In early April 2019, the Austrian Federal Government published a draft of the Digital Tax Act 2020 which is currently under review. The main goal of the new law is to achieve "fair taxation" by taxing online advertising services that are provided by large groups of companies in Austria.
Why is a Digital Services Tax necessary in Austria?
Currently, only conventional advertising (e.g. in print media, radio or television) is subject to an advertising tax in Austria pursuant to the Advertising Tax Act. In order to consider technological developments and the ongoing digitalisation process, the Digital Services Tax ("DST") is now intended to cover online advertising. The European Commission proposed an EU directive on a digital services tax regarding certain digital services back in March 2018, but the EU Member States have so far failed to reach consensus. Therefore, some Member States (e.g. France) plan to introduce such a tax on a national level. In Austria, the DST is supposed to be introduced as of 1 January 2020.
What is subject to DST?
As of 2020, online advertising services rendered against consideration by companies exceeding certain annual revenue thresholds will be subject to a flat tax of 5 % of the consideration received by the person providing such services. Notably, the Austrian tax rate is higher than the 3 % rate proposed at the EU level. Examples for covered online advertising services include advertisements that are displayed in search engine results or banners on a website.
However, "comparable" online advertising services also will be subject to DST. Exactly which services are covered by this term may be determined by a separate regulation by the Austrian Minister of Finance. Such services could include advertising videos that are displayed before, during or after an online video stream.
Who is subject to DST?
DST covers both the companies providing and contributing to such services. To become subject to DST, such companies must cumulatively meet the following two revenue thresholds within one financial year:
- worldwide revenues of at least EUR 750m and
- revenues in Austria of at least EUR 25m.
The last published annual financial statements are used to assess whether both thresholds have been met.
What constitutes an online advertising service rendered in Austria?
Only domestic services will be subject to DST. An online advertising service is deemed to be provided in Austria if:
- it is displayed on a user's device with an Austrian IP address and
- the content of the advertisement is (also) addressed to domestic users.
The IP address requirement means there is no sufficient Austrian nexus if the user is logged on to the internet via a Wi-Fi network outside Austria. As regards the content requirement, a distinction may be made between individualised (i.e. tailored to an individual user) online advertisements and advertisements of a general nature (i.e. banner advertisements).
Individualised advertisements will in most cases be (also) addressed to users in Austria. Generally, the same applies to banner advertisements on an Austrian website. However, banner advertisements on a foreign website should not be regarded as being (also) addressed to Austrian users and should therefore not be subject to DST.
How is DST levied?
The person rendering online advertising services in Austria against consideration is liable to pay DST (tax debtor). If another person contributes to such services, this person is liable for the DST to the extent of the contribution. The tax debtor is obliged to calculate the DST and to pay it to the competent tax office by the 15th day of the second month following the month in which the DST liability arose.
In addition, the tax debtor must file an annual tax return three months after the end of the financial year. The tax debtor is obliged to always keep records of all services that are subject to DST and of the respective basis for calculating the tax.
Concerns about the proposed DST
The draft DST act stipulates that advertising services providers must store the activities of users identified by their assigned IP addresses for seven years to allow the tax authorities to assess whether DST was calculated correctly. This gives rise to significant constitutional and privacy concerns. Moreover, the revenue thresholds are aimed at (mainly US-based) major IT companies, which Austrian companies are unlikely to exceed. This de facto exemption of Austrian companies from DST may also violate EU law.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.