Austrian Implementation of ATAD Rules
The European Anti Tax Avoidance Directive (ATAD) was issued in 2016. It tackles some of the Action Points which were included in the OECD’s BEPS (Base Erosion and Profit Shifting) Action Plan. Generally, Member States shall implement the ATAD until 01 January 2019. A further development is ATAD II, which was issued in 2017 and changed some of the provisions of ATAD. Most items from ATAD II shall be implemented until 01 January 2020.
Austria has already had relevant legal rules targeting parts of ATAD, when ATAD was issued. Therefore, not all points needed to be implemented in an entirely new form, but some could be kept or adapted.
Austria introduced a limitation of interest in 2014, which was not replaced by a rule conforming to Article 4 of the ATAD, but it was kept using the rule of Article 11 of the ATAD. Under the Austrian limitation rule, interest expense paid to associated companies is only deductible, if the interest income received by the other associated company is effectively taxed at a corporation income tax rate of not below 10%. By the way, the same applies to intercompany license fees.
It remains to be seen, if and when Austria will replace this rule to match the regulatory standard of Article 4 of the ATAD.
Austria introduced exit taxation rules regarding the transfer of company assets some years ago. These remained largely unchanged, but some technical criteria were adapted and the possibility to pay tax amounts regarding fixed assets in instalments was reduced to a timeframe of 5 years conforming to Article 5 of the ATAD.
GAAR (General Anti-Abuse Rule)
Austria has been having a GAAR in its domestic tax law over a long period of time. As it was already very similar to the rules included in Article 6 of the ATAD, the existing wording was adapted to include ATAD conforming language and criteria. It remains to be seen, how significant the impact of these changes will be in practice and in the decisions of tax courts.
CFC (Controlled Foreign Company) Rule
CFC Rules were not part of the Austrian domestic tax law before Article 7 of the ATAD asked for it. So a CFC Rule was implemented for the first time into the Austrian Corporation Income Tax Act. It will apply to profits realized starting from 01 January 2019. Austria chose to exclude companies with relevant passive income of below or equaling one third of their total taxable income from the application of the CFC Rule, but Austria did not choose to implement a threshold for companies with small profits. The CFC Rule applies, if relevant passive income is taxed at a tax rate of not more than 12.5%. Therefore, the CFC Rule could apply even to companies in certain other EU Member Countries (e.g. Bulgaria, Cyprus, Hungary).
Austria had already a rule restricting the deduction of interest and license fee expenses, if they were not effectively subject to a taxation of at least 10% at the recipient of the respective income. Furthermore, Austria disallows the application of the tax exemption for dividend income, if the dividend payment is a deductible expense in the subsidiary’s country. So far, those rules were not changed on the basis of Article 9 of the ATAD.
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