CMS Expert Guide on substance issues across Europe in Austria

The substance of foreign companies is more and more questioned and/or audited by Austrian tax authorities. This is especially true following the development of anti-abuse rules, measures against aggressive tax planning and a desire to move towards greater transparency. Formal rules governing substance are currently, prior to the enactment and incorporation of ATAD 3, very limited. Case law is developing.

A company will be considered as tax resident in Austria if it has its registered office or place of management in Austria.

• Registered office: This is the place determined by law, contract, articles of incorporation, foundation deed and similar
• Place of management: This is the place where the centre of business management is located. This is where the “decisive will” for the management is formed, i.e., where the measures necessary and important for the management of the company are ordered and company-directing dispositions are made

(in relation to direct relief at source)

Austria provides direct relief at source for distributions, which is an efficient and liquidity-saving procedure, especially in comparison to a refund method.

Distributions to an EU sub-holding company with an EU parent company can also be made without withholding tax in the case of a pure holding company, provided that the grandparent company meets the substance requirements.

(for direct relief at source)

Whether a company has sufficient economic substance is determined in Austria based on an overall consideration of three criteria (each decision will be on a case-by-case basis):

• Business activity
• Employees
• Business premises

If the entire operation activity is carried out by another group company, which also has the employees and business premises at its disposal, the substance requirements are not met.

The business activity criterion plays a major role in case-by-case decisions. The specific assessment will depend on the type of activity specifically performed. The activity needs to go beyond mere asset management.

At the level of a parent company, business and group management functions are sufficient – such as hiring a managing director, accountant, or office manager in the premises of the parent company. Stock market listing alone is not sufficient for an operating activity.

Both employees and posted workers (also from a third country) are part of the “employees” criterion, provided that they are (i) integrated into the business structure of the company in the same way as its own employees, and (ii) the company can instruct them.

The advisory influence of a shareholder (resident of a third country) on the management of the company is considered harmless.

Business premises may be rented (from a group company) and do not have to be owned by the company.

Not required at present.

At present, none.

Same as those applied to an Austrian company.

The implementation of ATAD 3 into Austrian domestic tax law will establish a more formal substance framework.