For further information please
Imke Gerdes, LL.M.
Attorney at Law – Certified Tax
Advisor (Admitted in Germany and
Austria (currently inactive) only)
Baker & McKenzie LLP
452 Fifth Avenue
New York, NY 10018
Tel.: +1 212 626 4747
Cell: +1 917 200 8452
Fax: +1 212 310 1774
The Tax Bill 2014 - Does Austria need money?
On February 24, 2014, the Austrian Parliament passed the Tax Bill 2014
(Abgabenänderungsgesetz 2014). The act clearly aims at generating more tax
revenue and some of the changes seem to tap into the most recent
developments under the BEPS action plan drafted and published by the
OECD. This Client Alert summarizes the most important changes and their
1. Amendments to the Income Tax Act
As a welcome change, the 75% loss utilization threshold, whereby losses carried
forward could only be offset with 75% of the profit of the current year, will be
abolished as of the tax year 2014. However, the law also introduces a mandatory
recapture of foreign branch losses, that can be deducted for Austrian income tax
purposes from the Austrian tax base. If the foreign branch income is tax exempt in
Austria (i.e. because a treaty allocates the taxing right to the country the branch is
located), losses will be recaptured in Austria in the year they can be used or could
be used abroad. If Austria does not have a comprehensive agreement on mutual
assistance with the country the branch is located, losses utilized in Austria are
recaptured after three years at the latest. This amendments applies to the tax
assessment for the year 2015.
Salaries paid after February 28, 2014 to employees or comparable persons and
exceeding EUR 500,000 per recipient and per fiscal year are no longer deductible
for tax purposes. Salary in the sense of this provision is any cash and/or in kind
payment. This provision gears at catching - in the view of the Austrian Parliament -
exorbitant salaries paid to managers. However, payments made to truly
independent service providers do not fall in the ambit of this provision. By the same
token, "Golden Handshakes" shall no longer benefit from a broad favorable
taxation at 6%. The new law introduces a cap of the flat tax of 6% applied to
voluntary severance pay and links the cap to 1/4 of the annual salary or three times
the monthly social security contribution ceiling, whichever is lower. Currently, the
monthly contribution ceiling is set at EUR 4,530 and therefore, the cap would be at
Lastly, the Tax Bill 2014 introduces a withholding tax on interest paid to non
resident tax payers. The law refers to the definition of interest as used in the
domestic implementation of the EU Savings Directive (2003/48/EC) and shall,
therefore, cover interest paid or credited to an account, relating to debt claims of
every kind. Tax payers that are already caught by the EU Savings Directive are not
affected and therefore, this provision impacts non resident tax payers in third
countries. It is not entirely clear if the new withholding tax also applies to interest
Austria Tax Bill 2014
Austria Tax Bill 2014
paid to legal entities or only to individuals. The law is ambiguous as it refers to the domestic implementation of the EU Savings Directive for the definition of the term "interest" but not with respect to the definition of the term "payee", which would limit the application to individuals. A clarification was demanded by many commentators of the draft bill but not successfully so far. This new provision takes effect on January 1, 2015 and withholding is required for payments made on or after December 31, 2014.
2. Amendments to the Corporate Income Tax Act
The introduction of the limitations on the deductibility of "excessive salaries" equally applies to corporations. However, the abolishment of the 75% set off threshold for losses carried forward does not. Corporations are still subject to the limitation of the utilization of losses carried forward, save for certain exceptions such as if the income contains profits from the sale of an entire business or partnership interest or if the income results from the liquidation of the company.
Amendments were also made to the group taxation. Foreign companies can only be members of an Austrian consolidated group for tax purposes, if they are EU entities or resident in a non-EU country Austria has a comprehensive agreement on mutual assistance with. Companies currently part of an Austrian group and not sufficing these requirements will automatically exit the group as of January 1, 2015. The mandatory recapture of losses accounted for in Austria on the level of the head of the group upon the exit will be spread over three years. Also, as of 2015, the Austrian head of the group may deduct losses of foreign members of the group only up to 75% of the consolidated profit of all domestic group members, including that of the head of the group. Unutilized losses can be carried forward indefinitely. Prior to this amendment, the head of the group could deduct losses of foreign group members up to 100% of the domestic income.
One amendment that triggered the attention of tax payers and professionals and which is clearly BEPS related is the limitation of the deductibility of interest and royalty payments made to related entities in low tax jurisdictions. According to the new law, interest and royalty payments made to related entities are no longer deductible, if the income is subject to no tax in the hands of the recipients or subject to a low taxation. "Low taxation" in the sense of this provision is any tax rate below 10% or if the income is taxed at an effective tax rate of less than 10% (i.e. because of certain tax incentives applicable to such income). This amendment will affect many financing structures that are currently in place. Because the new law is applicable to payments made after February 28, 2014, existing structures need to be revised quickly to ensure full deductibility.
Austria Tax Bill 2014
3. Amendment to the Capital Transfer Tax Act
There is some positive news as well. As of 2016, Austria will no longer levy the 1% capital transfer tax, which in the past required careful structuring if a parent company wanted to capitalize its Austrian subsidiary including, inter alia, the utilization of grand parent contributions to avoid the duty. At the same time, the minimum statutory capital for companies with limited liability was raised to EUR 35,000 again, after having been decreased to EUR 10,000 only last year. However, the law leaves the option to establish a company with limited liability with a capital of EUR 10,000, provided the equity of the company is gradually increased to at least EUR 17,500 by building a mandatory capital reserve.
This client newsletter is prepared for information purposes only. The information contained therein should not be relied
on as legal advice and should, therefore, not be regarded as a substitute for detailed legal advice in the individual
case. The advice of a qualified lawyer should always be sought in such cases. In the publishing of this Newsletter, we
do not accept any liability in individual cases.
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Diwok Hermann Petsche
Tel.: +43 (0) 1 24 250
Fax: +43 (0) 1 24 250 600
FN 270287g, HG Vienna