Tax News: English Summary 01-02/2020
English Summary 01-02/2020
English Summary of Newsletter
Austrian Federal Finance Court on Austrian tax groups
Under the Austrian group taxation regime in general tax losses of group members can be offset against profits of other group members. The taxable results of domestic group members are attributed to the group parent. To establish a tax group a group parent and at least one group member are required. One major requirement for applying the group taxation regime is that the qualifying participation must be held for the whole financial year of the group member (restructurings within a tax group are not harmful if qualifying participations in the group members are still held for the entire respective financial year). Furthermore, an Austrian tax group has to exist for at least three years.
The Austrian Federal Finance Court recently decided in a case with a group parent and two group members. The participation of group member one was held by the group parent. Group member one held the shares in the second group member. The participation in the second group member was contributed in kind to the group parent according to the Austrian Reorganization Tax Act during the tax group’s second year. Then group member one was sold to a third party. The Austrian Tax Authorities decided, that the whole group collapses, as group member two did not fulfil the respective requirements for qualifying participations in relation to the group parent. The Austrian Federal Finance Court decided against that (i.e. the group does not collapse in such cases, because there was at least one group member left, which fulfilled the requirements for qualifying participations as the contribution in kind was an intra-tax-group transfer which is not harmful). The tax authorities already filed an appeal against the Austrian Federal Finance Court’s judgment to the Austrian Administrative Supreme Court.
Markus Vaishor / Katrin Postlmayr
Austrian Administrative Supreme Court on immediate deduction of low-value assets and adjustments to the balance sheet for tax law
An immediate deduction of the entire acquisition costs of a depreciable fixed asset is available for “low-value assets” (up to EUR 400; as from 2020 up to EUR 800). Generally immediate deduction cannot be claimed if the low-value asset is acquired for the purposes of leasing or renting to third parties. The Austrian Administrative Supreme Court recently decided, for tax law, that the before mentioned exemption does not apply, if the low-value asset is acquired for the purposes of active services to third parties.
In addition, in view of the procedural legal issue of this case, the court decided that adjustments to the balance sheet for tax purposes (if the balance sheet does not comply with the general principles of orderly accounting or binding regulations of income tax law) can only be made by the tax office after separate examination of the preconditions, i.e. (i) tax effect due to the statute of limitation and (ii) a suitable procedural title is present (e.g. reopening proceedings).
Lukas Andreaus / Tanja Wilk
Outbound dividend distributions post-brexit
From a tax perspective Brexit will not become a reality before the end of the year 2020. The agreement on the withdrawal of the United Kingdom of Great Britain and Northern Ireland from the European Union ensures that there are no significant changes from a tax perspective until Dec 31, 2020. Austria has already concluded a new double taxation treaty with the UK in order to also ensure a favorable tax treatment for in particular outbound dividends afterwards.
Caution with regard to outbound dividends to holding companies without substance in non EU-countries
Dividends paid by Austrian resident subsidiaries to EU resident holding companies without substance may still be paid net of Austrian dividend withholding tax, as long as the necessary degree of substance can be proved at the level of an indirect EU shareholder. Further to a recent information published by the Austrian Ministry of Finance, such an indirect evidence of substance may not be available for Non-EU shareholders. In that case a refund procedure may be unavoidable.
CJEU: The proof of the identity of the consignee for export supplies is not a condition for the exemption
In its ruling of 17 October 2019 (C-653/18 Unitel), the CJEU has ruled that an unidentified identity of the consignee in the third country does not generally lead to the conclusion that the supply is not qualified as an export supply and therefore no tax exemption is applicable.
Esther Freitag / Christina Pollak
Austrian Federal Finance Court: VAT registration in the country of destination does not affect the applicability of the triangular scheme
In its decisions of October 24th, 2019 (RV/2100217/2018 and RV/2101154/2017), the Austrian Federal Finance Court had to deal with the question, if the VAT registration in the country of destination is harmful for the application of the triangular scheme.
Esther Freitag / Alfred Mühlberger
CJEU: The applicability of the exemption of the supply of services by independent groups of persons provided to their members and non-members
In its ruling of 20 November 2019 (C-400/18 Infohos), the CJEU has decided that the exemption of the supply of services by independent groups of persons for their members is applicable for supplies of services to their members, even if the group also provides these services to non-members. However, services provided to non-members are subject to VAT.
Esther Freitag / Christina Pollak
German Federal Fiscal Supreme Court: Refusal of VAT deduction in case of participation in third-party “VAT fraud” is not allowed if the tax authorities do not inquire this third-party “VAT fraud”
In its decision of July, 3rd 2019 (XI B 17/19), the German Federal Fiscal Supreme Court (Bundesfinanzhof, BFH) had to deal with the question of whether the refusal of the VAT deduction in the case of "assumed" involvement in third-party "VAT fraud" is lawful without the tax authority having made a determination regarding the third-party "VAT fraud".
Esther Freitag / Alfred Mühlberger
Exemption of capital gains taxation of real property derived by individuals: Austrian Federal Finance Court on the requirement for applying the exemption
Capital gains from the sale of real property derived by individuals as from April 1, 2012 are subject to tax with a flat tax rate of 25 % (April 1, 2012 – Dec 31, 2015) or 30 % (Jan 1, 2016 – present) respectively. However, there are two important tax exemptions. An exemption applies, if the property had been the seller’s principal home two years from the acquisition/construction and prior to the sale or for at least five years during the last 10 years. In addition, the seller´s principal home has to be abandoned. The idea behind this exemption is that capital gains are typically used to finance the seller´s new home, so the capital gains should not be reduced by a tax. According to the Austrian Tax Authorities the exemption only applies if there is a maximum time period of one year between the time of sale and the time of giving up the seller´s principal home. The Austrian Administrative Supreme Court, however, decided that this period could also be longer, if the seller had already intended to change his principal home at the time of sale. The Austrian Federal Finance Court recently decided a different case, i.e. the seller gave up its principal home first, and then sold the respective property after approx. one and a half years after giving up his principal home, as the search for purchasers was difficult. The court decided, that the exemption is applicable in such cases.
Markus Vaishor / Katrin Postlmayr
Legal costs may be part of tax basis for real estate transfer tax
The acquisition of Austrian real property by way of an asset deal is subject to 3.5% Austrian Real Estate Transfer Tax. The tax base is, in principle, the purchase price, however, certain additional amounts (e.g. VAT, assumption of liabilities etc) may also be taxable.
According to the recent jurisdiction of the Austrian Federal Finance Court, legal costs (contract etc) are subject to real estate transfer tax if the seller engaged the lawyer and the buyer bears the respective costs.
Markus Vaishor / Florian Popl
Letting of Apartments: Trade Regulation Law and Income Tax
The short-term rental of holiday apartments is a popular investment concept. Taking into account a recent decision of the Austrian Administrative Supreme Court, a short-term rental could be considered a trade under the Austrian Trade Regulation Act (“GewO”) that must be registered. From an income tax perspective, the income is to be classified either as business income (Art 23 Austrian Income Tax Act) or rental income (Art 28 Austrian Income Tax Act); the classification as business income would generally be more favorable. Although, according to the case law of the Austrian Administrative Supreme Court, the classification for income tax purposes is in principle independent of the qualification under trade regulation law, the considerations under trade law could at least have a certain indicative effect on the classification for income tax purposes.
Amendments to the Austrian Ultimate Beneficial Owner Registry Law implementing the 5th AML/CFT-Directive (EU) 2018/843 became effective as of January 10, 2020
The following amendments to the Austrian UBO Registry Law came into force based on the 5th (EU) AML/CFT-Directive, as of January 10, 2020:
- Public access to beneficial ownership information
- Annual reporting obligations for entities regarding their beneficial ownership following their mandatory annual UBO review, now prescribed in more detail
- Enhanced due diligence and reporting requirements for trusts and trustlike arrangements
- Trustees are obliged to disclose their status and all UBO relevant information of the trust to obliged parties, in certain cases they must also register trusts and their UBOs in Austria
- For subsidiary UBO reporting of senior managing officials respective reasoning must be reported as appropriate
- Reporting of UBOs exercising ultimate, effective control (by other means than based on vote or value) also includes information on the percentage of control exercised, if available
- Obliged parties must mark discrepancies among UBO data they recognize in the UBO registry
- Increase of criminal and administrative financial offences due to violations of reporting or due diligence obligations
- Expanded methods and functions for analyzing and evaluating registered data by the MoF in order to ensure that adequate, accurate and current data is contained in the UBO registry
- Thus, entities as well as their legal and beneficial owners are obliged to provide UBO relevant information and documentary evidence on request also to the registration authority (MoF)
Stefan Haslinger / Christiane Edelhauser
Notifications according to Art 109a and Art 109b Austrian Income Tax Act
In respect of fees paid in 2019 for certain services outside of employment relationships to individuals or partnerships (associations) without legal capacity and for certain outbound payments effected in 2019, entrepreneurs as well as corporations under public and under private law have to submit a notification according to Sec 109a ITA resp. Sec 109b to the tax office by way of electronic data transmission until 29th Feb 2020.
Regulations and values in social security, labor and income tax law applicable in 2020
The values in social security, labor and income tax law applicable for 2020 were published recently. Please contact your KPMG advisor for further information. Changes in the regulations and values in social security, labor and income tax law.
Austrian Constitutional Supreme Court on invalid underlying assessments: Restricted application for amendment of derived assessments declared unconstitutional
Often tax related decisions, such as income tax assessments, are based on underlying assessments. According to Austrian procedural law, if an underlying assessment had to be considered null and void (a so called “non-decision”), any assessment derived from the underlying assessment should be amended accordingly. However, the taxpayer’s right to apply for an adjustment of the derived tax assessment is subject to the limitation period of the derived tax assessment and independent from the underlying assessment. Based on the principle of effective law enforcement this can be problematic, if a final decision in a pending appeal proceeding concerning the underlying assessment takes longer than the limitation period of the derived assessment. As in such a case, the appellant is left without effective means to appeal against the derived tax assessment, the Austrian Constitutional Supreme Court declared this article of the Austrian Federal Fiscal Act to be unconstitutional.
Stefan Papst / Gerhard Lörenz
Austrian Administrative Supreme Court: Unlawful Announcement of Tax Audit can be challenged via Art 299 Austrian Federal Fiscal Act
In Austrian procedural law, it is not possible to appeal against an unlawful announcement of a tax audit, as it only constitutes a procedural order. However, according to a recent case law of the Austrian Administrative Supreme Court an unlawful announcement of a tax audit can be challenged via an application for annulment based on Art 299 Austrian Federal Fiscal Act. Nevertheless, such an application does not have a suspensive effect and does not prevent the use of evidence obtained in a tax audit based on an unlawful announcement. Thus, if a tax auditor wants to proceed with a tax audit despite an application for annulment, the taxpayer must refuse the participation in the tax audit in order to protect his rights until the application is finally decided upon.
Austrian Administrative Supreme Court: No tax evasion concerning foreign capital gains – proof of intent was not successful
A determination, whether a tax was intentionally evaded or not, requires clear, explicit and verifiable assessments concerning the tax evasion. General statements on intent and error of law are not sufficient. The mere use of standardized phrases and text by the tax authority or the Tax Court without determining the relevant circumstances in the individual case leads to an unlawful tax assessment or judicial decision.
In the past, similar cases concerning foreign capital gains regularly failed before the Austrian Administrative Supreme Court. As in the current case the tax authority and the Federal Finance Court totally omitted the determination of the circumstances, the Austrian Administrative Supreme Court for the first time sets aside a judgement of the Federal Finance Court on intentional tax evasion concerning foreign capital assets due to infringement of procedural rules.
Moreover, the Austrian Administrative Supreme Court clearly states that an error of law always rules out intent: Both “excusable” and “inexcusable” errors of law prevent the application of the ten-year-limitation period.
Stefan Papst / Wolfgang Gurtner
Austrian Ministry of Finance published new ordinance on individual record keeping, cash register and receipt issuing obligations
In the new ordinance the Ministry expresses its legal view on keeping of books and records, on the cash register obligation, on the obligation to provide documents, on the sanctions for non-fulfillment of the obligations and on the details of the technical security system. Please note that the yearly record (Jahresbeleg) of the cash register for 2019 needs to be filed until February 15, 2020.
Ferdinan Kleemann / Florian Popl
Austrian Federal Finance Court on the cancellation of taxes
In the course of a tax audit the Austrian tax authorities argued that cosmetic surgeries conducted from an Austrian surgeon are liable to Austrian VAT. The services were treated as VAT exempt in the respective VAT returns. Thus, VAT was assessed subsequently. Afterwards the Austrian Administrative Supreme Court decided in a similar case and stated that such services are not subject to VAT (until 2012). The cosmetic surgeon filed an application for the cancellation of the unlawful assessed VAT to the Austrian tax authorities, which was rejected. He further filed an appeal against that decision to the Austrian Federal Finance Court. The court approved the application and stated that charging taxes, which were assessed unlawfully due to jurisprudence of the Administrative Supreme Court, would be an undue hardship.
Ferdinand Kleemann / Katrin Postlmayr
Austrian Constitutional Supreme Court lowers tax burden in case of the revocation of an Austrian Private Foundation
Payments by an Austrian Private Foundation to the beneficiaries are generally considered as income from capital assets at the level of the beneficiaries and in principle subject to a capital income tax of 27,5%. Only distributions of assets related to the assets donated after July 31, 2008 remain tax-exempt if these distributions of assets are exceeding the balance sheet profit determined pursuant to company law plus retained profits and are covered by a so-called evidence account. In case of assets donated to the private foundation before August 1, 2008, no tax exemption applies in case of the distributions of assets to the beneficiaries.
Nevertheless, in the case of a revocation of a private foundation, a tax relief in the amount of the assets donated to the private foundation as of the date of their donation is granted upon repatriation of the assets. As a result, the unrealized capital gains accumulated in the private foundation and those accumulated by the founder before the foundation act are taxed upon repatriation of the assets. This applies even if the assets were no longer taxable at the level of the founder. In a new court decision, the Austrian Constitutional Supreme Court allowed a tax-neutral revaluation of the assets at the time of the foundation contribution, so that only the increase in market value within the foundation is now subject to capital gains tax. However, the main reason for the tax-neutral revaluation is that the unrealized capital gains of the contributed assets were no longer subject to tax at the level of the founder when the contribution was made.
Friedrich Fraberger / Viktoria Kraus
Austrian Administrative Supreme Court rules that restriction of energy tax refund to production companies is legally compliant (follow-up decision on ECJ case “Dilly’s Wellnesshotel II” C-585/17)
In its recent decision (follow-up decision of the case “Dilly’s Wellnesshotel II” C-585/17 of the ECJ) the Austrian Administrative Supreme Court ruled that the restriction of energy tax refund to production companies entered into force as from Feb 1, 2011 from a national law perspective. It has thus now been finally clarified that - contrary to the most recent case law of the Federal Finance Court (BFG) - service companies are not entitled to an energy tax refund for periods from Feb 1, 2011 onwards.
Gerald Punzhuber / Sebastian Tratlehner
Judgment of the CJEU of 30 January 2020 (C-156/17 Köln Aktienfonds Deka) concerning the refund of Dutch withholding tax on dividends to a foreign investment fund
The CJEU had to decide on several objective differentiation criteria for the refund of Dutch tax withheld on dividends that may lead to a restriction of the free movement of capital and liberation of payments, as the criteria are favorable for resident taxpayers by nature or in fact.