Austrian Tax News. Tax changes in Austria. In this issue

Transcription

1 Austrian Tax News In this issue Direct Taxes Tax changes in Austria by Lukas Bernwieser Amendments to Austrian Tax Amendment Act 2014 Other changes by Cornelia Kalina and Alexander Wagner Decision of the Independent Tax Tribunal (ITT) on the qualification of foreign vehicles as investment funds for tax purposes by Johannes Edlbacher and Benjamin Fassl Highlights of the updated guidelines to the Austrian Reorganisation Tax Act issued by the Austrian Ministry of Finance by Martin Jann and Martina Gruber Legal GmbH not so light by Alexander Wagner and Phillip Andert Expats News regarding the taxation of employees by Guelay Karatas and Laura Herold Austrian Tax Facts and Figures Tax changes in Austria The new Abgabenänderungsgesetz 2014 ( AbgÄG 2014 ) has been passed by parliament and came into force on 1 March The new AbgÄG 2014 includes numerous amendments, thus having a significant impact on Austrian tax law. Income tax Tax loss carry-forwards Previously, tax loss carry-forwards could only be offset against 75% of the taxable profits of the current year. This limitation has since been abolished for individuals having a business. Tax loss carry-forwards can then be utilised without such limitation. However, in terms of corporations, this general 75% cap is to remain in force. Branch losses Under current tax law, Austrian companies have to recognise foreign branch losses and offset them against domestic positive income within the same financial year. Such branch losses are subject to recapture taxation once they can be utilised in the country of the branch. From 2015 onwards, branch losses from countries without comprehensive administrative assistance are automatically subject to recapture taxation in the 3rd year after recognition of the losses. This is under the condition that the losses were not recaptured earlier. The automatic recapture taxation will apply for all losses from 2015 onwards (i.e. losses incurred in 2015 will have to be recaptured in 2018, while 2016 losses will have to be recaptured in 2019 at the latest).

2 Direct Taxes The new rules also affect old branch losses. Branch losses incurred until 2014 should be subject to recapture taxation in According to the transitory provisions, the loss amount to be recaptured has to be spread over three years, i.e. from 2016 to Old branch losses upon the closing or sale of such foreign branch are exempt from recapture taxation, provided the losses were incurred (i) in fiscal years ending before 1 March 2014, (ii) the losses cannot be used abroad and (iii) the closing/sale of the branch was effected before 1 January Deductibility of long-term accruals Under current tax law, long-term accruals for uncertain debts and contingent losses (more than 12 months) have to be discounted with a flat rate of 20%, so that only 80% of the accruals are tax deductible. The proposed AbgÄG 2014 states that long-term accruals made from 30 June 2014 onwards are to be discounted depending on their actual duration. The discount rate to be used is 3.5%. Valuation differences resulting for already existing long-term accruals have to be spread over three years. Limited tax liability on interest income Under previous tax law, interest received by foreign resident individuals and corporations from Austrian borrowers is in general not subject to tax (except in the case of some specific collaterals). Irrespective of this, interest on Austrian bank deposits received by individuals resident in the EU is subject to 35% EU withholding tax on the basis of the Austrian EU Withholding Tax Act. Starting in 2015, 25% withholding tax will be imposed on interest if such interest is subject to withholding tax under domestic law. This is e.g. the case in terms of interest on bank deposits or Austrian bonds, where the paying/depositary agent is located in Austria. 2 Unless eliminated by an applicable tax treaty, the withholding tax to be withheld will create an additional tax burden for non-eu individuals and non-austrian corporate lenders who own such instruments. Interest incurred on intercompany loans as well as non Austrian interest bearing securities (e.g. bonds) of foreign issues held at an Austrian depository account are not affected by the new rules. Group taxation Goodwill amortisation Under the previous tax group regime upon a share deal in an operating domestic company, tax deductible goodwill can be amortised over a period of 15 years. Goodwill amortisations have now been abolished, and are to be applicable only for share deals effected after 28 February Existing goodwill amortisations are grandfathered, provided the goodwill amortisation potentially impacted the share purchase price. Foreign group members Under the previous tax group regime, an Austrian tax group could also include foreign subsidiaries. Losses of such foreign group members had to be recognised and offset against Austrian profits. However, losses of foreign group members are subject to recapture taxation once they can be utilised in the country of the group member or upon exit of the foreign group member from the tax group. Since 1 March 2014, however, the scope of foreign tax group members has been limited to corporations being resident in EU Member States and in states that have entered into a comprehensive administrative assistance arrangement with Austria. Companies being resident in other states shall automatically be excluded from the tax group as from 1 January Foreign losses already deducted in the past will be recaptured over a period of three years ( ). Starting in 2015, ongoing tax losses from foreign group members can only be recognised to the extent of 75% of the profit of all domestic group members (including the group leader). The remaining loss surplus may be carried forward by the group parent. Utilisation of tax loss carry-forwards Starting in 2015 the general 75% cap applying to the utilisation of tax loss carry-forwards (calculated on the basis of the overall positive income) is not to be applicable to profits resulting from the recapture of foreign losses (i.e. losses of foreign group members and foreign branch losses). Therefore, available tax loss carryforwards on group parent level can be 100% offset against such recapture profits. Deductibility of interest and royalty payments Restriction on the deductibility of interest Under Austrian tax law, interest is generally deductible (i.e. no thin capitalisation rules). However, interest expenses relating to the acquisition of (foreign) shareholdings from related parties are not tax deductible. Under the previous tax law it was possible to achieve deductibility of such interest by cancelling the linkage between the debt financing and the acquired shareholding (e.g. by way of a qualifying reorganisation). The new law, however, calls for the restriction of the interest deduction to apply irrespective of whether the underlying acquired shareholding still exists or the related debt-financing is separated from the shareholding. The restriction is to apply for interest incurred from 1 March 2014 onwards. Anti-hybrid rules Deductibility of interest and royalty expenses paid by Austrian corpora-

3 Direct Taxes tions will from now on be denied if the payments are made to related parties located in low-tax and offshore jurisdictions. The restriction applies if the income derived from the interest and royalty payments is not taxed in the recipient s state due to a general or individual tax exemption, or is subject to a nominal tax rate of less than 10%, or is subject to an effective tax rate of less than 10% due to specific tax incentives granted for such type of income. If the recipient of the interest or royalty paid is not the beneficial owner, the above mentioned criteria are to be applied at the level of the beneficial owner. Accordingly, back-to-back financing structures are also covered by the new provision. Author: [email protected] Amendments to Austrian Tax Amendment Act 2014 Other changes Outlined below are further amendments with reference to the Abgabenänderungsgesetz Value added tax The threshold in connection with the simplified invoice elements ( 11(6) Value Added Tax Act) will be increased from EUR 150 to EUR 400. This amendment came into effect on 1 March Capital duty Capital duty is currently imposed at a rate of 1% on the initial contribution of capital, on other contractual or voluntary contributions in cash or in kind or on certain hybrid financing instruments to Austrian corporations. Capital duty will be entirely abolished as from 1 January Stability fee for banks The taxable base for the stability fee will change from a combination of the balance sheet total and the transaction volume of derivatives to the balance sheet total only. In addition, the stability fee itself will be increased from 0.055% to 0.09% (EUR 1 billion to EUR 20 billion balance sheet total) or from 0.085% to 0.11% (balance sheet total over EUR 20 billion), respectively. Furthermore, the special contribution in connection with the stability fee will be increased from 25% to 45%. These amendments became effective as from the second quarter of As a consequence, the previous legislation will still apply for the first quarter of Single premium insurance Endowment and death insurance policies with a contract period of at least 15 years are exempt from withholding tax and subject to a reduced insurance tax rate. Under the new law, the minimum contractual period for insured persons older than 50 years of age will be reduced to 10 years with regard to contracts concluded from 1 March 2014 onwards. Tax on sparkling wine The beginning of March this year saw the reintroduction of tax on sparkling wine. The tax will amount to EUR 100 per hectolitre and is to be applied to particular intermediate products as well. All other intermediate goods are to be taxed at EUR 80 per hectolitre. Alcohol tax The standard tax rate for alcohol has been increased from EUR 1,000 to EUR 1,200 per hectolitre of alcohol. Tobacco tax The quantity-related tax rate for cigarettes and fine-cut tobacco will be increased in four stages (as of 1 March 2014, 1 April 2015, 1 April 2016 and 1 April 2017) from 42% of the retail selling price and EUR 35 per 1,000 pieces to 39% of the retail selling price and EUR 53 per 1,000 pieces. [email protected] [email protected]

4 Direct Taxes Decision of the Independent Tax Tribunal (ITT) on the qualification of foreign vehicles as investment funds for tax purposes According to 42(1) Austrian Investment Fund Act 1993 ( IFA 1993 ), each foreign vehicle regardless of its legal form investing directly or indirectly based on risk spreading (six or more investments) is generally qualified as a foreign investment fund for Austrian tax purposes. In its decision of 21 October 2013, the ITT concluded that this provision is not consistent with the principle of the free movement of capital and therefore contravenes Article 40 of the EEA Agreement. Background In the present case an Austrian private foundation held 100% of the shares in two Liechtenstein corporations. Both corporations invested their whole capital in obligations, shares and precious metals. The Austrian tax authority was of the opinion that the Liechtenstein corporations were to be treated as investment funds for Austrian tax purposes, as this form of investment corresponds to the principles of risk spreading according to 42(1) IFA The qualification of a foreign corporation as an investment fund for Austrian tax purposes means that the corporation is treated in a tax transparent manner. Consequently the corporation s income, irrespective of whether it is distributed or accumulated, is taxable directly at the level of the Austrian investor. As 42(1) IFA 1993 was applicable to foreign vehicles only, an Austrian corporation investing according to the principles of risk spreading could not be qualified as an investment fund for tax purposes. Therefore, if the two corporations had been resident in Austria, distributions only would have been taxable, whereas at the level of private foundations these distributions would have been tax exempt according to 10 of the Austrian Corporate Income Tax Act ( CITA ). The Austrian private foundation as appellant considered this as a discrimination of foreign corporations, as the exemption under 10 CITA does not apply to investment funds. The ITT s decision The ITT concluded that 42(1) IFA 1993 provides for an unequal treatment of Austrian and foreign corporations investing directly or indirectly based on risk spreading and allowed the applicant s appeal. The relevant tax authority filed a complaint against this ITT s decision with the Administrative Court. Reaction of the Austrian Ministry of Finance The Austrian Ministry of Finance was already aware of the unequal treatment of foreign and Austrian corporations investing based on risk spreading before the ITT s decision. Therefore, in the course of the transposition of the Alternative Investment Fund Manager Directive ( AIFMD ) into national law in August 2013, the legal definition of Austrian and foreign investment funds was amended in order to comply with the principle of the free movement of capital. According to the new provisions, which are now to be found in 186 and 188 IFA 2011, each Austrian and foreign Alternative Investment Fund within the meaning of the AIFMD (exemptions apply to AIFs in real estate) as well as each Austrian and foreign UCITS (Undertakings for Collective Investment in Transferable Securities) fund are to be qualified as an investment fund for tax purposes irrespective of the legal form. Further, other foreign vehicles investing based on risk spreading and not subject to a tax comparable to Austrian corporate income tax are deemed to be investment funds. [email protected] [email protected]

5 Direct Taxes Highlights of the updated guidelines to the Austrian Reorganisation Tax Act issued by the Austrian Ministry of Finance On 14 October 2013 the Austrian Ministry of Finance finalised the update on the guidelines for the Reorganisation Tax Act. This update focused on art contributions, mergers and conversions. Other forms of reorganisations were not changed within the guidelines of the Austrian Ministry of Finance at this stage. The highlights of the update are as follows: Cross-border contribution The Austrian Ministry of Finance completely revised its view on the system of cross-border contributions in which the Austrian taxing right is limited or completely lost. The tax treatment of cross-border contributions depends on various factors (i.e. the tax liability of the underlying assets, the tax liability of the new shares issued by the receiving company, the residence of the receiving company and the residence of the contributor). The Austrian taxing right is not limited in cases where an Austrian contributor contributes its permanent establishment to a company independent of its residence. In cases of contributions into a company that is resident within the EU in which the Austrian taxing rights are limited, the taxable event may be delayed until the disposal of the new shares in the company or the disposal of the assets contributed (permanent establishment, separable part of a business operations, participation in a partnership, a qualified participation in a company). The absorbing EU company continues to carry the book values of the transferred assets. Thus, a step up of the underlying assets to the current market value at the time of the contribution is not necessary. If, however, the Austrian taxing right is limited vis-à-vis a non-eu Member State, a step up must be made. Contribution of debt financed shares If there is a direct link between the liability and the equity contribution given to the subsidiary, the contribution of a qualified participation mandatorily contains the liability as well. A direct link is deemed to exist if the time gap between equity contribution to the subsidiary and the effective date of contribution of the participation is less than two years. If the minimum two year period is exceeded, the contributor can decide whether or not the contribution comprises the liability. Reorganisations within tax groups In general, losses of the transferring company are attributed to the absorbing company when the contributed assets (permanent establishment, separable part of business operations, participation in a partnership and a qualified participation in a company) are comparable to the scope of the assets at the time when the loss was incurred. With mergers and contributions in kind within a tax group, there is often the concern that losses might be at risk even though such losses were attributed to the group parent. This is especially true for mergers or contributions in kind with the group parent. Whilst in merger situations the losses of both merging group members are at risk if the underlying assets are no longer comparable in size, in situations of a contribution the transferred loss is not at risk. Merger of cash-box companies Profit distributions as well as capital gains from foreign companies do not fall under the participation exemption if their core business is passive and the foreign profit is effectively taxed at less than 15% ( cash-box ). In this case, the profit distribution or the capital gains are not exempted from Austrian tax, but the foreign tax is credited upon the Austrian tax. For an equal treatment of profit distributions/capital gains and mergers of such companies, the Austrian Reorganization Tax Act provides for a notional dividend distribution. This notional dividend distribution first covered only mergers onto the Austrian parent company (upstream merger). Now the guidelines also implemented the changes in law and extended the notional profit distribution to mergers with other subsidiaries resident in Austria or in other states. But the notional dividend distribution is not effective if two cash-boxes are merged, because the taxable amount remains recoverable in future. However, this exception from the notional dividend distribution is viewed to be narrow. According to the Austrian Tax Authorities the absorbing company must fulfil the cash-box criteria for every single year. [email protected] [email protected]

6 Legal GmbH not so light The much heralded Gesellschaftsrechts-Änderungsgesetz 2013 was meant to reduce the minimum share capital for establishing a GmbH from EUR 35,000 to EUR 10,000. These changes have now been retracted due to the Abgabenänderungsgesetz 2014 and created a different outcome. Amendment to Austrian Limited Liability Company Act The minimum share capital for a limited liability company (GmbH) is again back to EUR 35,000. Generally, one half of the registered capital must be raised in cash while the remainder may be contributed in the form of assets (contributions in kind). Of the original capital contribution at least EUR 17,500 must actually be paid in upon incorporation. Abgabenänderungsgesetz 2014 provides for favourable treatment for start-up companies for a period of ten years after incorporation. The minimum share capital of those companies is EUR 10,000, with at least EUR 5,000 having to be paid in cash upon incorporation. The fact that these companies take advantage of the favoured treatment and thus have less share capital is shown in the companies register. Taxation changes Since the minimum corporate income tax (CIT) is linked to the minimum share capital, the minimum CIT amounts again to EUR 1,750 for each full year. The outcome of parliamentary discussions was a reduction to EUR 500 p.a. for the first five years and EUR 1,000p.a. for the next five years. [email protected] [email protected]

7 Expats News regarding the taxation of employees The AbgÄG 2014 brings with it several amendments regarding the taxation of employees as well as tax deductibility of labour costs. Limitation of deductibility of personnel expenses Salaries (including all payments in cash and in kind) exceeding EUR 500,000 per person per year will no longer be deductible as from 1 March This limitation will apply for payments made to employees as well as for other similar contractors who are fully integrated organisationally in the company such as members of the management board acting on the basis of a service contract. The threshold of EUR 500,000 shall also apply to the lessee in the case of staff secondments. Statutory severance payments, voluntary severance payments and remunerations which are subject to the privileged income tax rate of 6% shall be exempt from the new rule. Other severance end termination payments as well as related provisions are covered by this limitation. Golden handshakes The currently favourable taxation of golden handshakes at 6% will be limited for payments after 28 February The 6% privileged rate will only apply for a maximum amount of nine times the social security contribution maximum contribution basis per month, i.e. currently EUR 40,770. The new limitation shall apply for voluntary severance payments, indemnity payments for termination of employments and settlement payments. Statutory severance payments and social plans will remain exempt from this limitation. Solidarity tax Generally, the 13th and 14th salaries and certain other payments in Austria are subject to an income tax rate of 6%. Under the Stability Act 2012, such payments had to be taxed at a higher tax rate depending on the height of the annual income for a period of four years up to 31 December 2016 (temporary solidarity tax). Now however, the AbgÄG 2014 stipulates that the solidarity tax is to apply for an undefined period of time. Use of company cars by employees Where a company car is provided to an employee intending to use it for private purposes, this will be deemed compensation for income tax purposes. Such benefit-in-kind forms part of the taxable income of the employee. The deemed income is currently based on 1.5% of the acquisition cost (up to a cap of EUR 600) of the car if the private use of the car exceeds 500 km per month, otherwise 0.75% (up to cap of EUR 300). The Austrian Ministry of Finance increased the threshold for periods starting 1 March 2014 to EUR 720 for private use of more than 500km per month and to EUR 360 for use of less than 500 km per month. [email protected] [email protected]

8 Austrian Tax Facts and Figures Taxation of corporations Corporate income tax rate (Basis adjusted statutory accounts) 25% Dividend withholding tax 25% Witholding tax on licences/royalties 20% Interest witholding tax 0% Significant allowances Research & Development (R&D) (premium in cash) 10% Learning & Education (L&E) (Alternatively premiums in cash: 6%) up to 20% Double taxation agreements with 86 countries mainly exemption method International participation exemption for holding companies Conditions: Investments >10%, 1 year holding Dividends and Capital gains 0% Dividend EC portfolio (shares) < 10% 0% Thin capitalization rules CFC rules None None Group taxation valid from January 2005 Consolidation of tax losses with taxable profits Conditions: Qualifying participations > 50% Group agreement and agreement on allocation of tax cost Foreign participations if EU-resident or third countries with comprehensive assistance agreement Losses of foreign participations may be offset against profits of group leader up to 75% Annual taxable Income Tax Effective Tax Rate Marginal Tax Rate to 11, % 0% over 11,000 to 25,000 over 25,000 to 60,000 (EK - 11,000) x 5,110 14,000 (EK - 25,000) x 15,125 35,000 Non-deductible expenses (examples) Long-term accruals 3.5% per year Interest and royalties paid to lowtaxed group companies Interest of dept-push down Tax loss carry forwards Losses may be carried forward for an indefinite period of time Usage of tax losses: 75% of taxable income % 36.50% + 5, % 43.21% over 60,000 (EK - 60,000) x 50% + 20,235 > 33.73% 50% Contacts PwC Österreich GmbH Wirtschaftsprüfungsgesellschaft Erdbergstraße 200, 1030 Vienna Austria Tel Tax Partners: Monika Berndl ext Herbert Greinecker ext Peter Hadl ext Bernd Hofmann ext Aline Kapp ext Kurt Lassacher ext Peter Perktold ext Thomas Steinbauer ext Thomas Strobach ext Christine Weinzierl ext Christof Wörndl ext ) ext. 2) ext. We encourage feedback on the newsletter and the content. Equally, we welcome any of your thoughts on topics that you would like to see addressed in future issues. Visit our website for archived Austrian Tax News: Social security on monthly earnings up to 4,530 Employer s share up to 21.83% Payroll related taxes approx. 8.0% Employee s share up to 18.07% Income cap for social security contributions, social security totalisation agreements with various states Value added tax in line with the 6 th EU directive Standard rate 20% Reduced rate (Food, rent, public transportation etc.) 10% VAT refund for foreign enterprises available up to June 30 of the following year and for EU enterprises up to September 30 of the following year. Other taxes Real estate transfer tax 3.5% Capital tax 1.0% Stamp duties - Assignment agreements - Rent agreements - Suretyship agreements 0.8% 1.0% 1.0% Copyright and Publisher: PwC Österreich GmbH Wirtschaftsprüfungsgesellschaft, Erdbergstraße 200, 1030 Vienna, Austria Editor: Christof Wörndl, [email protected] The above information is intended to provide general guidance only. It should not be used as a substitute for professional advice or as the basis for decisions or actions without prior consultation with your advisors. While every care has been taken in the preparation of the publication, no liability is accepted for any statement, option, error or omission. PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. Please see for further details.