Horizontal Monitoring Made in Austria
Effective 1 January 2019, Austria will codify horizontal monitoring as an alternative to conventional audits. To date, only the Netherlands have introduced this approach, which was launched there more than a decade ago. In Austria the tax authority started a pilot project including several larger companies on a voluntary basis in 2011. The introduction of the new legislation next year is a result of the positive evaluation of this pilot. The pilot generally reported positive effects, including in particular:
In brief, the main characteristic of horizontal monitoring is a closer interaction between taxpayers and the tax authority on an ongoing and regular basis, e.g. quarterly meetings with the tax authority during the pending fiscal year, instead of rigorous audits years afterwards. Most of the taxes faced by Austrian companies are covered under this legislation. Not covered by horizontal monitoring are wage taxes and customs duties.
The new legislation generally focuses on larger corporations. The most important requirements a taxpayer has to fulfill in order to apply for horizontal monitoring are:
An effective tax control system constitutes the most crucial and time-consuming part of horizontal monitoring. Its implementation and effectiveness must be assessed officially by a tax advisor or auditor.
If there are related taxpayers in Austria, they can or have to (in case of an Austrian tax group) mutually apply for a participation in horizontal monitoring. Thereby, each taxpayer is obliged to meet the application requirements (in that case, the exceedance of the EUR 40 million threshold or qualification as a bank, (re-)insurance by only one taxpayer is sufficient).
As stated above, the new legislation will become effective on 1 January 2019. The participation application can be filed as of that date. Starting with the following year of a positive notification, the taxpayer generally switches to the new audit regime – in other words, in 2020 at the earliest.
For similar content to our Global Guide, subscribe to our mailing list and keep up to date.
Austria has adopted and implemented several gold standards and is excited to also take a lead role on this topic. Horizontal monitoring will be the dominating topic in 2019. Effective tax risk control systems, in particular, should be on the agenda of every CFO or tax leadership team. The Netherlands introduced horizontal monitoring years ago and it seems to be working well, predominantly for large multinational corporates.
