The Austrian Ministry of Finance has recently issued a draft bill for the Annual Tax Act 2018 (Jahressteuer- gesetz 2018). Some of the proposed amendments are highlighted below:
New CFC legislation implementing EU Anti-Tax Avoidance Directive
In order to implement the EU Anti-Tax Avoidance Directive (ATAD) new controlled foreign company (CFC) rules will be introduced in Austria. According to the draft bill low taxed passive income of a controlled foreign company will be included in the tax base of its Austrian parent company (in proportion to its participation) if
the Austrian parent company and its related companies hold more than 50% of the voting rights or capital of the foreign company or are entitled to more than 50% of its profits;
more than one third of the income of the foreign company falls within the specific passive income categories listed in Art 7 para 2 lit a) ATAD;
the actual corporate tax paid by the foreign company does not exceed 12.5%, and
the foreign company does not carry on a substantive economic activity.
In accordance with Art 7 para 3 ATAD financial institutions will be exempted from the CFC rules if not more than one third of their income is derived from related party transactions.
Pursuant to the draft bill the new rules shall apply already with effect for fiscal years starting after 30 September 2018. However, the proposal may still be subject to several changes until it is passed in parliament.
Extension of advance ruling regime
Access of taxpayers to binding advance tax rulings is expected to be improved. Currently, a binding ruling is available for reorganizations, group taxation and transfer pricing. With effect as of 1 January 2019, in addition to transfer pricing also other legal issues in respect of international tax law as well as the question whether or not a transaction is regarded as abusive under the Austrian General Anti Abuse Rule may be subject to a binding ruling. With effect as of 2020 the scope of the binding ruling regime shall be extended also to VAT. According to the draft bill, the Austrian tax authorities will be obliged to decide on a ruling request to the extent possible within two months.
New general anti-abuse rule
The draft bill of the Annual Tax Act 2018 introduces, for the first time, a legal definition of “abuse” in section 22 of the Federal Fiscal Code. Abuse is defined as a legal arrangement that is unusual and non-genuine with regard to its commercial objective. Arrangements are unusual and non-genuine if they are only reasonable when taking into account the related tax-saving effect, because the main purpose or one of the main purposes is to obtain a tax advantage that defeats the object or purpose of the applicable tax law. Valid commercial reasons which reflect economic reality rule out abuse.
The provision enters into force at the end of the day the Annual Tax Act will be announced in the Federal Law Gazette (presumably in the middle of 2018). Planned legal arrangements that are associated with tax advantages should be reviewed with regard to the new definition on a timely manner.
No real estate transfer tax on indirect acquisition of real estate companies
In a recent draft bill, the Austrian legislator clarified that the acquisition of a company is subject to real estate only if the acquired company itself owns Austrian real estate. It has been disputed in literature if, similar to German real estate transfer tax rules, a company shall be deemed to own real estate also if it has acquired a company that owns real estate. Such indirect acquisition of real estate companies is now excluded from real estate transfer tax. Since the legislator explicitly calls this a “clarification” it can be argued that this applies also to acquisitions before the entering into of the new law.