Austria Publishes Ordinance On New CFC Rules For Low-Taxed Entities

; posted on
January 31st, 2019

Austria published an ordinance in the Official Gazette on passive income of low-taxed entities. The ordinance introduced a comprehensive CFC regime in Austria for the first time to implement articles 7 and 8 of the Anti-Tax Avoidance Directive (ATAD).

CFC Rules

Passive income of low-taxed subsidiaries (and permanent establishments) shall be included in the tax base of the Austrian parent and thus be subject to Austrian corporate income tax of 25%, with a credit for underlying foreign taxes. When determining the active/passive status of the foreign entity, tax-exempt dividends shall not be relevant.

To the extent dividends and capital gains derive from “low tax” passive participations of at least 5% would not be tax-exempt in Austria, but would be taxable with a tax credit allowed for any foreign taxes paid, provided that certain conditions are met. The tax credit provision or switch-over rule shall not apply to the extent that profits of the foreign subsidiary have already been included in the Austrian tax based under the CFC regime.

The CFC regime shall apply to Austrian corporations holding a controlling interest (generally defined as more than 50% of voting rights, capital or entitlement to profits) under two conditions:

  1. More than one-third of the foreign subsidiary’s (or permanent establishment’s) income is passive. Passive income is defined as interest and other income from, royalties, dividends and capital gains from the disposal of shares, income from financial leasing, income from insurance, banking or other financial activities and income from invoicing companies.
  2. The effective foreign tax rate does not exceed 12.5%. The income of the foreign company must be calculated in accordance with Austrian tax principles in order to make a comparison to the actually paid foreign tax possible.

CFC taxation shall not apply, if the CFC carries on substantive economic activity supported by staff, equipment, assets and premises, as evidenced by relevant facts and circumstances. This exemption shall apply both to EU and third-country resident subsidiaries (or permanent establishments).

Date of Entry into Force

The ordinance and the CFC rules are effective from 1 January 2019.

Source: Austrian Government



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