Maintenance of the Corporate Income Tax Guidelines 2021
As part of the regular maintenance of the Corporate Income Tax Guidelines, the interest limitation rule which was implemented with the COVID-19 Tax Measures Act (COVID-19-Steuermaßnahmengesetz) was incorporated. Below, you will find the most important statements.
- In order to be covered by the exception for independent entities the following three conditions need to be met throughout the whole financial year of an entity, according to the Corporate Income Tax Guidelines: 1) no full inclusion in consolidated financial statements, 2) no affiliated company and 3) no foreign permanent establishment. A mere consideration of these requirements at the balance sheet date of the respective financial year is, therefore, not permitted.
- In principle, the Corporate Income Tax Guidelines take over the definition of interest from the Anti-Tax Avoidance Directive (ATAD), according to which interest also includes money raising charges, ancillary costs, etc. In this regard, the exemplary list of costs covered by this broad definition of interest contained in the ATAD is specified in the Corporate Income Tax Guidelines. The Corporate Income Tax Guidelines also contain special regulations for leasing, interest capitalised in the course of a purchase or production as well as long-term non-interest-bearing receivables and liabilities.
- With regard to the determination of the fiscal EBITDA, which is based on the EBITDA Determination Regulation (EBITDA-Ermittlungs-Verordnung), the Corporate Income Tax Guidelines in particular specify that capital gains can only be neutralized if they are attributable to the reversal of partial value write-downs.
- In addition to an exemplary list of projects covered by the exemption for long-term public infrastructure projects, the Corporate Income Tax Guidelines also clarify the scope of application for old loans.
- The extensive explanations for the equity ratio comparison mainly relate to the scope of application, the relevant comparison time as well as the relevant accounting standard.
- Finally, the Corporate Income Tax Guidelines contain clarifications on the emergence or continuance of an interest or EBITDA carried forward. In addition, the Corporate Income Tax Guidelines specify that the consideration of such carry-forward requires an application in the year in which the respective carry-forward emerged.
Current case law – ECJ 20 January 2021, Lexel AB, C-484/19
At the beginning of 2021, the ECJ dealt with the Swedish regulation on the flat-rate prohibition of deduction for intra-group interest payments, according to which the regulation violates the freedom of establishment. Similar to Austria, the Swedish regulation prohibits the deduction of interest on intra-group loans if the recipient is subject to low taxation.
In detail, according to a Swedish exception clause interest may not be deductible irrespective of the level of taxation at the recipient as long as the contractual obligation between affiliated companies was established mainly for the purpose of providing them with a significant tax advantage. According to the ECJ, however, in this way comparable situations are treated unequally since the prohibition on deduction of intra-group interest costs de facto only applies in cross-border constellations. Moreover, the exception clause cannot be justified by overriding reasons in the public interest. The ECJ also denies the justification of this clause on grounds of combating tax fraud and tax avoidance and on grounds of preserving the allocation of the power to impose taxes between the Member States.
Even if the Swedish and Austrian regulation on the prohibition of interest deduction differ in detail, the present decision is also relevant for the Austrian legal situation since the ECJ makes essential statements on the general admissibility of deduction prohibitions under EU law. However, it remains to be seen whether or how the Austrian legislator will react to the decision of the ECJ.
Implementation of the interest limitation rule in the EU
In principle, all EU member states were obliged to implement the interest limitation rule in accordance with the ATAD into national law by 1 January 2019 at the latest. Below you will find a brief overview of the implementation of the core elements of ATAD in the individual EU Member States.
- Time of implementation: At the end of 2018, the EU Commission announced that the extended implementation deadline is applicable for Greece, France, Slovakia, Slovenia and Spain, but contrary to assumptions not for Austria (please also see our Tax & Legal News from 20 December 2018). Therefore, in addition to Ireland, Austria initially failed to fulfil its obligations to implement the interest limitation rule on time. However, both countries have now made up for this (with regard to the implementation in Austria please also see our Tax & Legal News from 18 December 2020). On the other hand, France, Greece, Slovenia and Slovakia have already decided ahead of schedule to implement the interest limitation scheme.
- The fixed ratio reference value was predominantly set by the EU Member States at the level of 30% of EBITDA as provided for in the ATAD. Romania, however, has particularly restricted the interest deduction on the basis of a fixed ratio reference value of only 10%.
- Furthermore, almost all EU Member States have implemented a de minimis threshold in the form of an allowance (preferred) or an exemption limit, with a large part opting for the upper limit of EUR 3 mio specified in the ATAD. Italy, however, has decided against the implementation of a de minimis threshold at all.
- A large part of the regulations in the EU Member States also provide for an interest carried forward, and, in some EU Member States, also for an interest carry-back or EBITDA carried forward before. The concrete design of these rules, however, is quite different (unlimited, limited to a certain number of years, etc).
- The remaining facilitations provided for by ATAD (equity escape, old contracts, long-term public infrastructure projects, stand-alone clause, financial companies) have only been implemented to a very limited extent by the EU Member States.
As it turns out, in practice the actual effects of the interest limitation rule can differ considerably due to the detailed differentiation of the national design of the individual facilitation provisions, even if a large part of the provisions were implemented predominantly uniformly.