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Further tax benefits for foreign companies due to Austria’s group taxation regime

Austria

Group taxation was introduced in Austria in 2005. Up to now this tax advantage excluded non-resident corporations. However according to a decision of the independent fiscal court Linz (UFS) this restriction is an infringement of the freedom of establishment. In future goodwill amortisation on shares of non-resident EU-corporations shall become legal. Taxand Austria discusses group taxation and goodwill amortisation.

General facts about group taxation
Under the system of group taxation, which was already introduced in 2005, the profit or loss of a group member is attributed to the controlling company. For losses, the group relief operates across borders and is also applicable to non resident first-tier subsidiaries. Losses from non resident subsidiaries can be offset against group income under the condition that they have to be recovered if offset abroad in a later tax year. The only condition for group membership is a direct or indirect majority investment (< 50%) in a corporation.

General facts about goodwill amortisation
The acquisition cost of shares in a corporation eligible for group membership is considered to be goodwill in an amount equal to the difference between acquisition costs and the capital of the acquired company plus hidden reserves in non depreciable assets. Positive goodwill as well as negative goodwill has to be amortised over a period of 15 years.

Requirements for goodwill amortisation
The above rule is subject to some limitations and the amount of goodwill is limited to 50% of the acquisition costs as a maximum basis for amortisation:

  • The acquired corporation has to operate a business. Therefore, holding companies are excluded from the benefits of the amortisation
  • Goodwill amortisation is only possible if and as long as both the purchaser and the acquired corporation apply for group taxation
  • Acquisitions of shares in non resident corporations as well as related corporations up to now have been excluded.

Decision of the independent fiscal court Linz (UFS) on 16 April 2013
The fact that goodwill amortisation is restricted to the acquisition of shares of corporations subject to unlimited tax liability is an infringement of the freedom of establishment. The reason for this restriction is that later capital gains cannot be taxed in Austria and might result in a permanent tax saving. However the UFS came to the conclusion that there is no possible justification for unequal treatment of domestic and foreign EU-corporations, whether or not the shares of such companies have been opted into taxation for later capital gains. Therefore in future goodwill amortisation on shares of non-resident corporations should be possible.


Your Taxand contact for further queries is:
Herta Vanas
T. +43 1 533 86 33 800
E. herta.vanas@taxand.at

Taxand's Take

Group taxation and goodwill amortisation are strong incentives for corporations to set up business in Austria. Due to recent developments in Austria this benefit will also be applicable for the acquisition of shares in EU-corporations subject to limited tax liability. The reason for this possible change in legislation is the recent decision of the independent fiscal court Linz (UFS), which decided on 16 April 2013 that the restriction of amortisation of goodwill to the acquisition of corporations subject to unlimited tax liability is an infringement of the freedom of establishment. Until now it is open, but very likely, that the financial authority will raise an official complaint against the decision of the UFS at the Administrative Court (VwGH), as a huge loss of tax revenue is expected if this legal opinion succeeds. Nevertheless this complaint is expected to have little prospect of success as the UFS came to the conclusion that there is no possible justification for the unequal treatment of domestic and foreign EU-corporations.

 

Taxand's Take Author

Herta Vanas
Austria