English Summary 12/2021

New draft bill on small changes to Austrian Tax Law

Based on a draft bill, we expect several smaller changes to Austrian tax law. Some of the changes prolong existing COVID-aids, however, the most significant change extends the rules on the taxation of income from debt forgiveness. If a significant number of creditors forgive loans, this income is now covered by the beneficial treatment even if done outside of insolvency proceedings. Normally, Austrian tax loss carry-forwards may only be utilized for up to 75 % of the taxable profit, however, such income from debt forgiveness will be utilizable up to 100 % of the taxable profit.

C. Plott / M. Vaishor 

Austrian Federal Finance Court on the consideration of a functional and strategic element for the evaluation of investments

Recently, the Austrian Federal Finance Court confirmed the non-recognition of an impairment for tax purposes of an investment in an Austrian corporation after a restructuring subsidy was granted. The Court justified its decision by the fact that the valuation was inadequate and could not plausibly demonstrate the decrease in value in the investment, in particular since the strategic and functional relationship between the Austrian corporation and the whole business of the group as well as the further development of the business of the Austria corporation were not appropriately assessed in the valuation.

It is therefore strongly recommendable to prepare adequate valuation reports that document properly the decrease in value of an investment to avoid discussions in the course of a potential tax audit. Valuation reports have to be prepared in accordance with the professional guidelines of the Expert Committee on Busines Administration of the Institute for Business Economics, Tax Law and Organization of the Austrian Chamber of Public Accountants for Valuation of Businesses (KFS/BW 1).

Furthermore, the court stated that the immediate impairment of an investment after the granting of a restructuring subsidy is only permissible in the case of evident bad investments or if the subsidy was granted for the purpose of covering losses. In the opinion of the court, neither was the case in the present case.

F.  Fraberger / A. Lunzer

Interest from hedging transactions in relation to foreign participations are not covered by the deduction prohibition under Art 12 sec 2 Austrian Corporate Income Tax Act

In general, under Austrian tax law, expenses directly related to tax-free income may not be deducted for tax purposes. Hedging transactions that hedge the currency risk arising from the equity of a foreign subsidiary denominated in a foreign currency serve to hedge the group company's equity. The Austrian Federal Finance Court recently confirmed that interest expenses from such hedging transactions are not directly related to tax-free dividend income or capital gains from this participation and therefore are not subject to the deduction prohibition under Art 12 sec 2 Austrian Corporate Income Tax Act. Interest income from such hedging transactions is subject to tax.

F. Kleemann / E. Rohn

Austrian Administrative Supreme Court on the deduction of input VAT in cases of acquiring rented real property

In Austria, rentals for business purposes are in general exempt from VAT according to Art 6 sec 1 subsec 16 VAT Act and any input VAT directly connected is consequently not deductible. However, Art 6 sec 2 VAT Act provides for the possibility to exercise an option to tax. In this case rentals for business purposes are taxed at the standard VAT-rate of 20 % and any input VAT related is deductible. Regarding this option to tax it has to be considered, that the landlord can only exercise the option, if the tenant uses the immovable property nearly exclusively for generating taxable revenues (i.e. is entitled to deduct input-VAT). The Austrian Tax Authority determines “nearly exclusively” as a minimum rate of 95 % based on the tenant´s whole revenues generated from the business activity in the respective property. This rule applies to rentals starting after August 31th, 2012. The Austrian Administrative Supreme Court recently decided where a rented property was acquired. Parts of the property were rented to entrepreneurs, which were not entitled to deduct input VAT. The court decided that the regulation in relation to the possibility exercising the option to tax (see above) has to be considered in the case at hand. as due to the purchase of the real property the purchaser (as the new landlord) entered into the rental contracts according to civil law. Consequently, such case of legal singular succession is deemed as a new rental contract for VAT purposes and the landlord can not exercise the option to VAT (also for rentals starting before September 1, 2012) and thus, any input VAT on the acquisition costs relating to the tax exempt rented areas is non-deductible. 

In this context, the Austrian Supreme Court of Justice has recently decided that the acquirer (new lessor) of a property is not entitled to raise compensation claims against the tenant to compensate for non-deductible VAT. While Art 30 VAT Act provides for compensation claims in case the economic parameters change due to legislative changes not foreseen at the time of the conclusion of the rental contract, the court argues that in the case of an acquisition of a property, the acquirer typically has sufficient information on the tenants available and, as a consequence, can consider any non-deductible VAT in his calculation of the purchase price.

M. Vaishor / S. Arnold / K. Postlmayr

Illegal application of COVID-19 subsidies and criminal liability for fraud

Currently, the follow-up audits of COVID-19 subsidies by the subsidy agencies and tax authorities are gaining momentum. If unlawfully applied COVID-19 subsidies are discovered and there are grounds for suspicion under criminal law of possible subsidy fraud, the auditors must report this to the public prosecutor’s office. Both the application for COVID-19 subsidy that was deliberately unlawful from the outset and the failure to correct a COVID-19 subsidy that was initially applied for and received in good faith can result in criminal liability for fraud.

The experts of the individual KPMG functions (Tax, Law, Advisory) work closely together on COVID-19-cases. The bundled specialist knowledge in the individual areas of expertise can therefore be optimally used in the criminal law assessment as well as in the remediation of criminal liability.

S. Papst / W. Vötter

Austrian Tax Court on the financial criminal liability of the co-managing director in the case of de facto allocation of responsibilities

According to the case law of the Austrian Federal Finance Court, a factual allocation of responsibilities can be considerable under financial criminal law, even if such an allocation has not been recorded in written form. In the specific case, the managing director, who was in fact not responsible for tax matters, could not be held liable under financial criminal tax law for a shortening of advance VAT payments, as there was a factual allocation of responsibilities and it could therefore not be adequately proven that she acted intentionally. 

S. Papst / S. Rettenbacher

Austrian Federal Finance Court: delivery of documents into the DataBox with legal effect, even if taxpayer is not informed about the delivery by email

Usually, documents are sent to Austrian taxpayera electronically via the platform FinanzOnline. Taxpayers, however, may elect to receive communication in paper (if they do not have the proper equipment to receive communication electronically). If they do not exercise this option, however, and consequently get their documents electronically into their DataBox, the day a document is delivered with legal effect is the day, on which it is available electronically. This is independent of the fact, whether the taxpayer is informed about the delivery of the new document per mail or SMS or not. This additional notification is only a service of the tax authorities without any legal consequence. Thus, a regular check of the DataBox is necessary in order to avoid missing deadlines (e.g. for appeals). Alternatively, taxpayers may give a power of attorney (including the right to receive documents on behalf of the tax payer) to an Austrian tax advisor as Austrian tax advisors check the DataBox on a daily basis.

C. Endfellner

Final tax audit meeting: May the taxpayer apply for a postponement due to holidays?

In practice, the date of the final meeting of a tax audit is usually coordinated informally between the tax auditor and the taxpayer. Holiday times are mutually coordinated in advance and a date for the final meeting that is possible for both sides is jointly determined. If there is no common understanding, the question arises as to whether procedural law grants the taxpayer a right to postpone a final meeting date due to holidays. 

A postponement of the final meeting is necessary because the unexcused non-appearance of the taxpayer and/or his authorized representative empowers the tax auditor to legally omit the final meeting. According to the case law of the Austrian Administrative Supreme Court, a holiday of the taxpayer or his representative that has been planned for some time justifies the postponement of a final meeting.

S. Papst / W. Vötter

Austrian Administrative Supreme Court on the concept of domicile – critical review of Secondary Domicile Regulation in literature

Pursuant to Art 1 sec 2 of the Austrian Income Tax Act, there is unlimited tax liability for persons who have a domicile in Austria within the meaning of Art 26 sec 1 Austrian General Federal Fiscal Code (BAO). With a recent decision, the Austrian Administrative Supreme Court confirmed its opinion according to which the extent of the actual use is not relevant for a residence within the meaning of § 26 BAO. A minimum use is therefore not required.

In accordance with Art 1 sec 1 of the Secondary Domicile Regulation, a domestic dwelling for persons subject to tax, whose centre of life interests is located abroad, establishes a domicile within the meaning of Art 1 of the EStG only in those years in which such dwelling is used on more than 70 days.

The criticism of a supreme court judge on the occasion of the recent decision provides an insight into the supreme court's concerns about the conformity of the Secondary Domicile Regulation with the law and the constitution. In the event of a review by the Austrian Administrative Supreme Court, its existence is questionable.

S. Papst / W. Gurtner