1. Legal and enforcement framework
1.1 Which legislative provisions govern tax avoidance in your jurisdiction?
Austria has been a member of the European Union for 30 years now. This means that, in addition to Austrian domestic law, legal acts of the European Union also apply in Austria. Therefore, not only Austrian but also EU law is cited and described in this Q&A. EU law is often the trigger for domestic legislative initiatives.
Under the EU Anti-tax Avoidance Directive (2016/1164) (ATAD I), various tax avoidance practices defined in the directive are inadmissible and illegal.
This directive cited above was amended by the ATAD II Directive (2017/952) regarding hybrid mismatches with third countries.
ATAD I was transposed into Austrian law by the Annual Tax Act 2018 (Federal Law Gazette 62/2018). ATAD II was transposed into Austrian national law by the 2020 Tax Amendment Act.
The EU ATADs were implemented in such a way that regulations on unlawful tax avoidance arrangements were included in individual national tax laws, such as:
- the Income Tax Act;
- the Corporation Tax Act; and
- the Value Added Tax Act.
However, for many decades, Article 22 of the Federal Act on General Provisions and the Procedure for Taxes Administered by the Tax Authorities of the Federation, the Federal States and the Municipalities – known as the Federal Fiscal Code – has stated that tax liability cannot be avoided or reduced through the abuse of structuring options under private law. This provision applies a so-called 'economic approach' to circumstances that may lead to tax avoidance.
The measures to combat tax avoidance in the ATAD apply only to structuring options that are subject to corporation tax.
Article 22 of the Federal Fiscal Code, on the other hand, has a much broader scope of application because it applies to structuring options that are subject to both corporate income tax and income tax.
1.2 Which bilateral and multilateral instruments on tax avoidance have effect in your jurisdiction?
At the EU level, Directives 2011/16 and 2018/822 govern the mandatory automatic exchange of information in the area of taxation on reportable cross-border arrangements.
These directives were implemented in Austria by the EU Reporting Obligations Act of 2019.
In terms of multinational legal instruments, reference should also be made to the various Organisation for Economic Co-operation and Development (OECD) working groups – in particular, the OECD/G20 Base Erosion and Profit Shifting Project. The Harmful Tax Practices – 2022 Peer Review Reports on the Exchange of Information on Tax Rulings were recently published as part of this project.
The country profiles in this report explicitly state that: "Austria has met all aspects of the terms of reference (OECD, 2021[1]) (ToR) for the calendar year 2022 (year in review), and no recommendations are made."
It can thus be deduced that the Austrian tax system is compliant with international requirements for preventing tax avoidance.
Another important multilateral agreement is the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (Federal Law Gazette 63/2018).
When considering this question about international regulations for preventing tax avoidance, the double taxation agreements that Austria has concluded with many countries around the world must also be mentioned. Insofar as these agreements include provisions determining which country has the right to tax various types of income, they also serve as regulations for preventing tax avoidance.
A list of all multilateral agreements and all double taxation agreements can be found on the website of the Federal Ministry of Finance at www.bmf.gv.at.
1.3 What authorities are responsible for enforcing the applicable laws and regulations? What statutory powers do they possess?
The Federal Ministry of Finance and the Austrian Tax Office, together with its subdivisions, are responsible for enforcing the substantive tax laws. The formal legal basis for the activities of the Austrian Tax Office is the Federal Fiscal Code.
The Federal Fiscal Code provides the Austrian Tax Office with extensive rights to verify whether the tax returns submitted by private individuals or companies and other legal entities are factually correct. For example:
- the submission of relevant accounting documents can be requested;
- people can be interrogated;
- experts can be appointed; or
- on-site inspections can be carried out at companies.
1.4 What is the general approach of these authorities in enforcing the applicable laws and regulations?
The general approach of the Federal Ministry of Finance and the Austrian Tax Office is to ensure strict implementation of all legal requirements, with a high level of expertise and relatively large internal resources.
1.5 To what extent do these authorities cooperate with international counterparts and other agencies in enforcing the applicable laws and regulations?
Within the framework of the existing bilateral and multilateral agreements on the exchange of information between the tax authorities of the countries that are party to these agreements, there is an intensive exchange of information between the Austrian tax authorities and the tax authorities of other countries.
EU Directive 2017/1852 on procedures for the settlement of tax disputes in the European Union is an additional legal basis for the resolution of tax disputes. This directive was implemented in Austria by the EU Tax Dispute Settlement Act of 2019.
Another legal basis for information exchange between tax authorities of different countries can be found in Article 48 of the Federal Fiscal Code, which regulates the mutual agreement procedure between the Austrian tax authorities and the tax authorities of other countries.
Most of the double taxation treaties that Austria has concluded contain special provisions on the exchange of information between the Austrian tax authorities and the tax authorities of the other contracting state.
The last two possibilities for the exchange of information between the Austrian tax authorities and the tax authorities of other countries are not limited geographically to the European Union. On the basis of these legal and contractual possibilities, the Austrian tax authorities can exchange information with any other country in the world.
2. Tax avoidance activities
2.1 What activities constitute tax avoidance in your jurisdiction?
The Austrian legal system does not provide an exhaustive list of activities or arrangements that constitute impermissible tax avoidance.
A general definition of what constitutes impermissible tax avoidance can be found in Article 22 of the Federal Fiscal Code. According to this provision, tax avoidance is deemed impermissible if:
- the associated tax savings are disregarded; and
- the arrangements no longer appear reasonable because the essential purpose or one of the essential purposes is to obtain a tax advantage.
The EU Reporting Obligation Act provides definitions of what can be classified as impermissible tax avoidance. In Articles 5 and 6, it lists arrangements that are subject to reporting requirements either unconditionally or conditionally. These two articles are reproduced verbatim below:
Article 5:
1. Arrangements involving deductible cross-border payments between two or more associated enterprises, where at least one of the following conditions is met:
a) the recipient of this payment is not resident for tax purposes in any jurisdiction, or
b) the recipient of that payment is resident for tax purposes in a jurisdiction and that jurisdiction is included in a list of third countries that have been identified by the Member States, acting jointly, or the Organization for Economic Cooperation and Development (OECD), as non-cooperative jurisdictions.
2. arrangements designed to induce the depreciation of an asset in more than one jurisdiction;
3. arrangements that are designed to obtain an exemption from double taxation for the same income or assets in more than one jurisdiction;
4. arrangements that involve the transfer of assets and where there is a material difference in the value to be ascribed to the asset in the jurisdictions involved;
5. arrangements that may lead to the avoidance of the reporting obligation under the legislation implementing Directive 2014/107/EU amending Directive 2011/16/EU as regards mandatory automatic exchange of information in the field of taxation, OJ L 359 of December 16, 2014, p. 1, or under equivalent agreements on the automatic exchange of financial account information (Common Reporting Standard), or take advantage of the absence of such legislation, whereby these arrangements include at least the following:
a) the use of an account, product or investment that is not a financial account within the meaning of section 71 of the Common Reporting Standard Act (Gemeinsamer Meldestandard-Gesetz – GMSG), Federal Law Gazette I No. 116/2015, or does not purport to be a financial account, but has characteristics that essentially correspond to those of a financial account,
b) the transfer of a financial account within the meaning of section 71 of the GMSG or of assets to a jurisdiction or the inclusion of a jurisdiction that is not bound by the automatic exchange of information with the jurisdiction in which the relevant taxpayer is resident,
c) the reclassification of income and assets as products or payments that are not subject to the reporting requirement under the Common Reporting Standard,
d) the transfer or conversion of a financial institution within the meaning of § 56 GMSG or a financial account within the meaning of § 71 GMSG or the assets contained therein into a financial institution, financial account or assets that are not subject to the reporting requirements of the Common Reporting Standard,
e) the inclusion of legal entities, arrangements or structures that exclude or purport to exclude reporting under the Common Reporting Standard, or
f) arrangements that undermine or exploit weaknesses in the due diligence procedures applied by financial institutions within the meaning of Section 56 of the GMSG to fulfil their reporting obligations with regard to information on financial accounts within the meaning of Section 71 of the GMSG, including the inclusion of jurisdictions with inadequate or weak regimes for enforcing anti-money laundering rules or with weak transparency requirements for legal persons or legal arrangements;
6. arrangements with an opaque chain of legal or beneficial ownership by including persons, legal arrangements or structures that
a) do not engage in any substantial economic activity involving appropriate facilities, human resources, assets and premises,
b) incorporated, managed, resident or established in jurisdictions other than the jurisdiction(s) where one or more of the beneficial owners of the assets held through such persons, legal arrangements or structures are resident, and
(c) where the beneficial owners of such persons, legal arrangements or structures are identified in accordance with the provisions of Directive (EU) 2015/849 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing, amending Regulation (EU) No 648/2012 012 and repealing Directive 2005/60/EC and Directive 2006/70/EC, OJ L 141, 05.06.2015, p. 73, cannot be made identifiable;
7. transfer pricing arrangements that make use of unilateral safe harbour rules;
8. transfer pricing arrangements involving the transfer of hard-to-value intangible assets. The term 'hard-to-value intangible assets' includes intangible assets or rights to intangible assets for which, at the time of their transfer between associated enterprises,
a) there are no sufficiently reliable comparative values and
b) at the time of the transaction, the forecasts of expected cash flows or the income expected to be derived from the transferred intangible asset or the assumptions on which the valuation of the intangible asset is based are highly uncertain, which is why the ultimate success of the intangible asset at the time of the transfer is difficult to foresee;
9. transfer pricing arrangements involving an intra-group cross-border transfer of functions, risks or assets if the expected annual earnings before interest and tax (EBIT) of the transferor(s) over a three-year period following the transfer are less than 50% of the annual EBIT of the transferor(s) that would have been expected if the transfer had not taken place.
Article 6:
1. arrangements where the relevant taxpayer or another person involved in the arrangement undertakes to comply with a confidentiality clause that prohibits disclosure to other intermediaries engaged by the relevant taxpayer or to the tax authorities of the way in which the arrangement obtains a tax benefit;
2. arrangements where the intermediary is entitled to a remuneration (or interest, remuneration of financial costs and other costs) for the arrangement and this remuneration is set in relation to:
a) the amount of tax benefit obtained under the arrangement, or
b) whether a tax benefit is actually obtained through the arrangement; this would be linked to the obligation of the intermediary to reimburse the remuneration in whole or in part if the tax benefit intended by the arrangement is not obtained or is only partially obtained;
3. arrangements whose documentation or structure is essentially standardized and available to more than one relevant taxpayer without having to be individually adapted for implementation;
4. arrangements in which a person involved in the arrangement takes steps to acquire a loss-making business, cease that business's main activity and use its losses to reduce their tax bill, which may include transferring those losses to another jurisdiction or accelerating the use of those losses;
5. arrangements whereby income is converted into capital, gifts or other types of income that are taxed at a lower rate or are exempt from taxation;
6. arrangements whereby circular movements of capital are carried out through intermediate entities without a primary commercial function or through transactions that cancel or offset each other out or that have similar characteristics;
7. arrangements involving deductible cross-border payments between two or more associated enterprises that fulfil at least one of the following conditions in lit. a to c, whereby the mere fact that one of the following arrangements has been chosen does not indicate that the condition has been met:
a) the recipient of this payment is resident in a territory for tax purposes and this territory does not levy corporate income tax or has a corporate income tax rate of zero or close to zero,
b) the payment is not recognized for tax purposes in the territory in which the recipient of this payment is resident for tax purposes or is fully exempt from tax, or
c) the payment benefits from a preferential tax regime in the jurisdiction in which the recipient of that payment is resident for tax purposes.
Further examples of impermissible tax avoidance include:
- so-called 'treaty shopping' – arrangements that lead to the application of a double taxation agreement that appears to be particularly tax favourable;
- choice of the place of management not according to economic principles, but rather according to where taxation is particularly low; and
- unusual transfer pricing arrangements.
Article 22 of the Federal Fiscal Code corresponds to the content of Article 6 of the EU Anti-tax Avoidance Directive and the general anti-abuse rule contained therein.
2.2 Are there any restrictions or thresholds (eg, in terms of parties, asset type or transaction value) that serve to limit the types of activities that constitute tax avoidance?
No, Article 22 of the Federal Fiscal Code contains no financial limits or de minimis provisions.
2.3 What specific concerns and considerations should be borne in mind in relation to the following activities to avoid falling foul of the tax avoidance rules? (a) Transfers of assets abroad; (b) Transfers of income streams; (c) Securities transactions; (d) Land transactions; (e) Trade; (f) Cross-border tax planning; (g) Other.
All of the above activities that lead to a transfer of business assets or private assets from Austria to another tax jurisdiction must be reviewed in terms of exit taxation.
Exit taxation for natural persons is regulated in particular in Article 27(6) of the Income Tax Act.
3. Scope of application
3.1 Are there differences in treatment for civil and criminal tax assessments?
The Federal Fiscal Code essentially regulates:
- the obligations of taxpayers in connection with the submission of tax returns and the payment of taxes; and
- the rights of the tax authorities to assess taxes.
The Fiscal Penalties Act is an important law in connection with the obligation to pay taxes correctly and on time.
A taxpayer that intentionally violates a tax law by failing to disclose or providing false information is committing a criminal offence.
3.2 Can both individuals and companies be prosecuted under the tax avoidance legislation?
Yes. Article 22 of the Federal Fiscal Code is decisive for both:
- tax matters subject to the Income Tax Act; and
- those subject to the Corporate Income Tax Act.
The Value Added Tax Act and all double taxation agreements also apply equally to natural and legal persons. This applies in particular to the Fiscal Penalties Act, under which both natural and legal persons can be prosecuted.
3.3 Can foreign companies be prosecuted under the tax avoidance legislation?
If a foreign company maintains a permanent establishment in Austria, Austrian tax laws also apply to it. If, in the course of the operation of this permanent establishment, a situation arises that is classified as impermissible tax avoidance, the foreign company will also be held liable under Austrian tax laws for this impermissible tax avoidance.
3.4 Does the tax avoidance legislation have extraterritorial reach?
The Austrian legislation on impermissible tax avoidance does not, in principle, have a direct extraterritorial effect. However, there are indirect effects through international agreements. These include:
- the Organisation for Economic Co-operation and Development/G20 Base Erosion and Profit Shifting Action Plan cited in question 1.2; and
- the EU Anti-tax Avoidance Directives.
3.5 Does the tax avoidance legislation extend to parties that promote or facilitate tax avoidance?
To answer this question, it is vital to consider whether lawyers who advise clients on tax matters can be held liable if the advice that they give to the client is classified as impermissible tax avoidance. If so, it is possible that a lawyer may be prosecuted by the criminal authorities as an accomplice in tax evasion under Article 11 of the Fiscal Penalties Act.
Moreover, Article 9 of the Federal Fiscal Code stipulates that notaries, lawyers and chartered accountants are liable for taxes that cannot be collected from a tax debtor if these advisers have advised the tax debtor in a way that violates the professional regulations of these advisers.
The EU reporting law also recognises and regulates so-called 'intermediaries' – that is, persons who design or market a reportable arrangement. These persons have a reporting obligation.
4. Compliance
4.1 What best practices should a taxpayer follow to mitigate the risk of tax avoidance violations?
Tax arrangements should always be discussed with and reviewed by a lawyer or chartered accountant before they are implemented, to ensure that they do not constitute an inadmissible tax avoidance measure.
In addition, it is advisable to make use of the option provided for in Article 118 of the Federal Fiscal Code. This allows every taxpayer to apply to the tax authorities for a so-called 'information notice'. In this application, the taxpayer can present a tax structuring option and ask the Austrian Tax Office whether it is legally permissible. The Austrian Tax Office then issues an information notice explaining whether it considers the structuring to be permissible or impermissible for tax purposes. The information notice is binding not only on the tax authorities, but also on the law courts.
If a taxpayer finds that it has committed a tax offence that is not yet known to the tax authorities, it is advisable to file a voluntary self-disclosure in accordance with Article 29 of the Fiscal Penalties Act. A voluntary self-disclosure can avoid criminal prosecution.
4.2 Are taxpayers obliged to report instances of potential tax avoidance or other irregularities?
Yes. Article 139 of the Federal Fiscal Code expressly obliges a taxpayer to notify the tax authorities immediately if, after submitting a tax return, it finds that its tax return was not correct.
Furthermore, according to Article 119 of the Federal Fiscal Code, every taxpayer must fully and truthfully disclose all circumstances relevant to its tax liability.
Finally, reference is also made to the EU Reporting Obligations Act of 2019.
4.3 What other concerns and considerations should be borne in mind from a compliance perspective?
Pursuant to Article 15 of the Federal Fiscal Code, if the heirs or trustees of a taxpayer or the liquidators of a taxable company recognise that the taxpayer's tax returns were incorrect or incomplete, they must report this fact to the tax authorities within three months of becoming aware of it. Otherwise, they will be personally liable for the unpaid taxes.
5. Enforcement
5.1 Can taxpayers that voluntarily report tax avoidance violations or cooperate with investigations benefit from leniency in your jurisdiction?
Voluntary disclosure under Article 29 of the Financial Criminal Code leads to an exemption from punishment under the Financial Criminal Code, but not to an exemption from payment of the evaded tax.
The Federal Fiscal Code only grants relief relating to the payment of taxes. This means that the payment of taxes can be deferred or taxes can be paid in instalments. However, these payment facilities always exist and are independent of a possible voluntary disclosure.
5.2 What defences are available to taxpayers charged with tax avoidance violations?
The defence essentially consists of showing the tax authorities that the chosen tax construction does not constitute impermissible tax avoidance.
If the Austrian Tax Office notifies a taxpayer of an alleged violation of tax regulations, the taxpayer can appeal this decision. The appeal is addressed to the Federal Finance Court – an independent court that specialises in judging tax matters.
A legal remedy against the Federal Finance Court is still available at the Federal Constitutional Court and the Federal Administrative Court.
If criminal proceedings are brought against a taxpayer, these are criminal proceedings before a criminal court and the legal remedies available are those that are generally available in criminal proceedings.
5.3 Can taxpayers negotiate a pre-trial settlement through plea bargaining, settlement agreements or similar?
No, the concept of plea bargaining is alien to the Austrian legal system. There is only the possibility of a voluntary self-disclosure, as mentioned in question 4.1, which leads to an exemption from punishment but not to an exemption from payment of the relevant taxes.
In this context, the provision on leniency in Article 209a of the Code of Criminal Procedure should be noted. Offenders who make a remorseful confession and voluntarily cooperate with the public prosecutor to reveal a crime can, in return, demand that criminal proceedings against them be discontinued. They are treated legally as so-called 'cooperating witnesses'.
5.4 What penalties can be imposed for tax avoidance?
Impermissible tax avoidance results in the assessment of a tax amount that would have been due if no tax avoidance had taken place, plus any applicable penalties and interest.
If impermissible tax avoidance results in a situation covered by the Fiscal Penalties Act, prison sentences of up to 10 years and fines can be imposed in accordance with the Fiscal Penalties Act.
5.5 What is the statute of limitations for prosecuting tax avoidance in your jurisdiction?
Article 207 of the Federal Fiscal Code regulates the limitation period for the tax authorities to assess a tax. According to this provision, the right to assess tax generally expires after five years. However, the tax authorities' right to assess evaded tax expires only after 10 years.
The tax authorities' right to collect taxes that have already been assessed and are due expires after five years.
Pursuant to Article 31 of the Fiscal Penalties Act:
- the criminal liability for evaded taxes generally expires within five years; and
- for some types of taxes, it expires within three years or one year.
6. Alternatives to prosecution
6.1 What alternatives to prosecution are available to enforcement agencies that find tax avoidance?
The tax authorities pursue impermissible tax avoidance practices on the basis of the Federal Fiscal Code and the Fiscal Penalties Act. There are no other legal options for the tax authorities.
6.2 What procedures are involved in concluding an investigation in such a way?
Because there are no alternative ways for the tax authorities to uncover improper tax avoidance practices, there are no other procedural options available.
6.3 What factors will determine whether such an alternative to prosecution is to be offered by an enforcement agency to those who have been involved in tax avoidance?
There are no alternative procedures, so there are no rules for when such alternative procedures can be used.
6.4 How common are these alternatives to prosecution?
There are no alternative methods.
6.5 What reasons, if any, could lead to an increase in the use of such alternatives?
There are no alternative methods.
7. Cyber and crypto assets
7.1 How does the tax avoidance regime dovetail with cyber law in your jurisdiction?
Article 27b of the Income Tax Act defines 'cryptocurrencies' and specifies how income from the sale of cryptocurrencies, for example, is to be taxed. Such income is to be taxed as capital gains.
The exchange of legal tender for cryptocurrency is not subject to value-added tax.
However, Article 27b does not cover other crypto assets, such as non-fungible tokens (NFTs). NFTs are usually based on real assets and are not a means of exchange. The underlying assets, such as securities or real estate, are decisive for taxation. These are taxed on the basis of the Income Tax Act.
7.2 Does the tax avoidance regime extend to crypto-asset activity and if so, how?
If a tax structure is classified as impermissible tax avoidance and crypto assets are used as part of this tax structure, the tax avoidance rules also extend to the crypto assets.
7.4 What specific considerations, concerns and best practices should companies be aware of with regard to tax avoidance and the cyber sphere?
In this context, a joint initiative by several European and non-European countries to implement the Organisation for Economic Co-operation and Development reporting framework for cryptocurrencies should be noted.
This initiative primarily provides for the automatic exchange of information between tax authorities to ensure that global tax transparency cannot be undermined by the use of crypto assets.
Taxpayers must therefore be aware that the use of crypto assets to avoid tax will not remain hidden from the tax authorities.
8. Trends and predictions
8.1 How would you describe the current tax avoidance landscape and prevailing trends in your jurisdiction? Are any new developments anticipated in the next 12 months, including any proposed legislative reforms?
Austria has a highly developed legal system. This applies in particular to that part of the legal system which deals with taxes. Austria participates in essentially all international measures, particularly those of the European Union, to close tax loopholes and prevent tax evasion.
Local developments over the next 12 months will depend primarily on the new Austrian government which will take up office in early 2025. They will also continue to be determined by developments at the EU level. For example, the European Commission has submitted a proposal for a directive laying down rules to prevent the abusive use of shell companies for tax purposes. Most significantly, under this proposal, companies based in the European Union must meet certain minimum substance criteria; otherwise, they will be unable to obtain tax advantages.
This directive – known as the EU Anti-tax Avoidance Directive III – should have come into force in 2024. However, this did not happen. It remains to be seen when and in what version this directive will come into force.
9. Tips and traps
9.1 What are your top tips for ensuring full compliance with the tax avoidance regime and what potential sticking points would you highlight?
Taxpayers should ensure that they maintain an accounting system that meets all legal requirements. All processes should be documented in detail – especially those of a financial nature that could have an impact on taxation. Only on the basis of sufficiently precise information from the taxpayer can an external consultant then provide the taxpayer with the right advice.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
