GAAP treatment of declining balance depreciation

Recently, Austria introduced the declining balance method for the depreciation for tax purposes for a variety of (new) assets in order to facilitate investment and help tax payers with cash management during the COVID-19-crisis. The declining balance rate may be up to 30% per year, i.e. after three years 66% of the acquisition costs of the respective asset are depreciated. Consequently, this depreciation method is problematic from an Austrian GAAP perspective since it does not lead to a true and fair view. Due to the Austrian authoritative principle (“Maßgeblichkeitsprinzip”) according to which the GAAP accounts are also binding for tax purposes unless the tax law stipulates contradicting rules, it was discussed insofar the declining balance method needs to be applied in the financial accounts in order for the respective tax payer to benefit from the declining balance method also for tax purposes. Recently, the Austrian Ministry of Finance confirmed that for acquisitions until Dec 31, 2021 the declining balance method may be applied for tax purposes irrespective of the GAAP-treatment (i.e. no authoritative principle applies). Furthermore, it is also intended to make a respective change in the law. 

Verena Trenkwalder / Christoph Plott / Markus Vaishor

Tax Deadline September 30, 2020 to apply for a reduction of preliminary tax payments 2020 and to avoid interest on additional tax payments for 2019

The deadline to apply for a reduction of preliminary tax payments for 2020 ends at September 30, 2019. Furthermore, interest (1,38 %) will be charged on additional tax payments for the financial year 2019 beginning with Oct 1, 2020 (for a maximum period of 48 months).

The application for a refund of input VAT from other EU-countries of the year 2019 has to be filed until September 30, 2020 to the Austrian tax office. Thus, we recommend a review of the current Austrian tax situation.

Ferdinand Kleemann / Florian Popl

Era of negative interest rates – tax consequences for groups of companies

Recently, a number of banks started to charge negative interest to their (business) customers. From an Austrian Corporate Income Tax perspective, we take the view that negative interest should be fully tax-deductible for the respective corporate taxpayer. From a transfer pricing perspective, however, adherence to the arm’s length-principle when calculating negative interest is crucial to ensure tax-deductibility but also compliance with Commercial Law-requirements.

Bettina Matzka

Austrian Administrative Supreme Court on recognition of provisions for impending losses 

In a recent decision, the Austrian Administrative Supreme Court had to decide whether a provision for impending losses relating to hedging transactions (long-term interest swap) may be recognized for tax purposes. The court ruled that the recognition of a provision for impending losses is not permissible under Austrian tax law if the anticipated loss equals the expected loss at the time of the conclusion of the hedging instrument.

Markus Vaishor / Armin Lunzer

Austria Administrative Supreme Court on interest deduction in case of a “two-step” acquisition of a group

In general, an Austrian company may deduct interest expenses related to the acquisition of shares in another company unless the shares were acquired from a related party. In the present case, an acquisition of a group was done in a way that the Austrian companies were acquired first and then in a second step the remaining group companies in order to form an Austrian tax group, claim interest deduction (and goodwill deduction, only applicable for acquisitions acquired prior to 1 March 2014) for the acquired participation. The tax authorities took the view that no deductions were possible assuming that from an economic perspective the whole group was acquired first and the acquisition of the Austrian companies was therefore post-acquisition restructuring not leading to interest deduction. However, the Austrian Administrative Supreme Court decided that debt interest deduction (as well as goodwill deduction) is permissible in such case of a “two-step” acquisition of a group because the participation was not acquired from a related company.

Ferdinand Kleemann / Armin Lunzer

Austrian Federal Finance Court on the resolution to discontinue the dissolution of a company

The Austrian Federal Finance Court recently decided that the special liquidation taxation regime applicable for the liquidation of corporations can also be applied for a taxation period in which the corporation was dissolved and actually liquidated if the liquidation is later on revoked. Moreover, the court decided that the liquidation period only commences in the financial year in which a dissolved company has factually started the liquidation.

Markus Vaishor / Armin Lunzer

Deduction of input tax from the construction of a building for rent to a bank as an abusive arrangement?

In its ruling of 15 May 2020 (Ra 2018/15/0113-9), the Austrian Administrative Supreme Court cancelled the challenged decision on the grounds of unlawfullness as a result of violation of procedural rules. The Austrian Federal Finance Court had to decide on the deduction of input tax from construction costs, but no findings were made as to whether there could be an abusive arrangement and no findings as to the extent to which a VAT grouping with which companies could exist. 

Esther Freitag

Tax treatment of social plan payments in the form of voluntary severance payments

According to a recent decision of the Austrian Federal Finance Court the provision providing for the non-deductibility of business expenses in respect of Golden Handshakes also applies to voluntary severance payments that are granted due to social plans. Such payments are only deductible in so far as they are taxed at the wage tax rate of 6% according to Art 67 sec 6 Austrian Income Tax Act. Furthermore, according to the Austrian Federal Finance Court, voluntary severance payments that are granted to employees who are subject to the new severance payment system, are always fully subject to the deduction prohibition. An appeal against this decision of was made, so that the final decision regarding these aspects rests with the Austrian Administrative Supreme Court.

Katharina Daxkobler 

Recently introduced new tax rules relevant for payroll 

Due to recent changes to Austrian tax law, the minimum marginal tax rate for personal income tax is reduced from 25% to 20% with effect for the calendar year 2020, which also has to be considered (retroactively) in payroll. Furthermore, in order to avoid disadvantages in respect of the taxation of “special payments”, the “annual sixth” in the calendar year 2020 is increased by 15 percent for employees who are affected by short-time work. Moreover, bonus payments in respect of COVID 19 that are exempt from wage tax and social security contributions are also exempt from additional employer taxes.

As part of the so-called “Pub-Package” combating the impact of COVID-19, the tax-free allowances for meal vouchers granted by the employer were raised, in the hope of additional value creation effects, above all for the gastronomic sector. Additionally, according to an information of the tax administration, administrative reliefs in respect of the handling of the consummation of the meal vouchers shall be introduced.

Katharina Daxkobler

Recent news on COVID 19 short time work 

The calculation modalities for the short-time work subsidy was essentially changed on the basis of the new version of the Federal Guideline by the Labor Market Service (AMS). During phase 2 of the short-time work (new applications since June 1, 2020. and prolongation applications) only the additional expenditures of the employer that are caused by the remuneration and contribution basis – guarantee are compensated. The amount of the short time-work subsidy for phase 1 (first application until May 31, 2020), that were calculated by flat rates per lost working hour, remains unaffected.

Furthermore, a new short time work- model for the period starting with October 2020 that was negotiated between the social partners was approved by the government on July 29, 2020. 

Katharina Daxkobler

Special rules regarding the payment of social security contributions in the face of Covid 19

In the “2^nd Social Security-Deferment Package” it is determined that social security contributions for February until April 2020 that have been deferred without interest have to be paid on the 15^th of January at the latest; furthermore, it is possible to apply for an interest-free payment of these contributions in instalments, starting with February 2021, insofar as liquidity problems due to Covid19 can be credibly demonstrated. For the contributions for May until December 2020 it is possible to apply for deferments of up to three months and until December 2021 for payments by instalments. Social security contributions that are subsidized by way of short time work, risk leave of absence respectively quarantine measures ordered by the authorities, are excluded from these payment facilities. These social security contributions have to be paid until the 15^th of the second month following the granting of the subsidy. 

Katharina Daxkobler

Information on the third and fourth settlement of the Occupation Bonus (“Beschäftigungsbonus”) in the face of Covid19

Starting with their individual settlement date, employers that have concluded a grant agreement for the occupation bonus can make an annual settlement with the Austrian Wirtschaftsservice GmbH (aws). The filing deadline starting with the individual settlement date was extended to six months for all applicants due to Covid19. In order to avoid double subsidies in the case of subsidized person having been or being on short-time work, the employer contributions that can be subsidized by the occupation bonus are to be reduced by 23% of the received short time work subsidy. Depending on the entry date of the subsidized person, a last (fourth) trunk-settlement period will follow the third settlement period – the extension of the filing deadline by six months is also applicable on this last settlement period.

Katharina Daxkobler

Depreciation of buildings: Criteria for expert’s opinion substantiating shorter useful life of a building

The Austrian Income Tax Act provides for statutory depreciation rates for buildings (2.5% or 1.5% depending on the type of building and the tax payer). Nevertheless, it is possible to substantiate a shorter useful life than the statutory one by way of an expert’s opinion. However, according to recent jurisdiction, such expert’s opinion needs to meet certain criteria such as remarks on the condition of the building, static problems, bad construction etc. Energy efficiency is not viewed as a viable criterion. 

Markus Vaishor / Florian Popl

Austrian Administrative Supreme Court on capital gains taxation of real property after rezoning

Capital gains from the sale of real property derived by individuals as from April 1, 2012 are subject to tax with a flat tax rate of 25 % (April 1, 2012 – December 31, 2015) or 30 % (January 1, 2016 – present). The tax base is in general the sales price minus acquisition costs. If the real property was acquired before April 1, 2002, the tax base has to be calculated on a lump sum basis, i.e. the tax base is 14% of the sales price. In case of a rezoning (“Umwidmung”) in construction land after the acquisition, the tax base is 60% of the sales price. The higher tax base applies to rezonings after Dec 31, 1987 as well as to rezonings which are economically and temporally connected to the sale. The Austrian Administrative Supreme Court recently decided in a case, in which the respective real property was rezoned 20 months after the sale. As the purchase price was in line with prices for construction land at the time of the sale, the Administrative Supreme Court confirmed the assessment of the Austrian Tax Authorities and stated, that in the case at hand the higher tax base (i.e. 60% of the sales price) is applicable. Please note that due to an amendment of the respective provision in the Austrian Income Tax Act (Art 30 sec 4 subsec 1 ITA) the requirement in terms of the temporal connection between the sale and the rededication was replaced by a fixed time limit of 5 years.  

Markus Vaishor / Katrin Postlmayr

Capital gains from the sale of real property derived by individuals: Austrian Federal Finance Court rules on exemptions

Capital gains from the sale of real property derived by individuals as from April 1, 2012 are subject to tax with a flat tax rate of 25 % (April 1, 2012 – December 31, 2015) or 30 % (January 1, 2016 – present). These capital gains are exempt, if the property

• had been the seller’s principal home

o    either continuously from the acquisition to the sale (for at least 2 years), or

o    for at least 5 years during the 10 years preceding the sale.

• was self-constructed by the seller.

Recently, the Austrian Federal Finance Court dealt with two cases dealing with the above-mentioned cases.

In the first case the Austrian Federal Finance Court denied the application of the exemption even though the seller had used the property as his principal home for 5 years during the 10 years preceding the sale because the seller had never been the owner of the property during that time (i.e. the property was only acquired after the use of it as principal home) and because a three year period between the sale of the property and the acquisition of a new property had elapsed (and the purpose of the provision is to facilitate the acquisition of a new property with the tax-exempt proceeds from the sold property). The property had, thus, only been acquired as an investment.

In the second case the Austrian Federal Finance Court ruled that the exemption for self-constructed assets only applies for the very first construction of a property (i.e. not for refurbishments etc) and cannot be transferred to a legal successor in the course of an inheritance. 

Markus Vaishor / Florian Popl

Austrian Federal Finance Court: Compensation payments in consideration for donation of real property may trigger capital gains taxation

Capital gains from the sale of real property derived by individuals as from April 1, 2012 are subject to tax with a flat tax rate of 25 % (April 1, 2012 – December 31, 2015) or 30 % (January 1, 2016 – present).

The Austrian Federal Finance Court recently dealt with a case of a married couple that transferred the family property to one of their daughters by way of a gift. The daughter was obliged to make compensation payments equaling approximately 75% of the property’s fair value to her three siblings. Gifts are not subject to income tax in Austria, however, in the case at hand the Austrian Federal Finance Court ruled that since the compensation payments exceeded 50% of the fair value of the property, the gift should be qualified as a taxable transaction. Consequently, capital gains taxation applied. However, the tax payers filed an appeal to the Austrian Administrative Supreme Court.

Markus Vaishor / Florian Popl

Austrian Administrative Supreme Court: No forbearance in case of unlawful determination of tax

Last year a decision of the Austrian Federal Finance Court caused a stir: If a tax is undoubtedly unlawfully determined, according to the Court the tax authority will have to grant forbearance (§ 236 BAO/General Federal Fiscal Code) and refrain from collecting the tax. In literature experts supposed that this could be a solution for cases, in which remedies are not available anymore e.g. due to elapsed periods for appeal. This hope was destroyed by the latest judgement of the Austrian Administrative Supreme Court, according to which forbearance (§ 236 BAO) must not generally be granted in case of unlawfully prescribed taxes. An unlawful tax determination cannot be “corrected” through forbearance. The taxpayer must use the existing remedies to eliminate the unlawful situation (e.g. appeal – Art 243 BAO; Art 299 BAO etc).

Stefan Papst / Wolfgang Gurtner

Austrian Administrative Supreme Court – News on “last-minute”-surcharge for voluntary self-disclosures

In a recent decision the Austrian Administrative Supreme Court decided again on various issues concerning the “last-minute”-surcharge for voluntary self-disclosures: (1) Levying of the surcharge also permissible concerning offences committed before 2014. (2) Separate determination of the surcharge for each offence necessary. (3) If the taxpayer pays less than the sum of all “last-minute”-surcharges determined, the “oldest” surcharges will be settled first. (4) The Austrian Federal Finance Court is functionally not responsibly for the first-time determination of the “last-minute”-surcharge.

Stefan Papst / Wolfgang Gurtner

Austrian draft legislation implementing i.a. the 5^th AML-Directive (EU) 2018/843 by amending the Austrian Account-Registry-Law (Kontenregister-  und Konteneinschau­gesetz) notably expands the amount of reportable data and the number of authorities with access to account information that was formerly granted to be legally secured by Austrian credit institutions

The Austrian draft legislation implementing i.a. Art 32a of the the 5^th AML-Directive (EU) 2018/843 by amending the Austrian Account-Registry-Law notably expands the objectives of the Austrian Account Registry, the amount of reportable data and the number of entities with reporting obligations as well as the number of international and local authorities with access to banking and payment account information that was formerly granted to be legally secured by Austrian credit institutions.

According to the draft legislation also payment accounts offering credit facilities, payment accounts of payment service providers (PSP) and safe-deposit boxes shall be reported to the Austrian Account Registry.

PSPs with reporting obligations are required to register in order to file reportable data.

The draft legislation gives rise to concerns that legitimate interests of tax payers during certain tax audit proceedings may be compromised.

Stefan Haslinger / Christiane Edelhauser

FATCA and QI updates relating to announcements and publications of the U.S. IRS 

-  IRS publishes FATCA and QI Final Regulations based on “FATCA and QI Proposed Regulations to reduce taxpayer burden”.

-  Due to COVID19 restrictions deadlines for FATCA reporting and FATCA certification due dates were extended.

-  IRS issues „Procedures for FATCA Certification Event of Default Notice“ as well as a FAQ regarding reasons and consequences of an entity´s FATCA status changed to “agreement terminated” and the removal of the entity´s GIIN from the FFI-list.

-  IRS updates registration information on behalf of sponsored entities in approved status whose registration must be cancelled by the sponsoring entity.

-   FATCA IDES testing phase for FATCA reporting scheduled for August 2020.

-   IRS published 2020 version of instructions for form 1042-S with minor updates and changes.

-   IRS published new FAQs regarding requirements for QI registrations and QI periodic certifications, including QI periodic reviews.

-   With respect to a three-year certification period covering 2018, 2019 and 2020 the due date for the QI periodic certification (including QI periodic review of one out of these three years) is no later than July 1, 2021.

Philipp Peter Rümmele / Christiane Edelhauser

Recent company law decisions

In his decision 6 Ob 154/19 v, the Austrian Supreme Court of Justice (OGH) clarified a controversial legal question regarding downstream lending in the crisis and affirmed the application of Art 9 EKEG as well as the claim for reimbursement (Erstattungsanspruch) of the lending company against the instruction-giving company.

In his decision 6 Ob 56/20h, the Austrian Supreme Court of Justice (OGH) ruled that a squeeze-out resolution cannot by challenged on the basis of abuse of rights (Rechtsmissbrauch) or fiduciary duty (Treuepflichten).

Wendelin Ettmayer