Binder Grösswang



European Commission: Austria must introduce interest limitation rule (interest barrier, Zinsschranke) in line with Art 4 ATAD as from 1 January 2019

On 7 December 2018, the European Commission has published Commission Notice 2018/C 441/01. The Notice lists those Member States which, in the view of the Commission, have national targeted rules in place which are equally effective to the interest limitation rule set out in Art. 4 of the EU Anti-Tax-Avoidance Directive (“ATAD”; Council Directive (EU) 2016/1164). In accordance with Art 11(6) ATAD, such Member States are not obliged to introduce a new interest limitation rule (or amend their existing rules) in line with Art. 4 ATAD as from 1 January 2019, but may rather continue applying their existing national rules for a certain period (depending on the conclusion of a certain agreement among OECD members) and at the latest until 31 December 2023.

In this context, Austria had communicated to the Commission that it considered the existing rule of § 12(1)(10) Corporate Income Tax Act, which denies the deductibility of interest (and royalties) paid by Austrian corporations to certain low-taxed related corporations, as equally effective to Art. 4 ATAD. As a result of such view, the Annual Tax Act 2018 (which was, in principle, meant to implement all ATAD provisions which must be effective as from 1 January 2019 – see also our Newsletter from 9 April 2018) did not include any provisions concerning the implementation of the ATAD’s interest limitation rule.

However, the Commission Notice does not list Austria, but only Greece, France, Slovakia, Slovenia and Spain. It is accordingly clear that the European Commission does not consider the existing rule of § 12(1)(10) Corporate Income Tax Act as equally effective to Art. 4 ATAD and thus considers Austria as being obliged to amend its existing tax laws to implement Art. 4 ATAD as from 1 January 2019.

Compared to the existing Austrian rule, which only concerns interest paid to related entities which are low-taxed, the interest limitation rule under Art. 4 ATAD in principle limits a corporation’s net interest deductions to a fixed percentage of its profit (EBITDA), subject to certain possible exemptions and exclusions, generally irrespective of the recipients of the corporations interest payments.

At the moment, it is uncertain how Austria will proceed and in which form the interest limitation rule could be implemented into Austrian tax law, especially given the short time frame.

 We will keep you updated on any significant developments in this respect.



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