Implementation of the EU Anti-Tax Avoidance Directive (ATAD; EU 2016/1164) into Austrian and Romanian Law

General Remarks

Background: On 12 July 2016, the Council of the EU agreed on a directive laying down rules against tax avoidance practices that directly affect the functioning of the internal market (ATAD I). On 29 May 2017, the Council adopted ATAD II. The ATAD directives are a result of the OECD's BEPS (Base Erosion and Profit Shifting) project and the CCCTB (Common Consolidated Corporate Tax Base) proposal.

Scope: The ATAD applies to all taxpayers subject to corporate income tax in one or more EU Member States, including permanent establishments of third-country resident entities within the EU ("Company").

Transposition: In principle, the ATAD must be implemented in national legislation by 31 December 2018. However, this deadline has been extended in certain cases (see below).

Austria

ATAD Articles

Art 4 Interest Limitation Rule
This provision deals with the deductibility of interest and is basically divided into two parts:
Para 1: Excess borrowing costs are deductible only up to 30 % of the Company's EBITDA.
Paras 2 – 7: These paragraphs regulate exceptions and supplement para 1 (e.g. calculation of EBITDA, the right to deduct excess borrowing costs up to EUR 3 million). Therefore, the Member States have a high degree of flexibility in implementation.

National implementation
Partially implemented by Section 12 Para 1 No 10 of the Austrian Corporate Income Tax Act ("CITA")

Entry into force
Austria has equally effective targeted rules
The (complete) implementation of Art 4 into Austrian law is required by 1 January 2024 at the latest

Practical implications
Art 4 extends the scope of non-deductibility of excess borrowing costs
 

Art 5 Exit Taxation
The aim of Art 5 is to prevent companies from avoiding tax when relocating assets. Therefore, each Member State is allowed to tax the economic value of any capital gain created in its territory, even though that gain has not yet been realised at the time of the exit. "Exit" means the transfer of tax residence, assets or a permanent establishment to another country.

National implementation
Section 6 No 6 of the Austrian Income Tax Act ("ITA")
Amendment of Section 6 No 6 lit d of the ITA by reducing the instalment period for fixed assets from 7 to 5 years

Entry into force
Amendment of Section 6 No 6 lit d of the ITA by 1 January 2019

Practical implications
Under the Tax Amendment Act 2015, the instalment payment concept (Ratenzahlungskonzept) replaced the non-assessment concept (Nichtfestsetzungskonzept) which was applicable in Austria until 31 December 2015
It has therefore not been possible since 1 January 2016 to avoid taxation of hidden reserves in the event of exits, whereas the instalment period for fixed assets is reduced from 7 to 5 years by 1 January 2019
 

Art 6 General Anti-Abuse Rule
Art 6 provides a general (EU-wide) anti-abuse rule targeting artificial tax-abusive structures. For the purposes of calculating the Company's tax liability, arrangements with the main purpose of obtaining tax advantages shall be ignored.

National implementation
Amendment of Section 22 of the Austrian Federal Fiscal Code ("FFC")

Entry into force
15 August 2018

Practical implications
Implementation and reflection of Higher Administrative Court case law
Special arrangements must have a valid economic reason and reflect economic reality Stricter understanding of the term "abuse":

• Previously required: tax avoidance as sole purpose
• Now sufficient: tax avoidance as essential/main purpose
   

Art 7/8 CFC Rule
Art 7 and 8 set out detailed rules in relation to controlled foreign companies (CFC), aiming at attributing profits of controlled foreign companies and permanent establishments that are low-taxed or tax-exempt in a Member State to the controlling company. Income covered by the CFC rule includes interest, royalties and dividends as well as income from financial activities.

National implementation
Section 10a CITA

Entry into force
1 January 2019

Practical implications
New Section 10a CITA
Low taxation of a CFC defined as effective taxation not exceeding 12.5 % Decree setting out further details to be issued by the Ministry of Finance
The income of the foreign company must be calculated in accordance with domestic regulations and compared with the effective taxation abroad
 

Art 9 Hybrid Mismatches
Art 9 tackles hybrid mismatches, ie the exploitation of differences between tax systems to achieve double non-taxation resulting in base erosion. The provision eliminates such hybrid mismatches by allowing only one Member State to grant a tax deduction.

National implementation
Not yet implemented

Entry into force
1 January 2020

Practical implications
Legislation based on the OECD's recommendations concerning hybrid mismatches (BEPS Action 2) expected
Limitation of aggressive tax hybrid mismatches

Romania

Art 4 Interest Limitation Rule
This provision deals with the deductibility of interest and is basically divided into two parts:
Para 1: Excess borrowing costs are deductible only up to 30 % of the Company's EBITDA.
Paras 2 – 7: These paragraphs regulate exceptions and supplement para 1 (e.g. calculation of EBITDA, the right to deduct excess borrowing costs up to EUR 3 million). Therefore, the Member States have a high degree of flexibility in implementation.

National implementation
Fully implemented by Art 40² of Law 227/2015 regarding the Fiscal Code ("Fiscal Code")

Entry into force
1 January 2018

Practical implications
New Chapter III¹ of the Fiscal Code
Replaces the former thin capitalization rules
Threshold for unlimited deductibility of excess borrowing costs of EUR 200,000
Limited deductibility of excess borrowing costs within 10 % of EBITDA
These low thresholds are currently under debate in the Romanian Parliament and might be increased
 

Art 5 Exit Taxation
The aim of Art 5 is to prevent companies from avoiding tax when relocating assets. Therefore, each Member State is allowed to tax the economic value of any capital gain created in its territory, even though that gain has not yet been realised at the time of the exit. "Exit" means the transfer of tax residence, assets or a permanent establishment to another country.

National implementation
Art 40³ of the Fiscal Code
Observance of the Fiscal Procedure Code requirements for benefiting from a 5-year instalment period

Entry into force
1 January 2018

Practical implications
New Chapter III¹ of the Fiscal Code
The request for instalment payment is conditional upon the taxpayer providing securities (bank guarantees, mortgages, etc.) equal to 100 % of the amount of the tax liabilities so deferred

Art 6 General Anti-Abuse Rule
Art 6 provides a general (EU-wide) anti-abuse rule targeting artificial tax-abusive structures. For the purposes of calculating the Company's tax liability, arrangements with the main purpose of obtaining tax advantages shall be ignored.

National implementation
Art 40⁴ of the Fiscal Code

Entry into force
1 January 2018

Practical implications
New Chapter III¹ of the Fiscal Code
Romania had equally effective targeted rules which gave the tax authorities the right to disregard a transaction having no economic purpose based on the substance over form principle
Other domestic provisions aimed at safeguarding a higher level of protection for domestic corporate tax bases:

• 50 % withholding tax in Romania (instead of the standard 16 %) for income paid in a state with which Romania has not concluded a treaty for the exchange of information and where the payment is deemed to be related to an artificial transaction
• non-compliance penalty for undeclared or under-declared tax obligations which are assessed by the tax authorities following a tax audit (approx. 29 % per year)
   

Art 7/8 CFC Rule
Art 7 and 8 set out detailed rules in relation to controlled foreign companies (CFC), aiming at attributing profits of controlled foreign companies and permanent establishments that are low-taxed or tax-exempt in a Member State to the controlling company. Income covered by the CFC rule includes interest, royalties and dividends as well as income from financial activities.

National implementation
Art 40⁵ of the Fiscal Code

Entry into force
1 January 2018

Practical implications
New Chapter III¹ Fiscal Code
Low taxation of a CFC defined as effective taxation not exceeding 8 %
Although implementation instructions for the application of the ATAD are available, there are no clarifications for this particular anti-avoidance measure

Art 9 Hybrid Mismatches
Art 9 tackles hybrid mismatches, ie the exploitation of differences between tax systems to achieve double non-taxation resulting in base erosion. The provision eliminates such hybrid mismatches by allowing only one Member State to grant a tax deduction.

National implementation
Not yet implemented

Entry into force
1 January 2020

Practical implications
Further guidance expected