Tax & Legal News in English | May

Ruling on goodwill amortization in the case of group taxation

According to Sec 9 (7) CITA, a goodwill amortization in a tax group can only be deducted until 1 March 2014, unless the protection of confidence rule according to section 26c line 47 CITA is applicable. The Administrative High Court ruled in its decision from 17 November 2022 that the protection of confidence rule is not applicable for a goodwill amortization which was triggered as a result of a contribution of a participation from a shareholder which was valued at fair market value.

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Energy law: Commission proposal to amend REMIT

On 14 March 2023, the European Commission published a proposal to amend the Regulation on Wholesale Energy Market Integrity and Transparency (REMIT). This amendment is intended to (better) ensure that "prices reflect a fair and competitive interplay between supply and demand and that no profit can be drawn from market abuse." The proposed amendment includes an alignment of the prohibition of market manipulation and insider trading with the corresponding prohibitions in the Market Abuse Regulation, an expansion of ACER’s investigative powers, an EU-wide harmonization of fines for breaches of REMIT and strict rules for the use of trading technology (algorithmic trading). The proposed amendment amounts to a significant expansion of the compliance burden of energy companies and an increase of their commercial risk in case of REMIT violations.

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Ministerial Draft of the Tax Amendment Act 2023: Proposed Amendments Fiscal Penal Law Act

On 21 April 2023, the ministerial draft of the Tax Amendment Act 2023 was published for review. The draft proposes several changes regarding the Fiscal Penal Law Act: For example, the respective amount relevant for the determination of the penalty relevant for the jurisdiction of the Court instead of the administrative body shall be raised. Furthermore, the limitation period for serious

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Government bill on the Tax Amendment Act 2023: Highlights at a glance

The Federal Ministry of Finance recently published the government bill for the Tax Amendment Act 2023 (AbgÄG 2023). The bill provides for amendments to the (Corporate) Income Tax Act, which can be evaluated as positive from taxpayer’s point of view and which partly serve as legal clarifications due to recent case law of the Austrian Supreme Administrative Court. Other relevant changes concern the Reorganization Tax Act as well as the Financial Criminal Law. The final version of the bill is generally expected before the parliament’s summer recess.

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Global Minimum Taxation / Pillar II – Possible Relief through Safe Harbours

With the implementation of Pillar II, MNE-Groups will have to face an enormous increase in their compliance obligations. The OECD tries to relieve the burden from the MNE-Groups with so-called Transitional and Permanent Safe Harbours, which intend to reduce the number of computation and adjustments an MNE-Group will be required to make under GloBE rules.

The Transitional Safe Harbour applies for years beginning on or before 31 December 2026 and is a short-term measure to exclude an MNE’s Constituent Entities in lower-risk countries from the compliance obligation of preparing full Pillar II calculations. It uses information taken from an entity’s qualified CbC- Report to determine whether its Constituent Entities in a jurisdiction meet any of these three tests:

• De-Minimis-Test: total revenues of less than EUR 10 million and profit before income tax of less than EUR 1 million (according to the qualified CbC-Report for a country).
• Simplified-ETR -Test: “Simplified ETR” for a jurisdiction is equal to or greater than the transition rate for the year. The simplified ETR is calculated by dividing the covered income taxes as reported in the Constituent Entity’s financial statements (and not according to its CbC-Report) by the profit or loss before income tax reported in the MNE-Group’s qualified CbC-Report. The transition rate is 15% for years beginning in 2023 and 2024, increasing to 16% and then 17% for years beginning in 2025 and 2026 respectively.
• Routine-Profit-Test: profit before income tax (according to the qualified CbC-Report) is equal to or less than the “substance-based income exclusion amount” as calculated under the OECD model rules.

Where the transitional Safe Harbour applies, and any of these tests are satisfied, the top-up tax for that jurisdiction is considered to be zero.

After the end of the transitional period, it is intended that there will be Permanent Safe Harbours. Within the Permanent Safe Harbour, the top-up tax for a jurisdiction will also be deemed to be zero if one of the three tests (De-Minimis-Test, Routine-Profit-Test or Simplified ETR-Test) is satisfied. However, unlike the transitional Safe Harbour, these Safe Harbours will not use the CbC-Report data for its simplified calculation. Instead, there shall be an alternative simplified calculation, which still needs to be specified by the OECD.

The Safe Harbours will be essential to minimize the compliance burden for MNE-Groups, at least in the transitional years. Nevertheless, MNE-Groups should deal with the implementation of processes relating to global minimum taxation as the general GloBE rules still apply in jurisdictions in which the MNE-group operates and no Safe Harbour is applicable. Furthermore, the application of a Safe Harbour does not exempt the MNE-Group from its filing obligations. 

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Tax Appeals Court on the deductibility of defense costs incurred in connection with non-deductible fines

In its recent decision of 27 March 2023 (RV/5101606/2015), the  Tax Appeals Court ruled that defense costs incurred in connection with non-deductible fines may be deductible as business expenses for tax purposes. A prerequisite for their deductibility is that the defense costs are incurred for business purposes, which results from the causal connection between the criminal act and the business operation.

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Ministerial Draft of the Tax Amendment Act 2023: Proposed Amendments Reorganization Act

On 21.4.2023, the ministerial draft regarding the Tax Amendment Act 2023 was published. It contains numerous changes, concerning the modernization and simplification of the Reorganization Act. Furthermore, it contains the already expected accompanying tax measures for the EU Reorganization Act and an additional exit tax provision for mergers and spin-offs. 

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Follow-up: Administrative High Court: No Refund for “Cum”-Acquisitions

With its decision dated 28.6.2022, the Administrative High Court has decided on the issue of income allocation in connection with securities purchases around the dividend record date (Ro 2022/13/0002). The Administrative High Court determined that the entitlement to refund Austrian WHT is only given in case the applicant was the beneficial owner of the shares at the time the decision for the profit distribution was taken. If an investor acquires shares with existing dividend entitlement (“cum-acquisition”), he:she is not entitled to a WHT refund. The Austrian Ministry of Finance  has taken this into account in its information letter dated 15.11.2022. By way of most recent draft legislation (“Ministerialentwurf AbgÄG 2023”), however, the Austrian legislator now focuses on financial inflow and record-date and introduces further requirements for the refund and credit of Austrian WHT.

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ECJ judgement on the compability of German VAT group regulations with EU law

The ruling of the European Court of Justice in the underlying case (C-141/20) is also relevant from an Austrian VAT perspective due to a similar legal situation regarding VAT groups. In this regard the ECJ stated that the controlling company of the VAT group can be considered as the taxable person under specific conditions and that the German regulation is therefore compatible with EU law. Furthermore, the ECJ is of the opinion that a majority of voting rights is not required as part of the financial integration. In Austria a majority holding in the share capital in addition to a majority of holding rights represent a requirement for the financial integration. The statement of the ECJ regarding the categorization of VAT groups seem problematic from an Austrian VAT point of view. According to the ECJ entities integrated in a VAT group can be deemed as independent. The Austrian VAT standpoint may contradict the opinion of the ECJ since entities within the VAT group are considered dependent and as a result, transactions within the VAT group are non-taxable in Austria. The Federal Finance Court in Germany has therefore requested an additional preliminary ruling in connection with the case C-269/20 in order to clarify if transactions within a VAT group should be taxable. The preliminary ruling procedure is currently pending in this regard.

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Cryptocurrencies as business assets of a management consultant?

According to case law of the Administrative High Court, all assets that objectively serve the business belong to the necessary business assets. In this regard, the purpose of the asset, the specific nature of the business and the profession as well as the perception of the market are decisive factors. According to the Tax Appeals Court, an objectively recognizable use of the OneCoins in the business of the management consultant cannot be derived in the present case, which is why they do not belong to the necessary business assets. Also, according to the Tax Appeals Court, the fact that the cryptocurrencies were acquired to test them in a self-experiment indicate the use as private assets. The cryptocurrencies could possibly be allocated to the other business assets if the cryptocurrencies were acquired for the purpose of promoting the business through sound capitalization. In the facts of the case at hand, however, the allocation to the other business assets was ruled out due to the lack of profit determination pursuant to Sec 5 Para 1 of the Austrian Income Tax Act.

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Tax Deadlines in June 2023

• Advance VAT declaration for April 2023
• Standardized Consumption Tax for April 2023.
• Capital Gains Tax for capital gains on debt securities for April 2023.

For an overview of all Tax Deadlines in June click here...