The European Commission does not allow Austria to postpone the implementation of the ATAD interest limitation rule into national law until 1 January 2024. Hence, it has to be implemented into Austrian law by 31 December 2018, as the existing Austrian interest limitation rules do not qualify as comparable measures to the ATAD interest limitation rule – contrary to the assumption of the Austrian Ministry of Finance.
Interest limitation rules
Article 4 of the EC-Anti-Tax Avoidance Directive (ATAD) requires the Member States to introduce interest limitation rules into national law.
The deductibility of interest is limited under the ATAD insofar as the net interest (i.e. interest expenses less interest income) exceeds 30% of the taxable EBITDA. It is up to the Member States to exercise various options provided in the ATAD; For example, a safe harbor rule for net interest of up to EUR 3m which shall always be tax deductible, exceeding borrowing costs that may be carried forward as well as various other exceptions (e.g. exclusion of standalone entities, grandfathering clause covering existing loans, funding for long-term public infrastructure projects). Alternatively, the interest deduction can be limited based on the equity ratio (i.e. escape clause).
Implementation into national law
In principle, implementation has to be completed by 31 December 2018. Member States, whereby existing comparable measures may delay the implementation of the interest limitation rules until 1 January 2024.
As the Austrian Ministry of Finance assumed that the national interest deduction limitations according to section 12 para 1 ref 10 CIT Act (10% taxation at the level of related-party lenders) would be comparable to the ATAD interest limitation rules no implementation provisions were provided in the Annual Tax Amendment Act 2018. However, the European Commission now refuses the extended implementation deadline until 1 January 2024.
The ATAD interest limitation rule has to be implemented into Austrian law by 31 December 2018. Failure to transpose within this deadline will enable the European Commission to initiate infringement proceedings.
Whether Austria succeeds in implementing the ATAD interest limitation rule into national law at such short notice remains to be seen. Moreover, it is unclear how the Austrian legislator will exercise the various options provided in the ATAD.
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