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Austria: CFC tax rules addressed in draft regulation

Austria: CFC tax rules addressed in draft regulation

A draft regulation regarding controlled foreign corporation (CFC) taxation includes measures concerning the possible assessment of low taxation regarding:

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  • The determination of income—Whether a CFC is “low taxed” is determined based on whether the subsidiary is subject to an effective tax rate of 12.5% or less. The CFC’s potential income must be calculated pursuant to Austrian tax law. In applying the Austrian participation exemption regime, the CFC must be treated as if it (but not its subsidiaries) is domiciled in Austria in certain instances.
  • The determination of relevant taxes—The Austrian controlling corporation must be able to prove the amount of taxes that the CFC has actually paid, and for these purposes, not only foreign corporation taxes but all taxes directly affecting the CFC’s income are relevant (for instance, the German trade tax).
  • Temporary differences—Low taxation can arise in instances when differences between tax regimes only result in temporary differences in the tax burden. Reasons for such temporary differences may be, for example, differences with regard to the calculation of depreciation or the treatment of loss carryforwards.

Other rules in the draft CFC regulation provide an “escape clause” with regard to determining whether the passive income earned by a low-taxed CFC is more than one third of its total income, with the one-third limit being determined separately for each fiscal year over a three-year period. Thus, the CFC regime would apply if the sum of passive income generated in the three-year measuring period is more than one third of the sum of the total income generated in these three fiscal years.

There is a “substance escape clause” providing that the CFC regime would not apply if the CFC conducts significant business activity in terms of employees, equipment, assets, and premises. The draft regulation includes a list of business activities that typically do not constitute qualifying business activities.

In applying the CFC regime, losses from the CFC are not attributed to the Austrian controlling corporation, but positive passive income and negative passive income can be offset against each other.

Lastly, the draft CFC regulation includes a “switch-over” provision from the prior CFC rules. 

 

Read a December 2018 report [PDF 367 KB] prepared by the KPMG member firm in Austria

 

Other topics briefly discussed in this KPMG report include:

  • Austria to implement the Anti-Tax Avoidance Directive interest limitation before the end of 2018
  • Country-by-country notifications required before the end of 2018
  • Completed negotiations of a new income tax treaty between Austria and the United Kingdom
  • Value added tax (VAT) guidelines published by the Austrian Ministry of Finance, concerning the treatment of vouchers
  • Decisions by Austrian courts on “surcharges” in instances of voluntary self-disclosures, tax evasion concerning monthly VAT returns
  • Findings by the CJEU that the Austrian bank levy is not in conflict with the freedom to provide services
  • New investment fund guidelines issued by the Austrian Ministry of Finance

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