Austria Tax: Detachment and transfer of intangible assets via an Austrian Societas Europaea

More companies are looking to take advantage of tax regimes in other countries. For companies specifically wishing to benefit from the favorable tax regimes for intangible assets provided by some EU Member States, Austrian tax law may greatly simplify the detachment of their intangible assets from their other assets, as well as the transfer of the intangible assets to the desired Member State.

Where the company concerned is an EU company that does not already have its seat in Austria, the most efficient way for it to transfer its seat to Austria is first to convert its legal form into that of a Societas Europaea (SE) in its state of residence. (The SE is a legal form for public corporations in the EU, to which extensively harmonized provisions in the field of company law apply.) The SE's seat then has to be transferred to Austria for the Austrian company law provisions covering split-offs to apply. Under the EC Merger Directive, such a transfer does not trigger taxation of the SE's hidden reserves in the exit state. Because the SE regulations require an SE's effective place of management to be located in the Member State where the SE's registered office is located, the transfer of an SE's seat necessarily also entails the transfer of its residence for tax purposes.

Once the SE's seat and tax residence are transferred to Austria, its intangible assets must be detached from its other assets. The Merger Directive applies only to operations where the transferred assets and liabilities remain effectively connected with a permanent establishment of the receiving company in the Member State of the transferring company (the "branch requirement"). Austrian tax law, however, is more generous than the Merger Directive and does not impose this branch requirement; it is only required that the assets and liabilities that are transferred qualify as "a branch of operations." Thus a tax-neutral split-off can be effected in which the SE transfers a branch of its activity without the intangible assets to another Austrian company. At a later point in time, the receiving company can, for example, be merged into a group company in the exit state where the SE was initially resident without triggering taxation of the hidden reserves. After the split-off, the SE has, in essence, no assets other than the intangible assets. This smooth detachment of the intangible assets is possible because, as already noted, Austrian tax law, unlike that of most other countries, does not contain the branch requirement.

As a final step, the SE's seat and tax residence are transferred to a Member State with a favorable tax regime for intangible assets. Again, the transfer of the SE's tax residence will not trigger exit taxation in Austria pursuant to the Merger Directive.