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TAX NEWS - 2010

Austria Tax: Fraud Act would limit deduction of financing expenses on acquisitions

The Austrian Ministry of Finance published a draft of the new Anti-Fraud Act on 15 June 2021 that includes a limit on the deductibility of financing expenses incurred on loans obtained to acquire certain participations. Contrary to some expectations, the draft bill - which is designed to ensure revenue from taxes - contains only minor changes to corporate taxation.

The draft law proposes to disallow a deduction for interest paid on loans obtained to acquire a participation in a foreign corporation covered under section 10 of the Corporate Income Tax Act, i.e. Austria's participation exemption, which requires, inter alia, a shareholding of at least 10%.

A deduction would be available only for interest paid on loans to acquire participations in Austrian and EU/EEA corporations and portfolio participations in all other countries (i.e. where the shareholding is less than 10%). The draft law also would disallow a deduction for an acquisition within a group of companies. The draft does not contain any restrictions with respect to previous acquisitions.

Further, where the payer failed to disclose the identity of the payee of any payment to the tax authorities, a deduction for the payment would be disallowed and a penalty equal to 25% of the disallowed expense would be imposed.

If approved by Austrian Parliament, the proposed changes would apply for tax assessments for 2011.

Although the elimination of the deductibility for loan interest would result in the loss of a valuable tool for structuring corporate acquisitions in Austria, this is the only change proposed to Austria's business friendly tax regime for holding companies. Austrian holding companies will continue to benefit from worldwide group taxation (cross-border consolidation of profits and losses), the depreciation of goodwill in share deals, a broad tax treaty network, the absence of a controlled foreign company regime and extensive possibilities to obtain relief from withholding tax at source.
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