Category: Austria

After several extensions and long negotiations, the United Kingdom is now set to leave the European Union on 31 January 2020, after which a transitional period will commence until 31 December 2020. Trade between the EU and the UK will be impacted severely, most notably due to changes to harmonised indirect taxes, such as VAT. When EU law ceases to apply, which is currently projected to be after the transitional period, the UK will be treated as a third country instead of a Member State for VAT purposes. This article will provide a legal analysis of the consequences for VAT law.

VAT changes with regard to the supply of services

Business-to-business (B2B) transactions

Currently, reverse charge provisions are provided for to prevent third-country businesses from having to register for VAT purposes in every Member State where supplies of services are made. After Brexit, the system for services supplied by a business in the UK to an Austrian business remains the same, as the reverse charge system is also in place for businesses from third countries. However, the VAT Directive allows Member States to require the appointment of a tax representative for businesses from the UK providing services in the EU. Austria has made use of this option and requires third-country businesses to appoint a tax representative, unless there is an agreement on mutual administrative assistance with that third country. There is no such agreement in place with the UK at present. Consequently, UK business operators are required to appoint a tax representative.

No Austrian VAT will be due on the provision of services from an Austrian business to a business in the UK, as the taxable transaction will be located outside the EU. Nevertheless, one must take account of the sovereignty of the UK to determine the VAT consequences for these kinds of imported services. In particular, the issuer of invoices for B2B services taxable in the UK will have to observe additional UK regulations.

Business-to-consumer (B2C) transactions

From a practical point of view, the system remains the same after Brexit. Namely, when an Austrian business supplies services to a consumer located in the UK, Austrian VAT will remain due for that business, as the supply of services is to be located in Austria. However, when the supply of services is to be located in the UK (e.g. services connected to immoveable property located in the UK), no VAT is due, as the transaction is located outside the VAT zone. After Brexit, services supplied by a UK business to an Austrian consumer will be governed by UK tax law.

VAT changes with regard to the supply of goods

Business-to-business (B2B) transactions: imports into the EU

After Brexit, when the UK becomes a third country, the flows of goods to the EU will be treated as imported goods, which is also a taxable VAT operation. To qualify as imported goods, the goods must be located in the UK at the time of Brexit and be releasable for free circulation for customs purposes. VAT will only be due after these goods have been put into circulation in accordance with customs legislation. In principle, the importer of the goods will have to pay the VAT. However, the parties may agree that the supplier established in the UK will assume the VAT obligations. This means that the supplier will have to have a VAT number or a permanent representative in the country of the acquirer. In this case, a specific location rule for VAT purposes applies: if goods from the third country enter the European territory and the UK supplier owes the VAT, the goods will be deemed to be delivered in the importing country (i.e. in Austria).

While no recapitulative statements and Intrastat submissions must be made, both a VAT return (including import VAT and the corresponding input tax) and import (EU) and export (UK) declarations for customs purposes will have to be submitted. Additionally, if a non-resident supplier (EU or UK) makes a taxable supply in Austria, the recipient, if it is a corporation under public law or an ordinary business, must withhold the VAT and pay it for the foreign business supplier.

As the UK will now be considered a third country, several changes must be noted with regard to chargeability, the taxable amount and the refund procedure.

i. Businesses must be aware that VAT is due with regard to the import of such goods and therefore needs to be declared when the customs debt is incurred (i.e. at the time of customs declaration). Nevertheless, importers are allowed to include the import VAT in their periodical tax returns if: (i) the business is subject to VAT in Austria and the goods are imported for its enterprise, and (ii) the importer declares in the customs declaration that it makes use of this arrangement.

ii. Unlike intra-Community acquisitions, the taxable amount is not the consideration for the supply, but rather the customs value of the goods plus import duties, the cost of customs formalities and certain other costs. The taxable amount is thus higher than in the case of intra-Community acquisitions, as no import duties are to be levied in such a situation.

iii. When the UK leaves the EU, business operators who do business in the EU and wish to get a tax refund must now do so within a shorter period. The refund application must be submitted within six months of the end of the calendar year in which the right to the refund arose. This means a shortening of the application period by three months compared to the situation within the EU. Moreover, as there is no certainty with regard to the future of the UK’s VAT system, refunds by Austrian businesses should be made before the end of the transitional period, i.e. before 31 December 2020. Additionally, businesses operating in the UK applying for a tax refund must now do so directly in the Member State of refund instead of their own country, as this is only possible for businesses established in the EU.

Business-to-business (B2B) transactions: exports to the UK

Supplies of goods to third countries, such as the UK after Brexit, are exempt from VAT with deductibility of the input VAT for the Austrian supplier if the exporting business can prove that the goods have left the EU and that they were transported or dispatched by or on behalf of the vendor or a customer not established within the EU. The Austrian Financial Ministry has devised goodwill rules for the movement of goods around the time of Brexit. However, Austrian suppliers must take into account that when the UK becomes a third country, it will also regain its sovereignty over VAT and will be able to introduce a similar consumption tax, which may also become chargeable on exports to the UK. The UK already has adopted certain legislative measures amending the UK VAT Act to ensure that the VAT regime in the UK will continue to function properly.

Business-to-consumer (B2C) transactions

After Brexit, the supplies of goods from the UK to Austria will remain subject to VAT as imports. Nevertheless, in Austria, an exemption exists for certain goods whose value does not exceed EUR 22 and certain other products, such as a certain amount of tobacco or alcohol if imported in a traveller’s personal luggage. With regard to exports to the UK, certain exemptions also exist for the supply of goods related to goods carried in the luggage of non-resident British consumers. Furthermore, the special scheme for intra-Community acquisitions for farmers, for taxable persons not entitled to deduct input tax and for non-taxable legal persons is no longer usable by these persons. These transactions will now be taxed as imports regardless of the yearly imported value of the supplies.

Procedural and administrative changes

After Brexit, it will no longer be possible to determine the entrepreneurial status of the UK business partner by means of a VAT number. Moreover, businesses from the UK doing business in the EU are now obliged to appoint a tax representative, instead of it being voluntary, which increases the administrative burden and costs for UK businesses. Furthermore, even though changes to customs procedures are out of the scope of this article, it is important to emphasise that businesses which import or export goods from or to the UK must get accustomed to the procedures in the field of customs and customs controls.

Other changes 

In individual cases, further changes must be taken into account. For instance, (i) the MOSS regulation (regarding Mini-One-Stop-Shop) or TOMS regulation (regarding the tour operators margin scheme) would not be applicable for services delivered in the UK; (ii) so-called “catalogue services” (including consulting activities, advertisement, etc.) to consumers would now be taxable in the UK; (iii) the special rules for intra-Community carriage of goods and intra-Community in-flight supplies / restaurant services would no longer be applicable; and (iv) businesses will no longer be able to benefit from the simplified procedures for triangular situations.

Conclusion

As there will be many big changes with regard to the VAT treatment of transactions involving the UK, everybody in a business relationship with a UK nexus needs to be aware that these changes will also impact their situation.

By Tobias Hayden, Associate, and Rik Baete, Paralegal, Schoenherr

In a recent judgment, the Austrian Supreme Court found that the concept of the “single economic entity” (wirtschaftliche Einheit) may also apply to jointly controlled undertakings. The judgment entails an interesting discussion on the applicability of the antitrust group privilege in the relationship between a joint venture and its shareholders.

1  Background

The case at hand (OGH 6 Ob 105/19p) originates from a corporate lawsuit stemming from a shareholder resolution. The plaintiff, an Austrian food retail group, holds a 32 % stake in the defendant, an Austrian drugstore undertaking.

Pursuant to the defendant’s articles of association, a shareholders’ resolution on the annual investment plan requires a qualified majority for investments exceeding a rather moderate threshold, which from an antitrust perspective together with other factors confers joint control. On this basis, the plaintiff made use of its blocking rights for planned investments in 2018. Since the defendant refused to recognise the outcome, the plaintiff filed a declaration suit for judicial confirmation that the investment had not been approved. The defendant, however, argued that the plaintiff is a competitor from an antitrust point of view, meaning that its mere participation in the vote would constitute a breach of the cartel prohibition (Art. 101 TFEU).

2  Outcome

The first- and second-instance courts approved the action. The ruling was also upheld by the Supreme Court. While the ruling also features corporate law aspects, it discusses important antitrust principles regarding the single economic entity concept, also referred to as the antitrust group privilege. Generally, the cartel prohibition applies to independent undertakings. Under the concept of the single economic entity restrictive arrangements between a controlling and a controlled undertaking fall outside Art. 101 TFEU, as the subsidiary does not enjoy economic independence. This is rebuttably presumed and has been generally accepted by the ECJ in situations where a parent company holds 100 % (or close to 100 %) of the shares in a subsidiary.

In the case at hand, the Supreme Court further reasoned that the concept of the single economic entity may also apply in relation to a jointly controlled undertaking (“JV“). In other words: The merely “negative” nature of the control exercised by one parent company does not preclude in itself the finding of an economic entity. Therefore, a JV may form a single undertaking with each of its JV partners.

However, the judgment also clearly cautions. The concept of the single economic entity cannot be applied infinitely as regards JVs. The Supreme Court confined its reasoning to those aspects that are effectively encompassed from the joint decisive influence. Thus, the concept does not apply to such elements where the JV retains an independent sphere. For instance, in the case at hand the management could act independently from the plaintiff’s instructions in terms of its day-to-day business.

Ultimately, the antitrust arguments of the case were decided by a different logic: Pursuant to the judgment a JV partner’s exercise of rights regarding the JV (e.g. strategic investments) results from its jointly controlling stake and, in principle, is not subject to Art. 101 TFEU, since it represents an immanent element of the structural connection between the JV and its parent companies.

3  Comment

The sensitivity of this judgment requires it to be handled with care. On the one hand, the Supreme Court has clarified that the concept of the single economic entity also applies to jointly controlled undertakings (i.e. negative control might suffice to invoke the antitrust group privilege). On the other hand, it has established a clear limitation of its ruling to such aspects that effectively confer joint/negative control. In brief, certain other aspects, where the JV has sufficient autonomy from a JV partner, are still covered by Art. 101 TFEU. In this context, the reasoning cannot be construed abstractly in the sense that each link between a JV and a JV partner would fall outside Art. 101 TFEU.

Interestingly, the Austrian Federal Competition Authority (“FCA“; Bundeswettbewerbsbehörde) has recently published a well-drafted guidance paper on the applicability of the group privilege. The FCA takes the stance that the possibility of blocking decisions by the exercise of minority rights (negative control) would be insufficient for the group privilege to apply (at least in terms of the shareholders’ rights of instructions). The group privilege would rather require sole control in the sense that there is only one (controlling) parent company. It remains to be seen how the FCA will interpret the Supreme Court’s ruling.

In any event, the ruling strikes a new path. It has consistently been argued that if parent companies can be held liable for antitrust infringements of their JV (which is well-established by the case law of the ECJ), they also may benefit from the group privilege regarding their JVs. In the current decision, the Supreme Court, however, qualifies the autonomy of the management in the day-to-day business as an argument for the applicability of the cartel prohibition.

By Franz Urlesberger, Partner, and Johannes Frank, Associate, Schoenherr

Tourism in Austria is booming. The capital, Vienna, has reported a 9.9% increase of overnight stays, to 7.94 million, in the period from January to June 2019, a new record. Demand for common rental platforms, such as Airbnb, has increased even more. For several years now, Austria’s federal states, municipal administrations, legislators, and competitors (in particular the hotel industry) have been kept busy with the business model of commercial short-term rentals.

Airbnb was created in San Francisco in 2007, when – allegedly – all hotels were fully booked due to a design conference in the city. The three founders had the idea of inflating a couple of air mattresses in their flat and inviting potential guests on a website to “Airbed and Breakfast.” This business idea went around the world, and Airbnb now offers more than five million accommodations in 191 countries and 81,000 cities.

Austria’s Supreme Court first dealt with short-term rentals in residential buildings in 2011. Since then they have addressed the issue from various perspectives in several additional decisions. Austria aims to foster the protection of co-owners and co-tenants against commercial short-term rentals, which has far outgrown the occasional (sub)rental of private apartments to become a lucrative business model. Indeed, the majority of lessors listed on Airbnb offer considerably more than one apartment – in 2017, around 290 accommodations were offered by only ten lessors in Vienna.

Regarding residential property law, the Austrian Supreme Court ruled (in a 2014 decision), that the rental of a condominium via an online platform such as Airbnb constitutes a change in the designated use of the condominium, which – unless already covered in the condominium contract – requires the express consent of all other condominium owners in the building or complex. If the Airbnb lessor does not obtain this consent, the other condominium owners may be entitled to obtain an injunction against him or her.

As for apartments, where subletting is not excluded contractually and the lease agreement is subject to Austrian tenancy law, a tenant may sublet his or her apartment. In a recent decision from 2018, however, the Austrian Supreme Court ruled that a lease agreement may be terminated by the lessor for cause if the tenant sublets his or her apartment at a price significantly higher than the rent (based on short-term comparison).

Some Austrian city administrations have also taken action: In 2018, the Viennese state parliament amended the Viennese building regulations to stipulate that short-term rentals may only be made outside of “residential zones” – areas self-designated by local authorities to preserve urban structure, urban development, and diversity, as well as (permanent) urban living space. Living space, particularly in inner-city areas, shall be preserved for the general public and shall not be permanently withdrawn through lucrative short-term rentals.

Last but not least, the Austrian Administrative Court has confirmed that Austrian trade law applies to Airbnb lessors – especially if they explicitly address tourists on the platform. Where more than ten guest beds are offered or services such as cleaning or the supply of laundry are provided in addition to the mere renting of dwellings, the trade regulations apply, and thus various trade or operating permits may be required in order to meet the protection requirements of guests (e.g., fire protection, escape routes). Airbnb providers must also pay all applicable local taxes – in Vienna, for example, local taxes amount to 3.2% of the assessment basis per person and accommodation. In accordance with the Vienna Tourism Promotion Act, operators of online platforms have also been obliged to transmit the relevant data in Vienna since 2017. We expect that other municipalities in Austria will follow this example. 

All trends in Austria point towards stronger regulation of short-term rentals. This will likely satisfy competitors in the hotel industry, who are at a considerable competitive disadvantage. It will also satisfy co-owners and co-tenants, who suffer from inappropriate noise, pollution, and damage caused by short-term tenants. It remains to be seen how the Airbnb business model will evolve in the future under increasingly stringent conditions.

By Arabella Eichinger, Partner, Schoenherr 

This Article was originally published in Issue 6.11 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Austria’s Binder Groesswang has announced what it calls “a realignment of its management structure,” resulting in what it describes as “a streamlined management.”

As of February 1, the firm reports, it will for the first time have a 5-member management board that will assume all management tasks of the law firm. Company law specialist Andreas Hable was named Managing Partner and spokesman for the board.

“The changes that we are making with a tight management team will increase our ability to innovate,” said Hable. “What is new is the overall appearance of our firm and our slogan ‘Straight Answers for Better Decisions,’ which reflects what clients can expect from us.”

In addition to Hable, Partners Stefan Tiefenthaler, Florian Khol, Stefan Albiez, and Markus Uitz are on the board, which was elected for two years.

Wolf Theiss and White & Case have advised ABN Amro, Deutsche Bank, DZ Bank AG, RBI, and UniCredit, as joint lead managers on UniCredit Bank Austria AG’s successful January 21, 2020 placement of a benchmark EUR 500 million issuance of mortgage securities.

According to Wolf Theiss, “UniCredit Bank Austria AG has issued a benchmark issue of mortgage Pfandbriefe in the amount of EUR 500 million under its EUR 40 billion Medium Term Note Program. The bond has a term of 10 years and five months and a coupon of 0.25% per annum. The denomination of the bond is EUR 100,000. The bond was rated Aaa by Moody’s and is listed on the Official Market of the Vienna Stock Exchange.”

The Wolf Theiss team included Partner Claus Schneider, Counsel Eva Stadler, and Senior Associate Nikolaus Dinhof. 

The White & Case team advising the banks on German law included Partner Jochen Artzinger-Bolten and Associate Florian Fraunhofer.

Wolf Theiss did not reply to our inquiry on the matter.

Wolf Theiss has advised Erste Group Bank AG on the issue of EUR 500 million of Additional Tier 1 Notes and on the issue of EUR 750 million Mortgage Pfandbriefe. Linklaters and Rautner Rechtsanwalte advised the lead managers (HSBS, BofA Securities, Morgan Stanley, and Societe Generale) on the Tier 1 note issuance. Weber & Co advised the banks (Banca IMI, Danske Bank, DekaBank, DZ BANK, Erste Group (in its capacity as Manager) and LBBW) on the Mortgage Pfandbriefe.

According to Wolf Theiss, “the Additional Tier 1 Notes rated BBB- by Standard & Poor’s have no fixed due date and were placed with institutional investors with a coupon of 3.375% per annum. The Additional Tier 1 Notes are intended to further strengthen Erste Group Bank AG’s capital base and are listed in official trading on the Vienna Stock Exchange. The signing took place on January 23, 2020, the closing on January 27, 2020.”

According to Weber & Co., the EUR 750 million Mortgage Pfandbriefe “were issued on 15 January 2020 under Erste Group Bank AG’s Covered Bonds Programme. They have a maturity until 2030 and a denomination of EUR 100,000 each and are listed on the Official Market of the Vienna Stock Exchange. The transaction is the first issue of Mortgage Pfandbriefe in Austria in 2020.”

Wolf Theiss’s team included Partner Claus Schneider, Counsel Eva Stadler, Senior Associate Nikolaus Dinhof, and Associate Sebastian Prakljacic.

Linklaters’ team included Partner Peter Waltz, Managing Associate Martin Rojahn, and Associate Rowina Ullner.

Rautner’s team included Partner Walter Gapp and Managing Associate Rene Semmelweis.

Weber & Co.’s team included Partner Christoph Moser and Associate Angelika Fischer.

Brandl & Talos has advised founders Simon Falkensteiner and Matthias Trenkwalder and investors including aws Gruenderfonds, Falkensteiner Ventures, and Nextfloor Ventures on the sale of RateBoard, a developer of a revenue management software for the hotel industry, to Zucchetti, an Italian software developer in the field of hospitality and restaurant industry.

Brandl & Talos’s team included Partner Roman Rericha and Associates Stephan Strass and Matea Plavotic.

Editor’s note: After this article was published CEE Legal Matters learned that Zuchetti had been advised by BC& Studio di Consulenza Societaria Tributaria Legale and Solo Practitioner Mario Perl. The BC& Studio di Consulenza Societaria Tributaria Legale team was led by Junior Partner Daniele Crosti.

Schoenherr has helped UniCredit Bank establish its Social Impact Banking initiative in Austria.

According to Schoenherr, “through Social Impact Banking, UniCredit aims to identify, finance and promote people and enterprises by looking beyond economic returns in investments.”

“We are proud to have advised UniCredit Bank Austria on the establishment of this great initiative in Austria, which will have a tangible social effect,” said Vienna Partner Stefan Kuhteubl.

The Schoenherr team included Partners Stefan Kuhteubl, Robert Bachner, Bernd Rajal, Ursula Rath, and Wolfgang Tichy, Attorneys Teresa Waidmann, Marco Thorbauer, Dominik Hofmarcher, and Manuel Ritt-Huemer, and Associates Alexander Gruber, Leon Scheicher, Tobias Hayden, and Nina Zafoschnig.

Weber & Co. has advised DekaBank Deutsche Girozentrale, DZ Bank, Erste Group, RBI, and UniCredit as joint lead managers on the successful issuance of mortgage covered bank bonds by Raiffeisenlandesbank Oberosterreich AG. Wolf Theiss advised Raiffeisenlandesbank Oberosterreich on the issuance.

The EUR 500 Million 0.50 percent fixed rate mortgage covered bank bonds were issued under Raiffeisenlandesbank Oberosterreich AG’s Debt Issuance Programme. The bonds, which have a maturity date of 2035 and are denominated at EUR 100,000 each, are listed on the Official Market of the Vienna Stock Exchange.

Weber & Co.’s team consisted of Partner Christoph Moser and Associate Angelika Fischer.

Wolf Theiss’s team included Partner Alexander Haas, Senior Associate Nikolaus Dinhof, and Associates Andreea Stoica and Sebastian Prakljacic.

The Austrian Financial Market Authority (FMA) recently published a circular to provide more clarity regarding the application of the “limited network” exemption for payment services under the Payment Service Directive 2 (PSD2).

The FMA also clarifies that service providers whose total payment volume exceeded EUR 1m in the past 12 months are to notify the FMA by 31 March 2020 at the latest, otherwise administrative penalties may be imposed.

Companies that rely on the limited network exemption (e.g. issuers of fuel cards, shopping centre cards, payment instruments for online games or films, etc.) and regularly process larger payment volumes should therefore submit a corresponding notification to the FMA in due course.

PSD2 and its exemptions

The PSD2 is changing the European payment market. Many amendments were introduced in the context of a highly modernised payment infrastructure and changing payment behaviour of payment service users, the scope of which was not efficiently regulated by the previous Directive (PSD1) anymore. In Austria, PSD2 was implemented by the Payment Services Act 2018 (Zahlungsdienstegesetz 2018 – ZaDiG 2018) and entered into force on 1 June 2018.

In addition to regulating the new services that evolved as a result of continuous technical developments (such as payment initiation services and account information services) or introducing new security standards for payments (strong customer authentication), the PSD2 also amended (and narrowed) the exemptions to regulated payment services that lawmakers believed had previously been applied too extensively. The exemptions are essential to many service providers, as much of their business is often based on the processing of payments that are exempted from the regulation.

In Austria, the exemptions are set out in Section 3 (3) nos. 1 to 15 ZaDiG 2018 and limit the scope of PSD2/ZaDiG 2018 to the extent that a licence for providing payment services is not required as long as service providers comply with the requirements of the exemptions.

Limited network exemption

An important exemption to the payment services requiring a licence is the so-called limited networks exemption (Section 3 (3) no. 11 ZaDiG 2018).

Payments conducted with payment instruments that are only used within a limited scope should not be subject to the strict regulation (and licence requirement) of the PSD2.

The exact scope of the limited networks exemption was somewhat ambiguous, because no regulatory guidance by the FMA or the European Banking Authority (EBA) has been published so far.

Where previously only the PSD2 (especially recitals 13 and 14) could be used as guidance, the new FMA Circular (dated 21 January 2020) now provides for more clarity, both as regards the scope of the relevant exemptions as well as the deadlines for notifications to the FMA.

As regards limited networks exemptions, four alternatives are relevant:

1. Shop card (no. 11 lit a first alternative)

A shop card is an instrument which allows its holder to purchase goods or services only within the business premises (or webshop) of a single issuer.

The instrument may only be used vis-à-vis the specific issuer, i.e. the issuer and the acceptor are the same entities. However, this can extend to several shops of the same issuer. The exemption does not require the shop card to be geographically limited (cross-border use is possible) or accepted only for a limited product range, provided the card is valid only for shops of the single acceptor.

Independent companies within one and the same department store (or shop) are also considered business premises of the issuer. The exemption thus also covers shop-in-shop solutions for which a department store operator provides a shop card (“everything under one roof”). In contrast, structurally separated areas within a building complex or separate sales shops within an overall shopping area are no longer covered (e.g. a shopping centre or an outlet village; however, these are usually covered by the second alternative of the exemption – see below). The exemption is not met if the business card is equipped with a credit card function.

2. Limited network (no. 11 lit a second alternative)

An instrument which allows for goods and services to be purchased with a limited range of service providers under a commercial agreement with a professional issuer operates within a limited network. An instrument may be used in only one such limited network; otherwise it would not be covered by the exemption.

An issuer is considered professional if it creates all the entrepreneurial and technical prerequisites for the proper processing of payments and, where applicable, properly manages any prepaid amounts. The circular clarifies that the issuer may also accept the payment instrument itself, i.e. act as an acceptor. The person of the issuer does not necessarily have to be different from the acceptor.

An example is a fuel card issued by a network of shops or petrol stations, an individual shopping centre or a franchise association. The FMA clarifies that the mode of operation is irrelevant, e.g. both own shops and shops within the same corporate group or franchise fall within the scope of the exemption. The decisive factor is whether the various acceptors have a common market presence based on a single payment brand.

Other examples are instruments for the purchase of goods and services in/by:

• holiday resorts;
• stadiums and festivals;
• a single outlet village (but not across multiple outlets);
• a single shopping centre (but not across multiple centres); or
• a university.

As is the case with shop cards, no product or geographical limitation is required for the application of the limited network exemption. The exemption can be applied both in Austria and cross-border.

The circular makes it clear that webshops that operate according to the principles outlined above are also covered by the exemption.

Open networks or continuously growing networks whose underlying terms do not provide for its size to be limited are not covered by the exemption.

3. Limited range (no. 11 lit b)

This exemption covers instruments that only entitle its holder to purchase a very limited range of goods and services.

The exemption is much narrower than under PSD1, which has led to ambiguity in its application.

The amended exemption is only available if a close functional connection between a defined number of goods and services exists, whereas a geographical limitation is not required (the same rationale applies to webshops). In its circular, the FMA focuses on the purpose of the payment instrument. For the exemption to be applicable, it is therefore not required to limit the (total) number/quantity of goods and services, but to establish a very limited typological range of closely related goods and services.

The principle can be easily understood using the example of fuel cards. The exemption would cover “anything used for the moving and using of a motor vehicle“, such as fuels and lubricants, additional products (Add Blue, windscreen wiper fluid, etc.), accessories (ice scrapers, windscreen wipers, etc.), vehicle washing or cleaning, repairs, tolls and parking fees. Food or drinks for the driver, however, would not be covered by the exemption (as this does not concern the vehicle but the driver).

If the application is restricted to a very limited range of goods and services, the payment instrument can be used, for example, across several chains of service stations (e.g. fuel cards that can be used not only with one petrol station brand but with different petrol stations operated by different operators). By restricting the range of goods and services, it is therefore possible – in contrast to no. 11 lit a second alternative – to extend the range of acceptance even across several chains/trademarks. Pursuant to the FMA, other examples encompassed by this exemption are:

• Transport cards in public transportation (“Everything concerning travelling“);
• Instruments for the purchase of goods or services relating to or serving a person’s fitness (fitness centre cards with payment function for additional products such as drinks and sports food, sportswear, training accessories, massages, individual training, etc.);
• Instruments for the acquisition or streaming of films, sporting events, music and computer games;
• Instruments for the purchase of cinema tickets, including food and drinks offered on the premises; or
• Instruments for the purchase of parking services and other related services (e.g. charging electric vehicles).

4. Social or tax purposes (no. 11 lit. c)

This alternative of the exemption aims at covering payment instruments whose use is closely linked to specific social or fiscal objectives and which are subject to a specific set of specific (labour or fiscal) legal provisions. Examples are cards for the payment of food and drink in social institutions or occupational health care measures.

Obligation to notify the FMA – first notification by 31 March 2020

A service provider that would like to apply the exemption set out in Section 3 para. 3 no. 11 lit a or b ZaDiG 2018 (i.e. shop card, limited network, limited range) must notify the FMA as soon as the total value of payment transactions of the preceding 12 months exceeds the EUR 1m threshold. Payment transactions to be included within this limit encompass inter alia provision of funds, transfers or withdrawals.

The service provider needs to inform the regulator about the specific alternative of the exemption it wishes to make use of (no. 11 lit a or b) and describe the services it offers. The service provider may only rely on one specific alternative of the exemption.

In its circular, the FMA specifies the treatment of payment instruments that enable cross-border use. The domicile of the issuing entity is the relevant connection factor in relation to the notification requirement and calculation of the threshold amount:

• All payments that were processed using payment instruments issued by this entity must be added together (and not be split up by country).
• If the threshold of EUR 1m is exceeded, the notification must be submitted to the FMA (if the entity is domiciled in Austria), and not to all regulators of every country where the instruments is used.

This means (at least from an Austrian perspective) that only one notification is required upon making use of the limited network exemption, i.e. in the country of domicile of the entity issuing the payment instrument.

In the draft circular, the FMA also clarifies for the first time that the notification must be made within three months after the date on which the threshold value of EUR 1m was exceeded for the first time.

Entities that can reasonably expect the threshold value to be exceeded are obliged to monitor the current total value of the processed payments at the end of each month. This should be implemented as part of their internal control system. The FMA assumes that the first day on which the conditions for a notification could have been met was 1 January 2020 and grants a period until 31 March 2020 for entities to submit the required notification and information.

A violation of the obligation to notify the regulator constitutes an administrative offence punishable by the FMA with a fine of up to EUR 30,000. If a notification is duly filed but the FMA determines that the requirements for relying on the exemption are not met, i.e. the service provider has in fact provided payment services requiring a licence, a fine of up to EUR 50,000 may be imposed.

Preparation of a notification to the FMA

The proper notification and documentation that the payment services provided are covered by an available exemption requires careful and diligent preparation. Entities subject to the obligation of notifying the FMA may retain external legal advisors.

We would be happy to assist you in assessing whether the PSD2 exemptions (still) apply to you and in any necessary notification to the authorities in case your transaction volume exceeds EUR 1m. You may also consult us about any other open questions on this matter.

By Henri Bellando, Associate, and Matthias Pressler, Attorney at Law, Schoenherr