AUSTRIA TO IMPLEMENT (NON-PUBLIC) REGISTER OF BENEFICIAL OWNERS

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1 AUSTRIA TO IMPLEMENT (NON-PUBLIC) REGISTER OF BENEFICIAL OWNERS On 7 June 2017, the draft bill of the Beneficial Owners Register Act (Wirtschaftliche Eigentümer Registergesetz) was approved by the Austrian Government. The government bill provides for the setting up of a register that contains data on any natural person who ultimately owns or controls certain entities such as limited liability companies, stock corporations, partnerships, private foundations, associations and certain trusts managed in Austria. The purpose of the register (which implements articles 30 and 31 of the 4 th EU Anti-Money Laundering Directive) is to prevent the flow of illicit money by way of money laundering and financing of terrorism. According to the draft, the respective entities have to determine their beneficial owners and subsequently submit the relevant data electronically. As regards corporate entities, an individual qualifies as beneficial owner if he/she holds direct or indirect ownership of more than 25% of the shares. If no such person can be identified, the members who hold the position of senior managing officials are deemed to be beneficial owners for the purposes of the register. As regards trusts, the settlor, the trustee, the protector (if any), the beneficiaries and any other natural person exercising ultimate control over the trust are considered to be beneficial owners. Likewise, as regards private foundations, the founder, the beneficiaries, the members of the board of directors and any natural person exercising ultimate control over the private foundation are seen as beneficial owners. Further, the draft bill contains several exemptions from the reporting obligations, e.g., for limited liability companies having only individuals as shareholders (in which case those shareholders with a participation of more than 25% are deemed to be the beneficial owners). In order to ensure data protection, access to the register data is limited and only available (i) to banks, attorneys, notaries public etc. within the framework of customer due diligence; (ii) to certain agencies concerned with anti-money laundering; and (iii) upon written request to any person that can demonstrate a legitimate interest in connection with the prevention of money laundering and financing of terrorism. The bill is expected to come into force as of 15 January Intentional infringements of the reporting obligation constitute a fiscal criminal offence with a penalty of up to EUR 200,000. (Melanie Dimitrov)

2 TAXATION OF INCOME FROM SALE OF PRIMARY RESIDENCES In its decision dated 29 March 2017, the Austrian Supreme Administrative Court (Verwaltungsgerichtshof) clarified that the tax exemption for the sale of a primary residence is to be interpreted as being limited to the building and the plot of land usually required as a building site. According to the Austrian Income Tax Act, income derived from the sale of real estate not being a business asset is subject to a flat tax of 30%. However, income from the sale of houses and condominiums as well as the underlying plot of land is, inter alia, taxexempt if the condominium has been used as a primary residence (Hauptwohnsitz) for an uninterrupted period of at least (i) two years between the acquisition (construction) and the sale; or (ii) five years within the last ten years before the sale. Moreover, the taxpayer must move out of the primary residence. In the case at hand the taxpayer sold his house including a plot of land of more than 3,600 square metres and applied the tax exemption to the entire gain from the sale. The tax office did not accept this and argued that the portion of the gain that is attributable to the plot of land exceeding 1,000 square metres should be subject to income tax. According to the tax office only the plot of land that is usually required as a building site (Bauplatz) should be tax exempt. Since in general 1,000 square metres are sufficient for a building site, the tax office denied the application of the tax exemption to the exceeding square metres. Even though the Federal Tax Court (Bundesfinanzgericht) followed the taxpayer, the Austrian Supreme Administrative Court (29 March 2015, Ro 2015/15/0025) came to the conclusion that the extent of the tax exemption is indeed limited to the plot of land usually required as a building site (which is to be determined pursuant to customary practice). (Bernhard Oreschnik) DEDUCTION OF FOREIGN TAX LOSSES AFTER CORPORATE RELOCATION TO AUSTRIA On 29 March 2017, the Austrian Supreme Administrative Court ruled that foreign tax losses suffered by a company while being subject to limited tax liability in Austria cannot be utilized as loss-carry forwards in Austria, even after the company has become subject to unlimited tax liability in Austria. In the case at hand during 2002 and 2003 a German company operated its business exclusively in Germany. In 2004, the company physically moved its German permanent establishment to Austria and at the same time also moved its place of management to Austria. Technically, this move was accompanied by a change of the company from limited tax liability (liability on Austrian source income) to unlimited tax liability (liability on worldwide income) in Austria. After the move, the company

3 claimed a deduction in Austria of tax losses incurred in Germany during the years 2002 and 2003 as loss-carry forwards (Verlustvorträge). However, neither the competent tax office nor the Austrian Federal Tax Court followed the company's view. In its judgment (29 March 2017, Ro 2015/15/0004), the Austrian Supreme Administrative Court denied the deduction of the tax losses incurred in Germany as loss-carry forwards in Austria, since losses of a company subject to limited tax liability in Austria can only be taken into consideration if they are attributable to a domestic permanent establishment of the company. Consequently, this also applies to a company currently subject to unlimited tax liability to the extent that the losses were incurred at a point in time when the company was subject to limited tax liability. By reference to the case law of the European Court of Justice, the Austrian Supreme Administrative Court also stated that the denial of the deductibility of the contested tax losses does not infringe upon the freedom of establishment (Niederlassungsfreiheit). (Matthias Fucik) GUIDANCE ON SALE OF PARTICIPATION IN AUSTRIAN REAL ESTATE COMPANY Recently, the Austrian Ministry of Finance published guidance on the tax treatment of a sale of a participation in an Austrian limited liability company holding Austrian real estate by an Australian individual from a tax treaty perspective. In general, the double taxation treaty concluded between Austria and Australia ("DTT") provides that income from the alienation of real property may be taxed in the state in which that property is situated (cf. art. 13(1) of the DTT). For purposes of the DTT, the term "real property" encompasses shares in a company, the assets of which consist wholly or principally of direct interests in or over land in one of the states (cf. art. 13(2)(a)(iii) of the DTT). The facts of the case revolved around an individual resident in Australia, who held a participation of 14% in an Austrian limited liability company holding Austrian real estate. As mentioned above, in case of a sale Austria would under the DTT have the taxation right if the respective company's assets comprised wholly or principally of direct interests in Austrian real estate (and would under domestic law also be taxed). In this regard, the Austrian Ministry of Finance made two clarifications: First, that the wording "wholly or principally" does not equal predominantly in the sense of more than 50%; the provision is not applicable if the real estate assets of a company do not account for, or only marginally exceed, 50% of the total assets. Second, that the provision is only applicable if the company holds the real estate assets directly; where only a subsidiary of the company to be alienated (and not the company itself) holds real estate assets, art. 13(2)(a)(iii) of the DTT does not apply.

4 Interestingly, pursuant to the Austrian Ministry of Finance, if art. 13(2)(a)(iii) of the DTT is not applicable, the catch-all clause of art. 21(2) of the DTT grants both Australia and Austria an unlimited taxation right. Under this article items of income not expressly mentioned in the foregoing articles from sources in the other state may be taxed in both states. Consequently, if an Australian resident individual alienated his or her participation in an Austrian company, Austria would retain its taxation right regardless of whether the company's assets consisted wholly or principally of direct interests in Austrian land. (Cynthia Pfister) RESERVATION AND NOTIFICATION STATEMENT FOR AUSTRIA RELEASED On 7 June 2017, the OECD published the reservation and notification statement for Austria to the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting ("MLI"). Most of the OECD's envisaged measures against base erosion and profit shifting (BEPS) require the amendment of the over 2,000 currently existing bilateral double taxation treaties. Since modifications of international agreements are rather cumbersome, the MLI provides the basis to close those gaps by updating the bilateral double taxation treaties worldwide at one go. In general, signatories may choose which existing tax treaties should be covered by the MLI. On 7 June 2017, a signing ceremony of the MLI took place at the OECD headquarters in Paris. On this occasion, the OECD released the MLI position in terms of the reservations and notifications from each jurisdiction. In this regard, Austria notified 38 double tax treaties to be modified using the MLI. Further, Austria reserved, inter alia, the right for certain MLI articles not to apply to its covered tax agreements, namely those on (i) transparent entities; (ii) dual resident entities; (iii) dividend transfer transactions; and (iv) capital gains from the alienation of shares of entities deriving their value principally from immovable property. Austria also notified a number of already existing provisions in listed agreements. Finally, Austria formulated a reservation with respect to the scope of cases that shall be eligible for arbitration by excluding cases involving the application of its domestic general anti-avoidance rules. (Cynthia Pfister)

5 TAX CONTACTS Should you have any questions regarding tax matters in Austria or any of our other jurisdictions, please contact our tax partners in Vienna: Niklas Schmidt Partner Benjamin Twardosz Partner Members of the WOLF THEISS Tax Practice Group (in alphabetical order): DIMITROV Melanie, Consultant (Austria) FUCIK Matthias, Associate (Austria) GRUBESIC Ana, Senior Associate (Croatia) IFTIME-BLAGEAN Adelina, Counsel (Romania) KLEYTMAN Rebeka, Senior Associate (Bulgaria) KYOSEVA Gergina, Associate (Bulgaria) MIHAYLOV Atanas, Senior Associate (Bulgaria) MYŠKA Jan, Partner (Czech Republic) NAKO Sokol, Partner (Albania) NASTRAN Neja, Associate (Slovenia) NIKODEMOVA Zuzana, Senior Associate (Slovak Republic) ORESCHNIK Bernhard, Associate (Austria) PASZTOR Janos, Senior Associate (Hungary) PFISTER Cynthia, Associate (Austria) POPOVIC Tomislav, Senior Associate (Serbia) SEKOWSKA Anna, Senior Associate (Poland) SCHMIDT Niklas, Partner (Austria) STADLER Eva, Senior Associate (Austria) TOTH Alexandra, Associate (Hungary) TWARDOSZ Benjamin, Partner (Austria) WOLF THEISS was one of the first Austrian law firms to advise on tax law and has been setting the standards ever since. Our experience covers a wide range of disciplines, from corporate tax advice for reorganisations and M&A to tax disputes and litigation, financial products, holding companies, fiscal criminal law and private clients. For many years now we have successfully expanded the tax practice also to our other offices. We are known for offering clear solutions for challenging cases in a very efficient manner, which has been recognised by the international legal community many times.

6 Find out more about the WOLF THEISS Tax Practice and find previous issues of our newsletter on our website: Austrian Tax Firm of the Year 2006, 2007, 2009, 2010, 2011 & 2014 (International Tax Review) Central & Eastern European Law Firm of the Year 2017 Austrian Law Firm of the Year 2012 & 2013 (Chambers Europe) Law Firm of the Year: Austria, 2014 & 2017 Law Firm of the Year: Central Europe, 2010 & 2014 Law Firm of the Year: Eastern Europe and the Balkans, 2009, 2012 and 2015 (The Lawyer) This memorandum has been prepared solely for the purpose of general information and is not a substitute for legal advice. Therefore, WOLF THEISS accepts no responsibility if in reliance on the information contained in this memorandum you act, or fail to act, in any particular way. If you would like to know more about the topics covered in this memorandum or our services in general, please get in touch with the contacts listed above, or with: WOLF THEISS Rechtsanwälte GmbH & Co KG Schubertring Wien Tel