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The rules of the Minimum Taxation Act (“MinBestG”), which came into force on 31 December 2023, lead to an enormous administrative burden. For this reason, it should be possible to avoid a full calculation in the initial phase by taking advantage of safe harbour rules which are based on a simplified calculation. The data used for these CbCR Safe Harbour calculations are therefore essential and must meet certain requirements.
In this regard, a decree to the Transitional CbCR Safe Harbours (referred to as CbCR-Safe-Harbour-V) was published on 5 December 2024. The aim is to specify in more detail the prerequisites for the qualified financial statements and the qualified country-by-country report required by Art. 55 (3) MinBestG for the calculation of the Transitional CbCR Safe Harbour Tests. In this regard, the Austrian tax authorities follow the framework set by the OECD, see our Tax & Legal News article.
To be considered as “qualified”, the country-by-country report (“CbCR”) must on the one hand meet the requirements for the preparation of a country-by-country report. In this regard, the CbCR rules in the tax jurisdiction of the ultimate parent entity respectively in the tax jurisdiction of the surrogate parent entity are relevant. On the other hand, the CbCR must be prepared on the basis of qualified financial statements.
The assessment of whether these conditions are met is carried out separately for each safe harbour tax jurisdiction. A separate assessment must be made for each individual joint venture group correspondingly.
Whether the financial statements used can be considered as “qualified” depends, in essence, on the data sources used. For the purposes of qualified financial statements, three data sources can be
considered:
There is a special regulation for permanent establishments, as these usually do not prepare their own reporting packages or annual financial statements. In this case, the amount of revenue and profit before tax attributable to a permanent establishment can be determined based on the profit allocation between the main entity and the permanent establishment. Documents that have been prepared for the purposes of financial reporting, for supervisory purposes, for tax reporting or internal management control can be used for such profit allocation. A loss allocated to the permanent establishment may not reduce the profit before tax of the tax jurisdiction of the main entity.
An additional requirement for the qualified financial statements is that the accounting data used for the simplified calculation in accordance with Art. 5 of the CbCR-Safe-Harbour-V must be based on a uniform data basis for a constituent entity and for all constituent entities in a tax jurisdiction (except for constituent entities excluded on the grounds of size or materiality and permanent establishments). The uniform use of data must also be maintained for all financial years.
Furthermore, it should be noted that the accounting data used for the simplified calculation of the CbCR Safe Harbour tests may in principle no longer be adapted or changed. Only the adjustments explicitly required (e.g. in connection with PPA adjustments and hybrid arrangements) may respectively must be taken into account.
The financial statements of a constituent entity may include pushed-down adjustments from the application of the purchase price accounting method in the case of a business combination. However, to obtain the required “qualification”, adjustments of the financial data with regard to these “PPA effects” may be required. The extent to which an adjustment is necessary depends on the prior-year presentation in the country-by-country report in the sense of consistent reporting and must be examined on a case-by-case basis.
The CbCR-Safe-Harbour-V also contains special provisions for hybrid mismatches. These are arrangements agreed after 15 December 2022 which lead:
(i) to a deduction of expenses without corresponding inclusion of income,
(ii) to a double deduction of expenses without double inclusion of income, or
(iii) to a double consideration of a tax expense without double inclusion of the corresponding taxable income.
The extent to which an adjustment for the calculation of the CbCR Safe Harbour tests has to be made must be examined on a case-by-case basis respectively depending on the hybrid mismatch.
With the CbCR-Safe-Harbour-V the Austrian tax authorities follow the requirements developed by the OECD for a qualified CbCR and qualified financial statements. It shows that the leeway that companies were able to use for the data sources of the CbCR so far cannot be further utilized for the purposes of the CbCR Safe Harbours under Pillar Two. The requirements to the data quality for the purposes of the Transitional CbCR Safe Harbour calculations are much higher than the requirements for the purposes of the CbCR. It is therefore advisable that companies evaluate their existing CbCR processes and adapt them in such a way that the quality of the data used for the calculation and especially for the CbCR is sufficient to be classified as “qualified”.