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Austria: Ministerial draft to introduce CFC rules

Austria: Ministerial draft to introduce CFC rules

Austrian Ministry of Finance this week published a ministerial draft regarding several changes to Austrian tax law, in particular a proposal to introduce controlled foreign corporation (CFC) rules in Austria.

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The proposed CFC rules would aim to implement the EU anti-tax avoidance directive into Austrian domestic law by allowing for the reallocation of income of subsidiaries in “low tax” jurisdictions to the Austrian parent company and thus subject to Austrian corporate income tax at a rate of 25%. Any foreign taxes paid would be creditable against the Austrian taxation. The CFC rules would apply to:

  • Austrian corporations holding a “controlling interest” (more than 50% of voting rights, capital or dividend rights, either alone or together with associated enterprises)
  • Passive income of a foreign subsidiary (including dividends, interest, royalties, and financial leasing fees; capital gains from the sale of participations; income from insurance, banking or financial activities; income from “invoicing companies”) if:
    • The passive income represents more than one-third of the foreign subsidiary’s total income and
    • The effective tax rate is 12.5% or less

The proposed CFC rules would not apply if the controlled foreign company conducts “substantial economic activity” supported by staff, equipment, assets, and premises (as evidenced by relevant facts and circumstances). Also, in addition to the proposed CFC taxation rules, the “switch-over provision” would continue to apply but with certain modifications. For example, dividends and capital gains from “low tax” passive participations of at least 5% would not be tax-exempt in Austria, but would be taxable with a tax credit allowed for any foreign taxes paid, provided that certain conditions are met.

VAT, indirect tax law proposals

The ministerial draft also includes proposed changes to the value added tax (VAT) rules relating to:

  • The VAT exemption for educational institutions
  • Travel services provided by travel agents
  • The place of supply for telecommunication services, radio and television broadcasting services, and electronically supplied services provided by “small undertakings”
  • The ability to obtain an advance ruling from the tax authorities in the context of VAT (as well as international tax law)

Concerning other indirect taxes, the ministerial draft would provide for changes to the real estate transfer tax, the stamp duty exemption related to rental agreements, and insurance tax.

 

Read an April 2018 report [PDF 379 KB] prepared by the KPMG member firm in Austria

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