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Austria: the tax returns

Alessandro PasutThe Austrian Ministry of Finance has admitted that in certain cases, such as the short-term posting of workers in Austria, it is difficult to manage the bureaucratic burden since it is necessary to give out fiscal codes and receive the tax returns whenever the 2,000 euro limit is exceeded.
If therefore it is with almost absolute certainty recognizable that the filing of a tax return with reference to the consequences of the tax avoidance agreement has no significant relevance for tax purposes, the Ministry of Finance will not demand the filing of the tax return. According to the Ministry, this certainty is reached when the following three conditions are met:
the obligation of tax exemption in Austria is without any doubt established in the double tax avoidance agreement; this consequence is applied in a corresponding way in both countries party to the agreement and, if necessary, this can be proved by a document showing the taxation in the foreign country.


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Austria: goodwill amortization

Alessandro PasutGoodwill amortization: the Administrative Court dealt with the matter not only by stating that the restriction of goodwill amortization to the acquisition of shares in an Austrian corporation contravenes the freedom of establishment but by raising also the question of a possible violation of the prohibition to grant state aids. The Administrative Court made therefore a referral for a preliminary ruling to the Court with a view to establishing whether goodwill amortization could constitute State aid.

State aid has to be reported to the European Commission which will then decide if it is compatible with the internal market. Without approval by the Commission, State aid cannot be granted.

If the Court of Justice of the European Union should qualify the goodwill amortization as State aid, the Austrian state could be faced with an order by the Commission to withdraw this kind of aid.

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Austria: tax liability

Alessandro PasutThe Double Tax Avoidance Agreements divide the right to taxation between the parties to the agreement but do not provide for rules on procedural questions. The circumstances under which a taxpayer is obliged to file a tax return are ruled exclusively by national legislation.

Taxpayers with limited tax obligations have to file an Austria tax return of their own accord in case a tax liability arises pursuant to art. 102 of the Income Tax Law and if the Austrian sourced income is higher than 2,000 euro. The tax liability exists in the event the income is obtained from an Austrian company and/or it is not subject to a withholding tax (salary tax, capital gains tax, other withholding taxes according to article 99 of the Income Tax Law).

The preconditions regarding the obligation to file a tax return have to be judged exclusively on the base of the national legislation both regarding the type of tax and the amount of tax. In the framework of these procedural questions it is therefore completely irrelevant if pursuant to an applicable double tax avoidance agreement the income is completely or partially tax exempt.

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Austria: Limited liability companies

The partners holding a majority stake (more than 50%) are obliged to apply for starting insolvency proceedings whenever necessary and the company does not have a managing director. These proceedings are very burdensome because they require e resolution to be passed by the general meeting in order to change the articles of partnership, a registration at the tribunal keeping the commercial register and the notification of creditors.

The minimum corporate income tax amounting to 5% of the registered capital is reduced from yearly 1,750 euro to 500 euro. For existing private limited liability companies the changes have taken place since 1st January 2014. The corporate income tax rate applied is 25% of profits. It is possible to offset the tax due with the sums of minimum corporate income tax paid in previous years.

Regardless of the turnover, also private limited liability companies founded with the reduced amount of registered capital have to apply double entry accounting.

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Austria: expected changes to the tax law

Alessandro PasutAUSTRIA

The group taxation scheme provides currently for the possibility of claiming goodwill amortisation for shares acquired in domestic companies which has to be spread over 15 years. Pursuant to the proposed changes, the possibility of goodwill amortisation will be abolished for the acquisition of shares after 28 February 2014. Existing goodwill amortisations will not be affected provided the amortisation had an impact on the determination of the purchase price for the acquired shares.

As of 1 March 2014, the deductibility of interest and royalties paid to related parties resident in low tax countries is limited. The deduction restriction has to be applied if the income derived from the interest and royalties is not taxed in the recipient’s state or is subject to a tax rate of less than 15%. If the applicable tax rate in the recipient’s state amounts to at least 10%, 50% of the interest and royalty expenses will remain deductible.

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Austria: the assessment base in the event of the union of all shares of a company

Regardless of the kind of beneficiary, the triple amount of the appraised value of the property will remain the assessment base in the event of the union of all shares of a company possessing real property in the hands of one person only.

The tax for the transfer of agricultural and forested property will be assessed from the amount of the appraised value. In the case of a transfer of a company without consideration, a tax allowance amounting to 365.000 euro will be applied.

Finally in case of the reorganization of a company the double amount of the appraised value of the property will apply. As of 1 June 2014 the transfer of real property not subject to the Law on company reorganization will not benefit from any relief. Thus especially in case of contributions in kind to a corporation or a partnership consisting in real property, the tax will be calculated on the basis of the current market value.

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Austria: Amendment to the real property transfer tax law

In November 2012 the Constitutional Court had stated in a finding that the determination of the real property transfer tax law based on the unitary value is not compatible with the Austrian constitution and declared this method as obsolete. At the same time the Court invited the Government to amend the law by 31 May 2014.

Following up on the Court’s decision the Government has recently published a draft expert opinion pertaining to the Act amending the law on the real property transfer tax. Previously the base for calculating this tax was the consideration (i.e. the sales price). In the event where no consideration was paid, such as in the case of donations, inheritance or contribution of assets to a company, the triple amount of the appraised value of the property was applied.

The new rules envisaged in the Government draft make a distinction between purchase within and outside of families. In the new draft the term “family” has been extended. In the event of purchases without consideration within a family, the tax will be calculated based on the triple appraised value of the property which anyhow can amount only to 30% of its current market value. In the event of a transfer of property without consideration outside a family, from 1 June 2014 the tax will be calculated based on the current market value.

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Austria: Expected changes to the tax law

At the end of January the Council of Ministers approved a draft amendment to the tax law. The respective discussion in Parliament should be completed by the end of February.

With reference to the group taxation scheme, the draft states that from 1 March 2014 onwards an Austria tax group will be able to have only foreign corporations as members residing in an EU member state or with comparable corporations in third countries with which Austria has concluded a double taxation treaty or a comprehensive administrative assistance agreement.

Members of the Austrian tax group resident in third countries not meeting these requirements may remain group members until December 2014 and will automatically be excluded from the Austrian tax group on 1 January 2015.
As of 2015, such foreign losses can be offset only up to 75% against the overall income of all domestic group members and the group parent. The remaining current foreign losses have to be added to the tax loss carried forward of the group parent and can be offset against the future group income.

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Austria: Witholding tax

On 1 April 2012 the new Austrian withholding and capital gains tax regime entered into force. It means that generally capital gains and income from derivatives are now also subject to taxation for private investors irrespective of their holding periods. The new tax regime is applied to all profits derived from the sale of shares or investment fund units purchased as of 1 January 2011 and for the sale of bonds and derivatives purchased as of 1 April 2012. At the same time the withholding obligation for Austrian depository agents became effective on 1 April 2012. In general only realized income from securitized derivatives will be subject to the special tax rate of 25% and, if applicable, to the withholding tax deduction. Loss offsetting with respect to investment income is achieved by means of comprehensive and ongoing loss offsetting carried out by the depositary agent. As of 1 January 2012, depositary agents will be obliged to carry out the ongoing offsetting of losses within the calendar year. In the event of losses incurred, the taxes resulting from a later or simultaneous gain are to be reduced by the loss. If gains are realized that are not offset by a former loss, withholding tax is to be paid and a later loss gives way to a credit. The credit, however, is capped at 25% of the losses. Private investors are not allowed to carry forward losses incurred in one fiscal year into the following year. Losses incurred in the period between 1 April 2012 and 31 December 2012 will be offset by means of a final settlement. The deadline for this settlement is 30 April 2013. Accrued interest is subject to immediate taxation at the level of the seller when the securities are sold. Purchased accrued interest increases the acquisition costs of the purchaser for tax purposes and therefore reduces the capital gain of a subsequent sale. Foreign currency purchased since 1 April 2012 and kept in a foreign exchange account is subject to a progressive tax instead of a withholding tax upon conversion or pay-out in euro, irrespective of the holding period.


Austria: Portfolio dividends

At the beginning of the year, the European Court of Justice (EJC) ruled in a matter referred to its attention that portfolio dividends, i.e. dividends derived from holdings of less than 10%, coming from countries of the EU and the European Economic Area (EEA) on the one hand and third countries, on the other, may not be treated differently. According to the EJC, portfolio dividends perceived from third countries are to be taxed by applying either the exemption method or the credit method.

The then applied Austrian legislation was therefore a violation of the free movement of capitals. Income derived from portfolio dividends of companies with the headquarters abroad had to be taxed in Austria. Fiscal exemption was granted only to holdings of a minimum entity of 10%. Income derived from dividends of companies with their headquarters in the EU and/or the EEA, on the contrary, where exempt from taxation irrespective of the entity of the holding in the company.

Following the ruling by the European Court of Justice, the Independent Fiscal Senate of Linz, called by a taxpayer to decide on this matter, had stated that, pending the issuance of new rules by the Austrian lawmakers in the framework of the Tax Amendment Law 2011, with regard to tax assessments prior to 2011, the method of the conditional exemption could be applied to portfolio dividends originating from third countries.

On 1st August 2011, the Tax Amendment Law 2011 was published. It establishes that the exemption method has to be applied to portfolio dividends coming from third countries with which Austria has stipulated an agreement on cooperation in administrative matters. This new rule will be applied to tax assessments starting in 2011.

After an appeal against the decision by the Independent Fiscal Senate of Linz, the Administrative Court ruled recently that up to the moment of the entry into force of the amendment introduced following the EJC’s sentence, the credit method has to be applied to portfolio dividends coming from third countries.