Recent developments in the Austrian tax administration and (proposed) changes to the Austrian Tax Guidelines (2024)

In addition to the recent reorganisation of the tax administration in Austria, the income tax guidelines, reorganisation tax guidelines and VAT guidelines, each published by the Austrian Ministry of Finance, were updated in late 2020/2021 and the draft update on the Austrian transfer pricing guidelines became available but is still under review.

Reorganisation of the Austrian tax administration

• The reorganisation of Austrian tax administration became effective as of 1 January 2021. The former local tax offices and other tax departments/tax authorities have been replaced by the Tax Office Austria, the Tax Office for Large Enterprises, the Customs Office Austria and the Anti-Fraud Department.
• The banking details of Austrian tax offices changed in the course of the reorganisation and need to be used in any future payment orders.
• The tax identification numbers of taxpayers remained generally unchanged.

New Income Tax Guidelines

• In the event of dividend distributions by Austrian corporations to a foreign direct parent company, direct relief from Austrian withholding tax (WHT) is in general not permitted where the parent company does not meet the respective substance requirements (premises, personnel and assets, e.g. mere holding companies). However, according to the updated income tax guidelines direct relief at source could be available if the direct parent company is fully owned by a corporate shareholder (grandparent) which is resident in an EU Member State and has sufficient substance. Depending on whether the direct parent company carries out an economic function, different documentation for direct relief at source need to be provided to the Austrian distributing corporation. Please note that it is not yet clear whether the parent holding company and the grandparent have to be resident in the same EU Member State to benefit from direct relief at source in such cases.
• If an Austrian corporation operates a PE abroad, the conversion of respective PE income in a foreign currency to Euro shall be made at the average ECB reference rate of the fiscal year.
• Royalty payments are subject to Austrian WHT. The tax office stated that the one-time download of software against a one-time payment for the mere use of the software for an unlimited time (no transfer of rights; exploitation of rights and reproduction is denied) should not constitute a royalty payment. This also holds true for software subscription services and the use of online databases against a regular (e.g. monthly) consideration where the rights are limited to the actual usage.
• Details on depreciations using the declining balance method (eligible for assets which are acquired or produced after 30 June 2020), tax deductibility of lump-sum bad debt allowances and lump-sum provisions (to be recognized for tax purposes for fiscal years starting after 31 December 2020; transitional rules to be recognized) and tax implications of specific COVID-measures are included in the income tax guidelines.

New Reorganisation Tax Guidelines

• Restructuring and CFC rules: If the reorganisation of a controlled foreign company under foreign law is comparable to a transaction covered by the Austrian Reorganisation Tax Act, the tax implications resulting from foreign law (tax neutrality or realization of built-in gains in course of the reorganisation) should generally be decisive for determining the foreign income according to Austrian CFC taxation.
• Based on the CJEU, export contributions of shares held by individuals or non-Austrian corporations that cannot be attributed to an Austrian business are subject to a special regime allowing for the non-assessment of built-in gains. This new rule is available for reorganisation contractually signed since 1 January 2020. The reorganisation tax guidelines have been updated accordingly.
• In the event of a reorganisation that (inter alia) relates to a foreign PE of an Austrian corporation, recapture of the foreign losses recognized in Austria may be triggered.
• According to the Austrian tax office, a single (act of) reorganisation should not constitute an abusive structure in general.

New VAT Guidelines

• Brexit: The UK left the EU single market with effect from 31 December 2020. However, Northern Ireland continues to be considered an EU territory with regard to supply of goods. Therefore, adjustments and declarations of transactions with UK VAT via the MOSS or eVAT need to be submitted by 31 December 2021 for transactions carried out before 1 January 2021.
• A VAT-exempt intra-Community supply can be given in the case that the supplier transports or dispatches the respective goods on behalf of the customer to another trader in Austria so that the latter also processes the goods on behalf of the customer in the context of a work supply and then transports or dispatches it to the customer. The work supply can be regarded as a tax-exempt intra-Community supply as well if all respective requirements are met.
• In order to apply the exemption for the intra-Community supply, either the submission of the recapitulative statement or a proper justification for the non-submission, the incomplete or the incorrect submission of the recapitulative statement is required. According to the VAT guidelines, a justification is considered to be proper as long as there is no suspicion of VAT evasion or VAT abuse.
• Input tax deduction is available even if ultimately the economic activity was not carried out, provided that the exclusive reason for that expenses is to be found in the intended economic activity.
• If a lessee obtains the power of disposal over the leased assets under a leasing contract, this is considered a supply of goods. In the case of a standard lease contract with an option for the lessee to purchase the leased assets, a supply of goods is given if it can be assumed – based on the terms of the contract – that exercising the option is the only economically rational choice for the lessee (provided that the contract exists until the end of its term). Therefore, it must be examined in each case whether the leased asset is allocated differently for VAT purposes than for income tax purposes. However, regarding contracts concluded before 1 January 2021, the leased asset can still be allocated for VAT purposes according to the criteria set out in the income tax guidelines. Since 2021, however, the allocation rules for VAT and CIT can result in different allocation scenarios.

Draft Update of Transfer Pricing Guidelines (final version under review)

• Year-End Adjustments (YEA): The Austrian TP Guidelines for the first time set preconditions for YEA; the following conditions need to be met cumulatively:
  ੦the ex-ante pricing is subject to material uncertainties;
  ੦all necessary efforts were made by the taxpayer during the year to achieve an arm's length transfer price (ongoing monitoring);
  ੦the price-determining factors are agreed in advance;
  ੦the adjustment leads from a value outside the arm's length range - determined with ex-ante knowledge - to a result within the arm's length range.
  Since other countries apply YEA less restrictively, this could lead to double taxation in specific cases. In this regard, the TP guidelines stipulate the initiation of a mutual agreement procedure.

• Routine functions and the “low value-adding intra-group-services” (LVAIGS) approach: The guidance on mark-up for routine services of 5% to 15% given in the current TP guidelines is proposed to be adjusted to 3% to 10% in line with the EU Joint Transfer Pricing Forum report. It is therefore to be expected that mark-ups of more than 10% might be challenged in the inbound case. The LVAIGS approach of the OECD was adopted to simplify the application of the arm's length principle for the charging of services with low value added. The LVAIGS approach can only be applied to support services that are not part of the core business of a multinational group, e.g. accounting functions, personnel services, IT services and general business functions.
• Intangible assets: The draft TP guidelines include the principles of Chapter VI of the OECD guidelines on intangible assets and in particular the DEMPE concept which is used for the allocation of income from the transfer or use of intangible assets.
• Hard-to-value intangibles (HTVI): The HTVI approach recommended by the OECD was included in the draft TP guidelines. Accordingly, in case of HTVI Austrian tax authorities could e.g. use ex-post figures to assess whether pricing was at arm’s length, provided that no price adjustment clause has been agreed.
• Cost contribution arrangements (CCA): Due to the changes in Chapter VIII of the OECD guidelines, the draft TP guidelines were amended accordingly. In particular, the requirements for a CCA and for the participants in a CCA were made stricter. Cost contributions of the CCA participants must be at arm’s length. Costs without mark-up can now only be charged if the gap between the arm’s length amount and the costs is not significant. According to the draft TP guidelines this should be the case for services of low value added (see above) only.
• Financial transactions: The new Chapter X of the OECD guidelines was included in the draft TP guidelines. Significantly stricter requirements will be applied to the documentation of the arm's length nature of transfer prices in financial transactions. The draft TP guidelines now explicitly give guidance on transactions such as intercompany loans, cash pooling, guarantees, hedging transactions and captives.
• TP documentation: The draft TP guidelines set out the minimum requirements for transfer pricing documentation where there is no obligation for companies to prepare transfer pricing documentation according to the structure of Local File, Master File and Country-by-Country Report. These requirements largely correspond to the requirements for a local file or even seem to go beyond them. For example, the disclosure of the integration of the Austrian company into an international value chain of the group is required. Written contracts concluded in advance of the transaction must also be attached to the documentation.

Author: Matthias Mayer