Use the Lexology Navigator tool to compare the answers in this article with those from other jurisdictions.
What legislative and regulatory initiatives has the government taken to combat tax avoidance in your jurisdiction?
Special anti-avoidance provisions include:
- the non-deductability of interest being not at arm’s length;
- the non-deductibility of interest paid to associated companies in low-tax jurisdictions (tax level below 10%);
- the non-deductibility of interest paid on loans taken up for the acquisition of a participation in another associated company; or
- the switch-over from the exemption system to the credit system in the case of dividends stemming from substantial participations held at the minimum of 10% for an uninterrupted period of at least one year, with passive income located in low-tax jurisdictions and capital gains derived from the salt of such participations.
In addition, two general anti-abuse rules based on the ‘substance over form’ doctrine (Section 21 of the Federal Tax Proceedings Code) and on the ‘abuse of law’ doctrine (Section 22 of the Federal Tax Proceedings Code) are in place.
To what extent does your jurisdiction follow the OECD Action Plan on Base Erosion and Profit Shifting?
Action 1 (digital economy) has not specifically been reflected in Austrian tax law, except for the implementation of EU directives concerning value added tax (VAT) (eg, VAT for digital services in the business-to-customer area at the place of the recipient as of Janunary 1 2015); there are no special concepts for a digital permanent establishment in Austrian domestic tax law. Actions 2 to 5 do not effectively deal with transfer prices, which is why they are not further commented here.
Action 6 (prevention of treaty abuse) either has no relevance or only a rather remote one in the area of transfer pricing. Austria has national anti-abuse rules (see answer to the question “What legislative and regulatory initiatives has the government taken to combat tax avoidance in your jurisdiction?” above). A ‘limitation of benefits’ clause features in only a few double taxation conventions (DTC) signed by Austria (eg, with the United States and with Taiwan); a number of Austrian DTCs will be adapted in the framework of the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (Multilateral Instrument or MLI for short) (see below) to correspond to Action 6.
Action 7 (prevention of artificial avoidance of permanent establishment status) will be part of the 2017 update of the Model Tax Convention of the Organisation for Economic Cooperation and Development (OECD) and, as such, should be followed by the Austrian tax authorities as an interpretation tool. As regards new provisions of DTCs suggested by Action 7, a number of Austrian DTCs will be adapted in the framework of the MLI (see below). This concerns spelling out the ‘two-taxpayers approach’ for commissionaire arrangements and similar structures, but Austria has not opted for the specific activity exemptions.
There are no special implemations of Actions 8 to 10 (change of transfer pricing rules with respect to value creation) in Austrian tax law. However, these actions are largely reflected in the update of the OECD Transfer Pricing Guidelines, which are used by the Austrian tax authorities as an interpretation tool.
There is no implementation yet on Actions 11 (monitoring of profit shifting) and 12 (disclosure of aggressive tax planning models). Especially, Austria has no reporting requirements in its domestic law with regard to aggressive tax planning or other cross-border arrangements, as is currently discussed in the draft for a council directive (COM(2017) 335 final).
Austria has fully implemented the OECD recommendations on Action 13 (re-examination of transfer pricing documentation) in its Transfer Pricing Documentation Act and in the implementing ordinance, specifying the master file and the local file, which is largely in accordance with the description given in Annexes I and II to Chapter V of the OECD Transfer Pricing Guidelines. For the mandatory automatic information exchange regarding the country-by-country reporting, the Austrian legislator has implemented Council Directive (EU) 2016/881 of May 25 2016 amending Directive 2011/16/EU, which is in line with the OECD recommendation on Article 13 of the final Base Erosion and Profit Shifting Report (Paragraph 17 of the Preamble). Austria has implemented the Multinatioal Authority Agreement that extends the scope of participating countries of the automatic information exchange for the country-by-country reporing (the list of currently participating countries is at www.oecd.org/tax/automatic-exchange/about-automatic-exchange/CbC-MCAA-Signatories.pdf).
As regards Action 14 (arbitration rules in double taxation treaties), Austria has opted for the arbitration provision of the MLI (see above) and is ready in its treaty negotiations to extend the arbitration further.
Lastly, as regards Action 15 (MLI), Austria has signed the MLI on June 7 2017 and was one of the first countries to submit the ratification instrument to the depositary (the OECD Secretary General).
Is there a legal distinction between aggressive tax planning and tax avoidance?
The terms ‘aggressive tax planning’ and ‘tax avoidance’ are not used in Austrian tax law; they are not legally defined terms. Austria has to date not implemented any reporting requirements as regards certain aggressive tax planning schemes.
In Austria, a distinction has to be made between legal schemes (accepted for tax purposes) and illegal schemes (not accepted for tax purposes). In fact, a transaction is not accepted for tax purposes if it either violates special provisions of tax law or infringes the Austrian general anti-avoidance rules (GAARs).
In the given context, the Austrian tax systems contains two provisions with a GAAR character. The first is Section 22 of the Federal Tax Proceedings Code, which is based on the ‘anti-abuse’ doctrine that prohibits the abuse of law (as established by the jurisprudence of the Austrian Supreme Administrative Court): abuse of law occurs if, with regard to the targeted goal, a legal structure has an unusual and inappropriate character and can be explained only by the intention of tax avoidance. It has to be verified whether the chosen path remains meaningful without the tax minimisation.
The other provision, Section 21 of the code, is based on the ‘substance over form’ doctrine and provides that for the purpose of evaluating tax questions under an economic approach, it is not the outer formal appearance that counts, but the actual economic substance of facts and circumstances.
In general, lack of conformity with the updated version of the OECD Transfer Pricing Guidlines puts the arrangement at risk of being considered illegal by the tax authorities and of being subjected at least to profit adjustments.
Non-acceptance of a structure for tax purposes has again to be distinguished from structures violating criminal tax law, which applies only if disclosure requirements or requirements of truthful notification were neglected by the taxpayer and its deliberate avoidance of taxes can be proved. A conviction of criminal tax evasion is not possible where the behaviour of the taxpayer was due to an excusable error (an ‘excusable error’ occurs when a reasonable person applying a high standard of care could not have been aware that the conduct of its activities was illegal) – for instance, in case of justifiable interpretation. An excusable error will in most cases deflect a conviction for criminal offence if adequate transfer pricing documentation was kept, backed by reasonable opinions of tax law.
What penalties are imposed for non-compliance with anti-avoidance provisions?
There are no specific penalties for non-compliance with anti-avoidance provisions. The general penalties described above (late payment interests for corporate income tax, late payment penalties of up to 4%) apply in case of arrears of taxes as determined in a tax audit.
Deliberate evasion of tax (criminal tax evastion) is punishable by up to twice the tax amount evaded or imprisonment of up to two years (higher in case of qualified tax fraud). In case of serious negligence, the punishment is limited to the amount of tax whose collection was illegally avoided.
Click here to view the full article.