Tax News 03-05/2021
Tax News 03-05/2021
Austrian Administrative Supreme Court on qualification of a hidden distribution as a repayment of capital or distribution (subject to withholding tax)
The Austrian Administrative Supreme Court ruled for the first time on the controversial question whether a hidden profit distribution can subsequently be re-qualified as a repayment of equity (the latter not being subject to Austrian withholding tax). According to the Austrian Administrative Supreme Court, the distributing company has generally the right to qualify a hidden distribution as a (hidden) profit distribution or (hidden) repayment of equity, provided that the company’s tax equity account shows a sufficient amount of shareholders’ equity contribution. However, the distributing company needs to declare its decision on how to qualify the hidden distribution to the competent tax authority until the end of the respective year. Otherwise, the hidden distribution would automatically be qualified as a profit distribution. This decision overruled the opinion of the Austrian Federal Finance Court that – under applying an economic perspective – was of the opinion that a re-qualification of a hidden profit distribution as hidden equity repayment is not tied to any time limits or formal notices to the tax administration.
L. Andreaus / S. Pirafelner
Austrian Federal Finance Court on the loss trafficking rules
In general, an Austrian company’s tax loss carry-forwards can be carried forward indefinitely. However, according to the loss trafficking rules (“Mantelkauf”), tax loss carry-forwards may be disallowed, if there is a significant (≥ 75 %) change in the direct shareholder structure followed by a change of the organizational and the economic structure of the company.
The Austrian Federal Finance Court recently decided in a case in which the before mentioned three criteria were obviously fulfilled. In the respective case the whole shareholder structure changed followed by a change of the director. The third requirement, a change of the economic structure was also fulfilled, as the company changed its business from leasing real property and medical equipment to running a X-ray business. As the company changed its business activities in connection with the other two structural changes within a few weeks, the court disallowed tax loss carry-forwards to the Austrian company.
Please note that the chronology of fulfilling the three requirements is irrelevant, i.e. if a change of the shareholder structure follows the change of the economic structure in connection with a change of the organizational structure, tax loss trafficking rules may also apply. As a general rule the overall framework of the structural changes has to be considered. Regardless of the before mentioned rules, tax loss carry-forwards remain deductible if the changes were made in order to reorganize the company with the primary goal to save jobs. This requirement is only fulfilled, if a significant part of the jobs (25 %) is saved not only for a short period.
M. Vaishor / K. Postlmayr
Austrian Administrative Supreme Court on capitalization of planning expenses
The Austrian Administrative Supreme Court recently repeated its jurisprudence in relation to planning expenses for a specific asset. If the construction of a specific asset requires planning and preparation expenses respectively, such expenses are in general part of the expenditures in manufacturing and must be capitalized on the respective asset.
M. Vaishor / K. Postlmayr
Austrian Administrative Supreme Court on recognition of provisions for onerous rental agreements
In general, a taxpayer may recognize a provision for a contract in which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it. In practice, in particular rental contracts often lead to discussion with the tax authorities in the course of tax audits. In a recent case, a taxpayer recognized a provision for future losses from rental contracts for several stores. Some of the stores were closed and other stores were only expected to achieve a negative profit margin since the quality of the location declined in relation to the originally agreed rent. According to the decision of the Austrian Federal Finance Court only the provision for the closed stores was accepted since the rent (to be payable due to a fixed contract runtime) was paid for useless premises. However, the provision was not accepted for stores that only contributed a negative profit margin (but were nonetheless continued since closing the stores would even have increased the negative profit margin) as this was viewed as a general business risk.
Austrian Administrative Supreme Court on intentionally insufficient appeals: Immediate dismissal prohibited
According to the Austrian Federal Finance Court, unfounded appeals are to be rejected immediately if the grounds of appeal were deliberately omitted in order to obtain an extension of the appeal period. However, the Austrian Administrative Supreme Court rejects this case law: If the taxpayer improperly fails to state the grounds of appeal in order to force an extension of the appeal period, the tax authority shall nevertheless issue an order to fix the deficiencies. An immediate dismissal is prohibited.
S. Papst / W. Gurtner
Potential double taxation with respect to Austrian resident managers of foreign companies
There are still different views on where Austrian resident managers of foreign companies may be taxed in cross border situations (except with Germany). The potentially resulting double taxation is especially problematic, as the number of cases concerned has significantly increased due to pandemic-driven lockdowns and the resulting focus on home-office based activities.
European Commission unveils plans for new business taxation
In a recent communication the European Commission unveiled its comprehensive plans to implement a robust, efficient and fair framework for business taxation. This shall, on the one hand, support the G20/OECD’s projects as well as the implementation of an EU-wide digital levy. On the other hand, the EU intends to realize five additional action points, which shall be implemented within the next one or two years.
F. Rosenberger / T. Hahn / D. Bruckbauer
CJEU: Roaming services provided by third-country providers
In its ruling of 15 April 2021, SK Telecom (Rs C-593/19) the CJEU deals with shifting the place of supply of roaming services from a third country to the EU, provided that an entrepreneur established in a third country provides the services to a customer established in a third country.
E. Freitag / D. Turic
ECJ C-907/19 Q-GmbH related to the Scope of the tax exemption for turnover from activities as an insurance intermediary
In its judgment of 25 March 2021 (C-907/19 Q-GmbH), the ECJ ruled that the exemption provided for in Article 135(1)(a) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax does not apply to the supply of an insurance product to an insurance company and, as ancillary services, the intermediation of that product and the management of insurance contracts concluded.
Esther Freitag / Ulf Zehetner
Update on Short-Time Work: Phase 4 and “Short-Time Work Bonus” for companies that have been particularly affected in Phase 3 since November
We are happy to update you about phase 4 of the COVID-19 short-time work (new social partner agreement version 9.0).
Austrian Administrative Supreme Court: If the recipient of payments cannot be named by the taxpayer in case of a tax audit, the resulting non-deductibility of these expenses is a retroactive event for purposes of procedural law
A surcharge on corporate tax of 25% is levied, if the taxpayer does not precisely disclose the recipient of a payment recognized as a business expense. The surcharge arises retroactively in the year in which the payment was made and increases corporate tax for that year. Therefore, interest on the surcharge also begins to accrue on 1st October of the year following the year in which the corporate tax claim arose. For procedural law purposes, the refusal to name the recipient constitutes a "retroactive event within the meaning of Art 295a Austrian General Federal Fiscal Code". Thus, an application for a reduction or non-assessment of the interest concerning the surcharge can still be filed in appeal proceedings according to a recent decision of the Austrian Administrative Supreme Court.
S. Papst / W. Vötter
Austrian Federal Finance Court: revision proceeding inadmissible due to discretionary considerations
A revision proceeding requires discretionary considerations. In a recent ruling, the Austrian Federal Finance Court considers the following criteria when evaluating the exercise of discretion: a long duration of proceedings, illegally obtained evidence, other procedural errors and the principle of equal taxation. After considering all circumstances, the Austrian Federal Finance Court court dismissed the revision as inadmissible.
S. Papst / S. Rettenbacher
Austrian Federal Finance Court: A revision proceeding merely due to reference to a corrected pay slip is unlawlful
In the justification of an assessment on a revision proceeding the tax office only referred to a corrected pay slip without addressing the newly emerged facts in the specific case. The justification did not show, on which new facts the resumption was specifically based. Therefore, the Austrian Federal Finance Court annulled the revision assessment.
S. Papst / S Rettenbacher
Austrian Administrative Supreme Court on denomination of recipient of payments: standard of care in the construction industry
The Austrian Federal Finance Court did not accept the deduction of operating expenses by two construction companies because they were unable to disclose the actual recipients of the payments. The Austrian Federal Finance Court charged them with a breach of due diligence because they had not complied with the enhanced standard of due diligence to be applied in the construction industry. In the opinion of the Austrian Federal Finance Court, the documents submitted by the construction companies were not sufficient to prove compliance with the required due diligence; in order to provide evidence, the Austrian Federal Finance Court referred to a checklist of the Austrian Chamber of Commerce that can be found on the internet. However, the Austrian Administrative Supreme Court overruled both decisions due to violation of procedural rules. In both cases, the Austrian Federal Finance Court had not sufficiently determined the relevant standard of care.
S. Papst / W. Vötter
Austrian Federal Finance Court on the timeliness of a voluntary self-disclosure: Fishing expeditions do NOT result in the discovery of an offense
The discovery of the offence prevents the self-disclosure from having a protective effect for financial criminal law purposes. An offence is not discovered, however, if a tax auditor sends general questions to the tax advisor by e-mail. According to the recent case law of the Austrian Federal Finance Court, the payment of the “last-minute”-surcharge is also necessary to obtain exemption from punishment, if the voluntary disclosure is made "on the occasion of" the tax audit of another taxpayer.
S. Papst / W. Gurtner / S. Rettenbacher
Insurance contracts for multinational groups may become more expensive as a consequence of a German Reform
As from 2021, Germany extended the tax liability for insurance tax to third country liabilities which may lead to double taxation and is, in particular, relevant for international insurance contracts within multinational groups.
Restriction of access rights to the UBO-Registry in case of significant personal endangerment of the UBO may only be approved based on solid evidence of “exceptional circumstances” – according to the first-time judgment of the Austrian Supreme Administrative Court in this matter, December 15, 2020, Ro 2020/13/0010
Starting January 10, 2020 public access to UBO data was established in Austria to the extend required by EU Directive 2018/843 (e.g. the residence address or the date of birth of the UBO are not indicated in public excerpts). Hence, such excerpts of the UBO-Registry are available to everyone without the proof of legal interests required anymore.
Since October 1, 2018 UBOs were granted the right to apply for restriction of access to their registered data, if they may substantiate firm reasons to be considered significantly worthy of data protection due to severe personal endangerment.
A request for restriction of access rights must be approved by the registration authority (MoF), in case the applicant is able to prove a significant, excessive risk of falling victim of certain listed crimes (like fraud, hijack, blackmail, severe threat, or crimes against health and life) unless access rights to his registered personal data were restricted or generally in case of minors and legally incompetent persons. In case a restriction of access rights is granted, no UBO-data of the applicant will be displayed in excerpts of the UBO-Registry with respect to all entities listed in the UBO´s application. A restriction of access rights may generally be granted for a period of five years or in case of minors until they attain majority. However, an extension of restricted access rights may also be applied for subsequently.
According to a first-time judgement of the Austrian Supreme Administrative Court in this matter dated December 15, 2020, the restriction of access rights to the UBO-Registry in case of significant personal endangerment of the UBO may only be approved based on solid evidence of “exceptional circumstances”, wherefore the applicant is required to display and to prove meticulously all the facts posing a significant, excessive risk to him falling victim of certain listed crimes.
Based on this landmark decision we strongly believe, that coming applications for restriction of access rights to the Austrian UBO-Registry will only be approved in favour of minors and legally incompetent persons or in very rare cases, where UBOs are actually able to prove their significantly enhanced risk of personal endangerment due to their UBO-data being publicly accessible.
S. Haslinger / C. Edelhauser
Austrian Federal Finance Court: opening of bank accounts only admissible, after taxpayers´ right to be heard has been granted
A court approval to open bank accounts on request of the tax administration always requires a prior written information of the taxpayer as well as a formal documentation of the taxpayer´s respective statement addressing the intended account opening (according to previous legislation on which the ruling of the Austrian Federal Finance Court was based) or addressing reasonable doubts by the tax authority regarding his tax filings that were evidently held against him (new legislation effective since January 23, 2021). Notwithstanding these formal prerequisites, substantive validity of the claim of the tax administration to open bank accounts is required: reasonable doubt about information provided by the taxpayer, aptitude of the account opening to remove these doubts and proportionality of the interference with the taxpayer´s legitimate interests.
S. Papst / C. Edelhauser