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Finance Focus


losses and impairments. In this case capital gains are fully taxable at the corporate income tax rate of 25%. The option for the tax effective status can be exercised independently for each international participation held. The option chosen is irrevocable and also binding upon intra-group share-deals and reorganizations.


Q


Is there any withholding tax on dividends paid by Austrian limited liability companies?


Generally, a 25% withholding tax is levied on dividends distributed by an Austrian resident company. An exemption applies for dividends distributed to resident corporate shareholders holding directly at least 10% of the subsidiary’s nominal capital. Portfolio corporate shareholders in Austria may credit the withholding tax against their corporate income tax liability.


According to the Austrian regulations implementing the EU Parent-Subsidiary Directive dividend distributions to EU parent companies are generally exempt from withholding taxes if the parent company;


• Has a legal form listed in the annex to the EU parent-subsidiary directive,


• Holds directly at least 10% of the subsidiary’s nominal share capital and


• Has held the shares for a minimum period of one year prior to the receipt of the dividends.


However, withholding taxes must be withheld in case of tax avoidance or abuse of law which are considered to be fulfilled unless the receiving company provides a confirmation that it derives its income from an active business, employs its own personnel and maintains its own business facilities.


Additional exemptions according to double tax treaties may apply. In this case a (partial) exemption may be claimed by refund. Under certain circumstances a relief at the source will be applicable.


Q


How will the tax reform affect tax groups in Austria?


The tax reform act 2005 provided for a modern group taxation system enabling the pooling of profits and losses of Austrian resident group companies. Additionally it


allows deducting losses of foreign subsidiaries directly held by Austrian resident group companies. Tax losses of foreign subsidiaries deducted from the tax base of the Austrian tax group had to be added to the tax base only when the losses became deductible for tax purposes in the country of origin.


From March 1, 2014 the deductibility has been restricted to losses of foreign EU subsidiaries and subsidiaries located in countries which have signed comprehensive agreements concerning administrative assistance with Austria. Foreign subsidiaries which do not fulfill these requirements will have to leave the tax group as of January 1, 2015. In this case these foreign tax losses will become taxable over a period of 3 years (generally 2015 to 2017).


Additionally to that the deductibility of losses of foreign group companies which are still deductible (EU companies and companies in countries with comprehensive administrative assistance) will be limited to 75% of the total taxable income of the Austrian members of the tax group as of January 1, 2015. Losses of foreign group members exceeding this amount can be carried forward to the following years.


A major aspect of the tax reform passed in the last week of February concerns the limitation of deductibility of amortization of goodwill and hidden reserves in the depreciable assets of the target company. The amortization was applicable where shares in an operating Austrian company were acquired in a third party transaction if the target company was subsequently included in the Austrian tax group. The regulation provided for an amortization of a maximum of 50% of the share purchase price over a period of 15 years.


The recent tax reform restricts the amortization to acquisitions which have been made before March 1, 2014. However, if the share purchase agreements became effective before March 1, 2014 50% of the purchase price remains deductible also in the future.


Overall, the tax reform recently passed will have significant impacts on the taxation of Austrian group companies in the future. Nevertheless, the most important benefit of the group taxation will still remain; this is the pooling of profits and losses of Austrian resident and nonresident group companies at least in countries which have signed double tax treaties with Austria.


Q


Will interest payments and license fees remain deductible after the tax reform?


Interest payments for the acquisition of shares or a share capital increase can still be set off against other income if the shares have not been purchased from a group company or a shareholder with significant influence.


However, interest payments and license fees paid to group companies will only remain deductible as long as interest income and license fees will be subject to an effective tax rate of at least 10% at the level of the receiving company.


By means of the Austrian tax group foreign investors will still be enabled to a leveraged acquisition of shares in Austrian corporations by deducting the interest expenses of the Austrian acquisition company from the taxable income of the target company.


Q


What else makes Austria an attractive jurisdiction for investments?


Since 2011, tax incentives for research and development have been harmonized. A tax exempt 10% R&D premium can be claimed for Frascati research as well as contract research provided by EU or EEA companies and institutes. In case of contract research the annual premium is limited to EUR 100.000.


About LBG Austria LBG Austria (www.lbg.at.) is a full service tax consulting and auditing company (tax advice, accounting, preparation of balance sheets, tax compliance, payroll accounting, business consulting, appeals up to the Supreme Court of administration, etc.).


Headquartered in Vienna and with 30 local offices and more than 400 employees all over Austria. LBG Austria belongs to the mayor tax consulting firms in Austria. LBG’s clients are small and medium sized enterprises with up to 250 employees, subsidiaries of international companies, wealthy individuals, private foundations and agricultural and forestry businesses including subsequent processing enterprises.


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