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Introduction of an Advance Ruling in Austria
Austria has introduced with effect from 1 January 2011, a new mechanism to obtain a binding ruling from the Austrian financial authorities. The previous system was based on the principle of good faith and was afflicted with uncertainties.
After the amendment, a binding ruling could be obtained on aspects relating to transfer pricing, reorganisation and group taxation. The application must contain the questions being raised by the applicant and the position of the applicant regarding such legal issues. However, an advance ruling may involve significant costs. Taxand Austria examines the impact of this new Advance Ruling system for multinationals doing business in Austria.
Advance rulings will be issued only on legal issues pertaining to transfer pricing, reorganisation and group taxation.
Written application of entitled persons
For obtaining an advance ruling, a written application is required. The application for an advance ruling can be filed by persons subject to tax in Austria. In addition, the promoters of entities to be set up and persons planning to become subject to tax in Austria may also file an application.
In case of a valid application, the Austrian tax authorities are obliged to issue a ruling. The requirements for a valid application are:
- Comprehensive and detailed description of the facts and planned transaction;
- A description of the interest of the applicant;
- An analysis regarding the legal problems;
- The formulation of specific legal questions;
- A substantiated legal position regarding the issue; and
- The assessment base for the administrative costs.
Content and effect of an advance ruling
The Austrian tax authorities have to issue a ruling regarding a filed application. The tax authorities may confirm the legal position of the applicant or issue a dissenting legal position. Furthermore, the advance ruling has to state the taxes concerned and the time frame for the ruling. The advance ruling may also contain reporting and notification requirements, as soon as the planned transaction is carried out. If the tax authorities issue a dissenting legal position, the applicant may appeal against the advance ruling.
If the transaction is consummated, the advance ruling is binding on the tax authorities. If the applicant does not proceed with the transaction, the ruling is not binding to the detriment of the applicant. The advance ruling would cease to be binding, if there is any change in the planned circumstances.
The application for an advance ruling is subject to payment of fees. The fee would depend on the annual sales of the applicant. The minimum fee would be EUR 1,500 subject to a maximum of EUR 20,000. If the application is refused by the authorities due to formal reasons or recalled by the applicant, the fee would be restricted to EUR 500.
If the applicant is already subject to tax, his local tax authorities having jurisdiction over the applicant would be competent to provide the ruling. If the applicant is not subject to tax in Austria, the application has to be filed at the local tax authorities, who would have jurisdiction over the applicant, if the proposed transaction were undertaken.
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The introduction of the new advance ruling is in line with the international practices. The advance ruling will help in reducing uncertainties resulting from the interpretation of law. It would help investors plan their investment in Austria with greater certainty. The ruling may also help to prevent legal disputes regarding tax assessments or tax audits, especially in the area of transfer pricing long and expensive tax audits could be avoided. However, there could be significant costs for obtaining an advance ruling.