Global Tax Alert | 4 February 2014
Austria publishes revised draft bill 2014 amending Tax Acts
On 29 January 2014, a revised draft bill of the 2014 Tax Amendment Act (Abgabenänderungsgesetz 2014; AbgÄG 2014) was forwarded to the Austrian Parliament. The revised draft bill modifies the initial draft bill with amendments to certain Austrian Tax Acts that was published on 9 January 2014. (For details regarding the original draft bill, see EY Global Tax Alert, Austria publishes draft bill 2014 amending Tax Acts, issued 15 January 2014.)The following significant changes to current legislation are planned. Changes between the first draft bill and the revised bill are italicized.
Limitations to tax deductibility of interest and royalty payments to affiliated corporations
As of 1 March 2014, interest and royalty payments to domestic and foreign affiliated corporations shall no longer be tax deductible if the income of the recipient corporation (beneficial owner) is:
- • Not subject to taxation due a tax exemption of the person or the income; or
- • Is subject to a nominal tax rate or a specific tax rate applicable to interest or royalty income of less than 10%; or
- • Due to specific tax regimes subject to a tax rate of less than 10% (effective tax rate).
In contrast to the draft bill, the minimum tax rate was reduced from 15% to 10%. The limitations to tax deductibility shall not apply if the tax rate of the recipient of interest or royalty income is below 10% due to own losses or losses allocated under a tax group/consolidation regime. The limitations to tax deductibility shall be applicable to all interest and royalty payments to affiliated corporations as of 1 March 2014, irrespective of when the underlying agreement was actually concluded.
An exception shall apply for payments to entities that meet the EU law privileges for risk capital measures. The focus of this new regulation is – in the light of the current BEPS Action Plan of the OECD – the avoidance of the intra-group transfer of profits via interest and royalty payments to low-tax jurisdictions or jurisdictions with a special tax regime.
Interest that served for refinancing the intra group acquisition of participations is no longer tax deductible
As already provided in the draft bill, interest paid on debt that served for refinancing the intra-group acquisition of participations shall no longer be tax deductible as of 1 March 2014. The explanatory remarks quote that currently existing possibilities to circumvent the denial of interest deductions by way of restructurings shall be removed. Based on the wording of the new provision, interest will no longer be tax deductible even if the participation is no longer held as asset or was transferred against a consideration below the acquisition price. The new provision generally targets all restructurings carried out in the past as there is no limitation to its factual retroactive effect.
Limitations to the group taxation regime
Abolishment of the goodwill amortization
Under the current legislation, goodwill arising from acquisitions of domestic group members has to be amortized over 15 years. According to the draft legislation, acquisitions of participations after 28 February 2014 are no longer entitled to goodwill amortization. Open amortization amounts (fifteenths) from the past basically remain tax deductible in the future if the acquired company becomes a group member by the end of fiscal year 2015 at the latest. Another requirement is, that the tax benefit from goodwill amortization potentially had implications on the purchase price. According to the explanatory remarks to the AbgÄG 2014, it was possible that the benefit of goodwill amortization had implications on the purchase price, if the purchasing company (draft bill: both parties) could assume that – when buying the participation – it was without any doubt entitled to goodwill amortization. In addition, according to the explanatory remarks to the AbgÄG 2014, implications on the purchase price can be assumed if a domestic company becomes a group member within some years after its acquisition.
Geographical limitation of group taxation
Under the AbgÄG 2014, certain companies shall be excluded from the group taxation regime. As of 1 March 2014, in addition to corporations resident in the EU, foreign entities resident in countries with which Austria has agreed on comprehensive administrative assistance may be included into a tax group. This is considered justified by the enforcement and control possibilities of the Austrian tax authorities.
Existing foreign group members, resident outside the EU, in countries without a comprehensive administrative assistance agreement, shall be suspended from the group tax regime as of 1 January 2015 ex lege. If, based on that rule, the three-year minimum holding period cannot be fulfilled, there shall be no retroactive reversal of group taxation tax effects. The recapture of foreign prior year losses of the suspended group members may be spread over three years.
Limitation to the set off of foreign losses
Currently tax losses of foreign group members can be utilized up to the full amount of the foreign loss. Starting with the 2015 tax assessment, the utilization of losses of foreign group members shall be limited to 75% of the domestic group income. Excess losses are included in the loss carry forwards for subsequent years.
Per person and per year limits to the tax deductibility of salaries/wages
As of 1 March 2014, the tax deductibility of salaries/wages and other remuneration (including all payments in cash and in kind) shall be limited to €500,000 per person and per year. This regulation shall apply to the lessee in the case of staff secondment. The €500,000 limitation has to be apportioned for employments of less than 12 months or when the person renders services for affiliated partnerships or business units. This regulation shall apply to employees (echte Dienstnehmer) as well as to other similar contractors who are organizationally integrated into the entity such as management board members of public companies and managing directors of Austrian limited liability companies.
Incidental wage costs borne by the employer shall be excluded from this limitation to tax deductibility.
The limitation shall not apply to severance payments under Art 67/3 Income Tax Act (gesetzliche oder kollektivvertragliche Abfertigungen) and the refund of expenses (e.g. refund of travel expenses). The limitation shall apply to existing entitlements after termination of the employment (e.g. company pensions). Further, the tax deductibility of pension payoffs shall be correspondingly limited if the annual pension exceeds €500,000 per year.
In addition, in the future accruals for pension and severance payments shall be limited to the extent of the underlying entitlements (maximum tax deductible amount of €500,000 per year). Accruals made in fiscal years ending before 1 March 2014 for entitlements exceeding €500,000 per year shall be dissolved without increasing taxable profit.
Limitations to favorable taxation of golden handshakes
In order to keep older employees in employment, the favorable taxation of golden handshakes (freiwillige Abfertigungen, Kündigungsentschädigungen, Vergleichszahlungen) shall be limited for payments after 28 February 2014. The taxation of statutory severance payments (Abfertigung alt) shall remain unchanged.
Severance payments that do not entitle to taxation with the reduced 6% tax rate (e.g. voluntary severance payments) shall no longer be tax deductible for the employer.
Discounting of long-term accruals
Under the current legislation, long-term accruals (remaining term of at least one year) incurred for pending losses or other liabilities are only tax deductible in the amount of 80%. The remaining 20% non-deductible amount corresponds to a lump-sum discount for which the effective term of the accrual does not matter.
This lump-sum discounting shall be abolished and replaced by a mandatory fixed discounting rate of 3.5% per year.
This amendment shall be effective for all accruals made for financial years ending after 30 June 2014. All long-term accruals made for financial years ending before 1 July 2014 shall be reversed (increasing the taxable profit) only in case (and as long as) the amount applying the new 3.5% discounting rate would result in a lower accrual amount. The reversed amount shall be spread over three years.
In case of the sale or termination of business, the total difference can be considered in the respective fiscal year.
75% limitation to the deduction of loss carry forwards basically remains unchanged
In contrast to individuals, the 75% loss offset boundary basically remains unchanged for corporations. The 75% limitation shall not apply to recaptures of losses of foreign group members starting with the tax assessment of 2015.
Extension of limited tax liability on interest
Under the current legislation, no withholding tax is levied on interest from domestic bank deposits and debt securities of nonresidents which are not in the scope of the EU-Savings Tax, as this income is not covered by the limited tax liability. Interest on domestic bank deposits and debt securities of EU residents are however taxed with EU-Savings Tax.
As of 1 January 2015 (draft bill 1 March 2014), interest on bank deposits and debt securities (specifically interest within the meaning of the EU-Savings Tax Act) received by persons not covered by the EU-Savings Tax Directive shall be covered by the limited tax liability (withholding tax deduction starting with 1 January 2015).
Prerequisite for the limited tax liability shall be the obligation to levy withholding tax and therefore a domestic nexus.
Domestic paying agents and domestic debtors of interest payments shall be obliged to withhold tax.
Minimum share capital for limited liability companies (GmbHs) increases again
With the Corporate Law Amendment Act 2013, the statutory minimum share capital for limited liability companies was reduced from €35,000 to €10,000 as of 1 July 2013. Since the annual minimum corporate income tax amounts to 5% of the statutory minimum share capital, the minimum corporate income tax decreased to €500 per year (regardless of the actual amount of the nominal share capital of a GmbH).
As of 1 March 2014 (only eight months after the decrease) the minimum share capital shall again increase to €35,000. By increasing the minimum capital, the minimum corporate income tax increases again to €1,750 per year. For limited liability companies set up after 30 June 2013, the minimum corporate income tax shall amount to €500 per year for the first five years, and to €1,000 per year in the subsequent five years. After ten years the minimum corporate income tax shall amount to €1,750 per year.
For start-ups, the “foundation privilege”, whereby only €5,000 of the minimum share capital must be paid in cash, shall remain. Companies that make use of this privilege have to refer to that privilege on their official papers, order forms and websites. Founding privileged companies and companies registered since 1 July 2013 with registered capital of less than €35,000 shall be obliged to assign a quarter of their annual net income in a special statutory reserve every year to make up the difference to the amount of € 17,500 which would be payable in cash otherwise. The founding privilege expires after 10 years at the latest.
Abolishment of capital duty from 2016
The existing 1% capital duty on equity contributions shall be abolished from 1 January 2016 onwards. Based on the Directive 2008/7/EC, it would no longer be possible in the future to reintroduce a similar tax after the planned abolishment.
The 2014 Tax Amendment Act is expected to be adopted by the Austrian Parliament in February 2014 and enter into force on 1 March 2014.
For additional information with respect to this Alert, please contact the following:
Ernst & Young Steuerberatungs- und Wirtschaftsprüfungsgesellschaft m.b.H., Vienna
- • Andreas Stefaner
+43 1 211 70 1041
- • Roland Rief
+43 1 211 70 1257
- • Klaus Pfleger
+43 1 211 70 1179
- • Markus Stefaner
+43 1 211 70 1283
- • Dominik Novak
+43 1 211 70 1303
- • Patrick Plansky
+43 1 211 70 1142
EYG no. CM4155