What are the substance requirements of EU holding companies? Could the structure be classified as abusive, especially with respect to the benefits of EU directives? These are the kinds of questions usually raised when it comes to structuring the investments of non-EU investors in Austria.
In a recently published case, the Austrian Supreme Administrative Court decided that the structure of an investment in an Austrian business via holding companies based in Luxembourg is not classified as abusive, taking into account the EU Parent-Subsidiary Directive (EU-PSD) and the case law of the CJEU (i.e. citing the cases Deister-Juhler and GS).
Back in 2016 the application for refund of Austrian withholding tax by a Luxembourg company was denied by the tax authority applying the Austrian GAAR (i.e. arguing directive shopping, because the beneficial owners of the structure were partly tax resident outside the EU). The tax authority and a lower tax court rejected the reasoning of the Luxembourg company, on the grounds that its Luxembourg-based parent company had sufficient substance and should not be classified as a mere intermediary. In particular, the Luxembourg parent company had, inter alia,
• several significant investments in other EU and non-EU countries,
• 3 employees (i.e. a director, an accountant and an office manager),
• operating premises in Luxembourg, and was
• a taxpayer for VAT purposes in Luxembourg.
In its judgment, the Austrian Supreme Administrative Court explained that an application of the Austrian GAAR would require both the applying Luxembourg company and its Luxembourg parent company to be established (i) without economic or other non-tax reasons and (ii) having no own economic activities. Taking into account the substance of the Luxembourg parent company, the court decided it is unreasonable to argue that this company has no economic activity in Luxembourg. In addition, the court stated that it would not be necessary for the parent company to provide any professional guidance to its subsidiaries.
Although practitioners welcome the judgment, care should be taken when structuring foreign investments in Austria. The Austrian Supreme Administrative Court does not mention the latest case law of the CJEU, i.e. the Danish beneficial owner cases. Moreover, the case was decided for periods before the 2019 changes to the wording of the Austrian GAAR (implementing Art 6 of the EU Anti Tax Avoidance Directive).
Authored By:
Martin Lehner
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