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Austrian Auditors Slam Group Tax Failings

by Ulrika Lomas, Tax-News.com, Brussels

23 July 2013


In its latest report, the Austrian Court of Auditors (der Rechnungshof – RH) has warned of a number of significant shortcomings in the country's group tax regime.

The audit body laments in particular Austria's very broad interpretation of the group tax mechanism in international comparison, together with its lack of adequate control measures.

The RH warns in particular of a grave risk of companies abusing Austria's group tax regime, given that the scope of the tax shelter extends to foreign subsidiaries resident in non treaty partner states, namely countries with whom Austria has not as yet concluded a bilateral tax information exchange agreement or a double taxation accord, including Burundi, Costa Rica and Panama. Consequently, there is no legal basis for guaranteeing tax information exchange with such jurisdictions to verify claims, the auditors argue.

Taken aback at the Austrian Finance Ministry's "extremely generous attitude" with regard to the group tax perk, the Court emphasizes that this lackadaisical approach is in stark contrast to its tough stance on other tax breaks. The Finance Ministry insists on comprehensive mutual assistance with other countries for granting donation and participation tax shelters, the auditors point out.

One of the Court of Auditors' key recommendations is therefore that the Government tightens the regime to limit tax loopholes and to reduce the risk of abuse of the system. To achieve this objective, the RH advocates notably that foreign groups, located outside of the European Union or European Economic Area, should only be entitled to benefit from the group tax mechanism in future, provided that they are resident in a country in which a comprehensive mutual assistance treaty is in place.

Introduced in 2005 under former Austrian Finance Minister Karl-Heinz Grasser, Austria's system of group taxation enables companies to incorporate losses incurred by foreign subsidiaries into the taxable base, thereby significantly reducing the company's tax bill.

In 2010, the mechanism resulted in corporate savings of around EUR450m, corresponding to 10 percent of total corporate tax revenues. It is estimated that 3,400 corporate groups with 1,800 foreign subsidiaries currently benefit from the instrument.

TAGS: Finance | tax | tax information exchange agreement (TIEA) | double tax agreement (DTA) | audit | group taxation | agreements | Austria | Costa Rica | tax breaks | mutual assistance agreement | Burundi | Panama

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