Austria’s Ministry of Finance issued a draft bill on 9 April 2018 for the Annual Tax Act 2018 that contains measures that would make significant changes to the tax treatment of corporations, and includes new controlled foreign company (CFC) rules and amendments to the existing general anti-avoidance rule (GAAR) that would transpose the relevant provisions in the EU anti-tax avoidance directive into Austrian law.
New CFC rules would be introduced to attribute all low-taxed passive income of CFCs and foreign permanent establishments to an Austrian parent company. Control would be deemed to exist if an Austrian parent entity holds directly or indirectly more than 50% of the voting rights or capital of the foreign company, or is entitled to more than 50% of its profits. Low taxation would exist for purposes of the CFC rules if the tax rate in the country of the CFC is not higher than 12.5%.
The CFC rules would apply to tax years beginning on or after 1 October 2018. Changes that would be made to the GAAR include a specific definition of “abuse of law” to address concerns about the interpretation of the GAAR expressed by the Austrian Supreme Administrative Court. The bill clarifies that abuse of law includes “unusual and unreasonable legal structures” the main purpose of which is to save tax, except where sound business reasons that reflect economic reality exist for a particular structure.
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