Draft bill regarding the Annual Tax Amendment Act 2018 published

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1 Tax News 06/2018 English Abstracts Draft bill regarding the Annual Tax Amendment Act 2018 published On June , the draft bill of an Annual Tax Amendment Act ( Jahressteuergesetz 2018 ) was published. According to the draft bill the EU Anti-Tax Avoidance Directive (ATAD) including the introduction of CFC-rules and horizontal monitoring will be implemented in Austrian domestic law Furthermore, the bill includes several other amendments. However, there are only minor changes in draft bill in comparison to the recently described Ministerial Draft (see Tax News 4/2018). Ferdinand Kleemann, Markus Vaishor EU: Mandatory automatic exchange of information in the field of taxation in relation to reportable cross-border arrangements The ECOFIN Council reached political agreement on a Council Directive amending Directive 2011/16/EU (DAC 6) on administrative cooperation in the field of taxation regarding mandatory automatic exchange of information in the field of taxation in relation to reportable crossborder arrangements. The Directive was published on June 5, 2018 in the Official Journal of the EU. The main purpose is to strengthen tax transparency and combat aggressive tax planning. The term aggressive tax planning is, however, unfortunately undefined. Nevertheless, reference is made to a number of pre-determined so-called hallmarks, which are criteria that could make a cross-border arrangement reportable under this directive which applies to any cross-border arrangement (i.e. an arrangement or series of arrangements concerning either more than one member state or a member state and a third country). If at least one of the named hallmarks is met, the cross-border arrangement has to be reported to the tax authorities within 30 days beginning on the day after the arrangement is made available or is ready for implementation or when the first step of such arrangement has been implemented. There is a mixture of generic and specific criteria. Member states have to implement the directive in their domestic laws and regulations by December 31, The directive will enter into force on June 25, 2018 and the first reportable transactions will be those where the first implementation step occurs between that date and July 1, 2020 (date of application of the directive). Ferdinand Kleemann, Markus Vaishor, Katrin Postlmayr KPMG Tax News 06/2018 1

2 Bill regarding protocol on double taxation treaty Austria-Russia According to draft bill of a signed protocol between Austria and Russia, the existing double taxation treaty Austria-Russia shall be changed. The main changes are adjustments in order to make the treaty more similar to the OECD model convention. Apparently, the treaty will not be applicable vis-à-vis Crimea. Markus Vaishor Austrian Federal Finance Court on the requirement for applying the group taxation regime Under the Austrian group taxation regime, in general, tax results of the group members are pooled on group level. Thus, the taxable results of domestic group members are attributed to the group parent. 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. The Austrian Federal Finance Court recently decided that in cases of purchasing shares with retrospective effect for legal purposes, the determined retrospective date is not the point of time constitute the qualifying participation for tax purposes. The relevant point of time is obtaining the beneficial ownership (usually date of signing the share purchase contract). Nevertheless, the Austrian Reorganization Tax Act allows for reorganizations with retroactive effect for tax purposes. If the participation is created as a consequence of a reorganization according to the Austrian Reorganization Tax Act, the retroactive effective date is deemed as the point in time of the acquisition of the qualifying participation. Markus Vaishor, Katrin Postlmayr Ministry of Finance published update 2018 of income tax guidelines The Ministry of Finance published the updated version of the income tax regulations (EStR) on May, 7th The update covers the latest legislation amendments, prior published informations from the ministry and various Supreme Court decisions. Ferdinand Kleemann, Florian Popl Austrian Ministry of Finance publishes draft on changes to the Austrian Reorganization Tax Guidelines. Recently, the Austrian Ministry of Finance published a draft regarding several changes to the Austrian Reorganization Tax Guidelines. Markus Vaishor KPMG Tax News 06/2018 2

3 Austrian Administrative Supreme Court on tax non-deductible loss compensation in case of loss generating participations) In general, tax losses from participations are non-deductible pursuant to Art 2 sec 2a Austrian Income Tax Act if the utilization of tax losses is the major reason for the participation. These requirements are particularly fulfilled if the loss utilization is advertised. Contrary to the opinion of the Austrian tax authorities the Austrian Administrative Supreme Court considers that in case of loss generating participations the application of this provision depends on how intensively the tax advantages resulting from the losses of the participation have really been promoted. Furthermore, the Austrian Administrative Supreme Court is of the opinion that high non-tax risks (e.g. growth technologies) do not per se rule out the applicability of Art 2 sec 2a Austrian Income Tax Act. Ferdinand Kleemann, Maja Milekic Some amendments to the Ultimate-Beneficial-Owner-Registry-Act ( UBO- RA ) As a result of the practical experience over the last few months, the UBO-RA needed some clarification and specification. Recently, the Austrian parliament passed a respective bill according to which e.g. the definition of UBO is concretized, especially in regard to actual control and joint control. Furthermore the rules on the exemption from the notification obligation are clarified. A relief in regard to practical handling is introduced under specific circumstances according to which the Registry is kept up-to-date by automatic synchronizing with other public registries. Most of the amendments enter into force by 1 August Stefan Haslinger, Christiane Edelhauser, Dominik Pflug Austrian Administrative Supreme Court: Tax payer is also entitled to interest in case of positive appeal procedures at Austrian Administrative Supreme Court According to Art 205a of the General Fiscal Code the taxpayer is entitled to interest on taxes paid if the respective tax liability is later reduced as a consequence of an appeal provided that the amount is dependent on the decision that reduces the liability. The Austrian Administrative Supreme Court recently confirmed that taxpayers are also entitled to interest for the period of the appeal procedures. Ferdinand Kleemann, Florian Popl KPMG Tax News 06/2018 3

4 Austrian Federal Finance Court on requirements for forecasts substantiating that a rental does not qualify as a hobby activity for tax purposes Losses from the rental of real property may be disregarded for Austrian tax purposes if the whole activity is qualified as a hobby activity (Liebhaberei) for tax purposes. This is in particular the case if the rental of the property is not expected to break even (for tax purposes) within years ( small rental of single flats or residential houses) or years (larger buildings). The respective tax payer needs to substantiate that a positive result is expected within the respective time frame with a forecast/prognosis calculation. In two recent cases the Austrian Federal Finance Court dealt with the necessity of the forecast/prognosis calculation being realistic. A calculation lacking the consideration of maintenance costs and the risk of loss of rent was considered as not sufficient for disproving the assumption of hobby activity. Markus Vaishor, Florian Popl Austrian Administrative Supreme Court: Donation of real property before it is expected to break even no hobby activity for tax purposes The Austrian Administrative Supreme Court confirms that there is no hobby activity for tax purposes if a tax payer donates real property to his children even before he reaches the break even point with the rental of the property. But in this case the tax payer needs to substantiate that a positive result is expected within a given time frame and that the decision to stop the rental activity was not planned. The Austrian Supreme Administrative Court confirmed the Austrian Federal Finance Court s opinion. Markus Vaishor, Julia Beringer KPMG Tax News 06/2018 4

5 Income from waiving a right of residence in real property is taxable for individuals To determine if the waiver of a right of residence is subject to tax for individuals it has to be distinguished between a right of residence shaped as a right of use or as usufruct right. In general, a usufruct right enables the beneficiary to use a particular property, i.e. the beneficiary is entitled to rent or lease the object (in major cases real property), whereas the right of use is limited to the personal needs of the beneficiary. In practice a right of use is often granted in connection to the transfer of real property, i.e. the seller has the right of residence for parts of the sold property, e.g. regarding several rooms or a whole flat of the sold real property. The Austrian Administrative Supreme Court recently confirmed that the income from waiving the right of residence is subject to tax for individuals, if it is designed as a right of use, i.e. if the beneficiary is not entitled to rent or lease the respective flat or real property. If the right of residence can be characterized as a usufruct right, the Austrian Administrative Supreme Court previously decided that capital gains from the sale of a usufruct right derived by an individual are not taxable unless the transaction is qualified as speculation (i.e. sale within one year). Thus, not only for legal but also for tax purposes the qualification of a right of residence as a right of use or a usufruct right is necessary. Markus Vaishor, Katrin Postlmayr Settlement day for the first Beschäftigungsbonus (state incentive program for employment) For companies, which applied and received an approval for Beschäftigungsbonus (state incentive program for part of payroll taxes for additional employment relationships), the first settlement day is the end of first employment year of the first employment to be funded. The number of employment relationships at this key date is of particular importance. Settlement has to be provided by the company within three months starting with the key date. Correctness of the settlement has to be confirmed by a tax advisor or by an auditor. Alfred Shubshizky, Tatjana Schrefl Reduction of public unemployment insurance contributions increase of wage thresholds starting with 1st July 2018 Starting with July 2018 wage limits by progressive stages relevant for employee s contributions to public unemployment insurance will be increased for low-wage earners. The threshold of unemployment insurance contributions will be reduced for a higher number of employees. Alfred Shubshizky, Margit Müllner KPMG Tax News 06/2018 5

6 Ordinance on tax valuation of company cars for private use by managing directors with controlling interests (more than 25 %) and new jurisdiction on related payroll taxes The Ordinance on tax valuation of company cars for private use by managing directors with controlling interests (more than 25 %) provides for a choice relating to the assessable benefit in kind: tax valuation according to the regulations for employees (Sachbezugswerteverordnung) or costs borne by the company but limited to the portion of private use (portion of private use shall be provable). Alfred Shubshizky, Tatjana Schrefl Reduction of material period for enforcement of part-time allowance for elderly employees Material period for enforcement of part-time allowance for elderly employees, which is granted up to five years, gets reduced step by step from currently seven years before reaching regular pension age to six years in 2019 and five years in Alfred Shubshizky, Tatjana Schrefl KPMG Tax News 06/2018 6