agreement?
Taxpayers may request binding advance rulings on transfer pricing. Regarding tax abuse of intra group interest and royalty payments (Apple, Starbucks) Austria has implemented the rule that interest and royalty payments paid to related companies resident in low tax jurisdictions are not tax deductible in Austria.
Are there any withholding taxes?
Dividends paid to another Austrian company are exempt from withholding tax. Dividends paid to a non-resident company are subject to a 27.5% withholding tax (increased from 25% as from 1 January 2016) unless the rate is reduced under a domestic provision or a tax treaty or the dividends are exempt under the EU parent-subsidiary directive. A refund of the withholding tax is possible for EU/EEA parent companies if the withholding tax cannot be credited in their country of residence under a tax treaty.
Are there any recognised environmental taxes payable by businesses?
Is dividend income received from resident and/or non-resident companies exempt from tax? If not how is it taxed?
For corporate entities dividends received from domestic and non domestic subsidiaries are tax exempt, provided that the subsidiary is not a passive company located in a low tax jurisdiction.