Investing in Austria: What to do in case of tax inspections and anti-avoidance investigations?
100 million euros
According to incomplete statistics, more than 40 Chinese companies have carried out investment cooperation in Austria through the establishment of branches or equity participation in mergers and acquisitions, involving machinery, aviation, automobile, telecommunications, financial and business services and other industries. Chinese companies investing in Austria actively promote cooperation in the fields of services, research and development, innovation and other fields, creating a large number of jobs and paying more than 100 million euros in taxes every year.
Austria is an important economic and trade partner of the mainland, with a per capita GDP ranking among the top three in the European Union and one of the four major countries in the United Nations. Chinese Ambassador to Austria Qi Mei said in an interview with the media that according to incomplete statistics, more than 40 Chinese enterprises have carried out investment and cooperation in Austria through the establishment of branches or equity participation in mergers and acquisitions, involving machinery, aviation, automobile, telecommunications, financial and business services and other industries, including ICBC, Bank of China, Huawei, ZTE, CRRC and other well-known large enterprises, as well as Wanfeng, Ningbo PIA, Anhui Zhongding and other outstanding private enterprises. Chinese companies investing in Austria actively promote cooperation in the fields of services, research and development, innovation and other fields, creating a large number of jobs and paying more than 100 million euros in taxes every year.
From a tax point of view, Austria's modern tax system is a mixed tax system based on income and consumption, and the main taxes include corporate income tax, VAT, personal income tax, real estate transaction tax, consumption tax and stamp duty. In Austria, tax inspection and anti-avoidance investigation requirements are strict and complex. Among them, tax inspection mainly includes four categories: tax police inspection, tax audit, payroll tax audit and tax big data supervision. Affected by cultural differences and language differences, responding to tax inspections and anti-avoidance investigations has become a "blocking point" for the tax compliance management of some "going global" enterprises.
Tax Police: There is no right to search, only the right to inspect
The Tax Police is part of the Anti-Fraud Office of the Federal Ministry of Finance of Austria and aims to protect the financial interests of the Austria Federal Government by detecting tax evasion, economic fraud, etc. The tax police do not have uniform and office locations, and are scattered among local tax offices. It should be noted that the tax police do not have the right to search, only the right to inspect, and can only understand the business process of the enterprise, obtain tax-related information, and go to the employee's office or dormitory for on-site inspection.
The tax police are not allowed to search private homes or belongings during on-site inspections, and may apply for police assistance if necessary. For example, in 2022, in a special VAT inspection for long-distance bus transport companies, the Austria Tax Police and the State Police not only checked the concessions, price lists and receipts of the tour companies, but also searched the coach and passenger luggage with the assistance of the State Police, paying back taxes amounting to 1.8 million euros.
The author suggests that if a Chinese-funded enterprise investing in Austria receives a notice of inspection by the tax police, it should first understand the basic information and inspection content of the inspectors, and arrange special personnel to accompany the inspection throughout the process. At the same time, non-Austria employees need to be reminded to carry their residence card with them, and when asked about working hours, positions and responsibilities, employees should answer clearly and be consistent with the information provided by the company. If the tax police ask any questions other than those involving the employee himself, the employee can explain that he or she is subject to information protection restrictions, and the company will arrange a special person to answer the question in a unified manner. When an enterprise disagrees with the results of the inspection, it should provide relevant evidence and raise an objection to the tax police in person to request them to make corrections or supplements. If communication is still not possible, the company can indicate the reservation and write the relevant reasons when signing.
Tax audits: When to conduct is difficult to determine
In accordance with the relevant provisions of the Federal Finance Act of Austria, the tax authorities may at any time audit any matters related to taxation, including but not limited to VAT audits, audits of income-expenditure accounts, etc. This means that there is uncertainty as to when the tax authorities will conduct a tax audit. For example, in 2024, the Austria tax authorities "raided" the Danube Music Festival, a concert by a rock band at the Ernst · Happel Stadium, inspected around 450 catering staff and 175 cash registers in the gastronomic area, and paid more than 440,000 euros in back taxes.
In practice, although it is difficult to determine when the tax authorities will conduct tax audits, the author recommends that Chinese enterprises investing in Austria pay attention to and avoid situations that may easily trigger tax audits. Specifically, the situations that are easy to cause tax audits mainly include perennial losses but long-term losses, increased corporate assets but no increase in income, corporate profits are significantly lower than the industry average, the proportion of corporate cash income is too high, tax compliance problems occur in upstream and downstream enterprises, enterprises fail to file tax declarations on time or fail to file tax returns, changes in corporate shareholders, sales or relocation of enterprises, etc. In this regard, the author suggests that enterprises should carry out production and business activities in compliance with the law on the one hand, and avoid situations that are easy to trigger tax audits as much as possible; On the other hand, it is necessary to pay attention to the management and retention of tax information in daily tax management, so as to better cope with tax audits.
Payroll tax audit: Done jointly by multiple departments
In Austria, personal income tax on employment income is paid in the form of "payroll withholding tax", i.e. employers are required to calculate, deduct and pay personal income tax to the tax authorities. The statutory social insurance contributions to be borne by employees shall be deducted together with the deduction of individual income tax. There are many types of social insurance benefits in Austria, including medical insurance, accident insurance, pension insurance, unemployment insurance, bankruptcy insurance, housing provident fund and union dues. Austria has a special payroll tax audit.
In order to avoid the burden of multiple audits on enterprises, payroll tax audits are mainly completed by a joint working group set up by the tax bureau, the payroll tax audit bureau, the social security bureau and local governments. The results of the payroll tax audit will be communicated to different departments, and some issues may also give rise to other audit risks. For example, in 2023, when the Austrian tax authorities conducted an audit of eight Asian restaurants in the city of Innsbruck, criminal acts were found in three restaurants, including a 51-year-old Chinese chef who did not have a work permit and was not registered for social security, and was handed over to the police for detention and awaiting deportation.
The author understands that in 2023, about 1,402 enterprises investing in Austria were subject to payroll tax-related inspections, and 3,443 workers who were posted to work in Austria were inspected, triggering 399 criminal proceedings and fines of about 4.4 million euros due to problems such as low wages and failure to provide wage registration or wage documents. Based on this, the author recommends that Chinese companies investing in Austria, especially those engaged in hotels, catering and tourism, construction and construction auxiliary industries, which have been warned as high-risk, focus on Austria's Wage and Social Dumping Prevention Act.
Tax big data supervision: basically achieve full coverage of employment groups
In terms of tax big data supervision, the Competence Center for Predictive Analysis of the Federal Ministry of Finance of Austria is responsible for the identification of tax risks using big data and artificial intelligence, and the promotion of tax risks through real-time evaluation of tax-related data. According to statistics, in terms of payroll tax alone, Austria can achieve tax risk assessment of more than 6 million people within a year through tax big data supervision, accounting for about 67% of Austria's total population, and basically achieve full coverage of employment groups. Since 2022, Austria has collected up to 540 million euros in taxes through big data risk assessments.
Austria has many types of tax inspections, relatively strong big data supervision capabilities, and the big data it uses includes both internal and external data sources. Among them, the internal data sources mainly include the basic data stored in the Ministry of Finance, such as taxpayer registration data, tax assessment, declaration, customs declaration or vehicle data; External data sources mainly include industrial and commercial registers, land registers or trade registers.
At the same time, the Austrian tax authorities use their own mathematical models to detect tax data anomalies and thus lay the foundation for tax risk assessment. The author suggests that Chinese-funded enterprises investing in Austria should keep abreast of the requirements and latest developments of relevant tax laws and regulations in Austria, pay more attention to tax management, and do a good job in tax compliance management, so as to avoid abnormal reduction of sales data, abnormal increase in expenses, and significant reduction of tax burden, so as to reduce the risk of being subject to tax inspection.
Anti-avoidance investigations: Unreasonable tax arrangements are the focus
According to Austria's official information, in recent years, Austria tax auditors have paid great attention to the use of international tax rules and tax treaties by multinational enterprises, especially the use of extensive tax treaties and specific tax laws in countries such as United Kingdom, Luxembourg and Netherlands to carry out unreasonable tax arrangements to achieve the goal of reducing tax burden or even double non-taxation.
For example, United States Company A uses the "Luxembourg-Switzerland + United States" tax avoidance structure to transfer all its income from the European Union (including Austria) in the name of royalties. First, Company A transferred the franchise rights in Europe to its Luxembourg-registered subsidiary, Company B, which signed an agreement with the Luxembourg government for a tax rate as low as 1%. Thereafter, Company B set up a branch in Switzerland, Company B1, which was responsible for franchising in Europe and collecting franchise fees. At the same time, a subsidiary B2 company was established in the United States to hold the European franchise. According to the Luxembourg-Switzerland double taxation agreement, the B1 company, as a "permanent establishment" in Switzerland, pays income tax only on the part of its profits generated in Switzerland, and the royalties collected by the Luxembourg B1 company are not taxable in Luxembourg. After the B1 company transfers the franchise fees collected to the B2 company registered in the United States, under the Luxembourg-United States double tax agreement, the B2 company, as a "permanent establishment" in the United States, pays income tax only on its profits generated in the United States, and the franchise fees are not taxable in the United States. Through a series of arrangements, royalties originating in Europe (including Austria) are transferred back to the United States at a very low cost.
In order to prevent multinational companies from using such unreasonable arrangements to shift profits, Austria has enacted a transfer pricing law and a minimum tax reform bill at the end of 2023. At the same time, the European Union has also started a large-scale BEPS (Base Erosion and Profit Shifting) investigation, and many internationally renowned multinational companies such as Apple, Amazon, and Starbucks have been investigated and paid back taxes. Based on this, the author suggests that Chinese enterprises should pay attention to whether the establishment and operation of multinational institutions conform to reasonable business logic, especially whether there are tax avoidance motives in the process of cross-border operation. If a multinational organization has only a small number of employees, and there is a great mismatch between the employee's salary and salary and the company's revenue, it may affect the tax authority's determination of its economic substance, and if there is no economic substance, it may face anti-avoidance investigations.
Source: China Tax News; 12.07.2024; Edition: 08; Author: Luan Fuming; The author is a member of the Austria Visiting Group of the State Administration of Taxation and the Secretary-General of the Jilin Provincial Taxation Society. The content of this article is for general information purposes only and is not intended as formal auditor, accounting, tax or other advice, and we cannot guarantee that such information will remain accurate in the future. No person should act on the basis of the information contained herein without having due regard to the relevant circumstances and obtaining appropriate professional advice. The articles reproduced in this issue are for academic exchange purposes only. The original copyright of the article or material belongs to the original author or original copyright owner, and we respect copyright protection. If you have any questions, please contact us, thank you!