AUSTRIA Law and Practice Contributed by: Clemens Philipp Schindler and Mohamed Hemdan, Schindler Attorneys
For other constraints on interest deductibility, please also see 2.5 Deduction of Interest .
• the foreign subsidiary is not classified as a low- taxed passive entity. The exemption is not limited to dividends from EU corporations, as profit distributions from subsidiar - ies in third states are also exempt if the requirements are met. Austria thereby exceeds the scope of the EU Parent-Subsidiary Directive. Furthermore, in cases where an Austrian corporation holds less than 10% of a foreign subsidiary and the subsidiary (which needs to be comparable to an Aus - trian corporation) is resident in the EU or in a juris - diction with which Austria has agreed on a compre - hensive exchange of information, profit distributions (“portfolio dividends”) are also exempt from corporate income tax. However, dividends distributed to an Austrian corpo - ration are not tax-exempt if they are tax-deductible for the foreign subsidiary in its state of residence. 6.4 Taxation of Intangibles Developed by Local Corporations Intangibles may be transferred or leased (royalties) at arm’s length conditions, resulting in taxable income (transfer price or royalties) at standard rates. 6.5 Controlled Foreign Corporation-Type Rules As part of the implementation of the EU Anti-Tax Avoidance Directive, Austria introduced a controlled foreign companies (CFC) regime on 1 January 2019, which leads to the attribution (taxation in Austria) of specific non-distributed low-taxed “passive income” from foreign subsidiaries to the Austrian parent cor - poration by applying the CFC rule. The CFC rules apply if: • an Austrian parent corporation (subject to unlimited tax liability) directly or indirectly holds more than 50% of the voting rights or capital of a controlled foreign subsidiary or is entitled to more than 50% of the controlled entity’s profit; • the controlled foreign subsidiary does not conduct “substantial economic activity”, supported by staff, equipment, assets and premises; and
6. Taxation of Foreign Income of Local Corporations 6.1 Foreign Income Exemptions A corporation with its registered seat or place of man - agement in Austria (ie, a corporation resident in Aus - tria) is subject to unlimited tax liability. This means that the corporation’s worldwide income (all domestic and foreign profits) is subject to corporate income tax in Austria. Foreign income (eg, profits of a permanent establish - ment) is part of the taxable income in Austria. Given that foreign income will generally also be taxed in the other state, double taxation is avoided through DTTs. If a DTT applies, the regulations laid down therein have priority, with the consequence that foreign income may be relieved from Austrian taxation, by way of either a tax credit or an exemption. Where no DTT applies but double taxation neverthe - less arises, relief may be granted under Austrian uni - lateral relief measures. 6.2 Non-Deductible Local Expenses Where foreign income is tax exempt in Austria, the corresponding expenses that are economically direct - ly connected to such income are not deductible in Austria. 6.3 Dividends From Foreign Subsidiaries Under the Austrian international participation exemp - tion, dividends (as well as capital gains from the sale of shares in foreign subsidiaries) received by an Aus - trian corporation from a foreign subsidiary are exempt from taxation if the following conditions are met: • a minimum participation in the foreign subsidiary of at least 10%; • a holding period of one year without interruption; • the foreign subsidiary is comparable to an Austrian corporation or an entity enumerated in the Annex to the EU Parent-Subsidiary Directive; and
27 CHAMBERS.COM
Powered by FlippingBook