Many countries already permit a group of related companies to be treated as a single taxpayer, or have special rules achieving a similar result in practice. This way the effect that the separate existence of related companies has on the aggregate tax liability of the group is reduced.
This can be attractive because it gives taxpayers flexibility to organize their business activities and engage in internal restructurings and asset transfers without having to worry about triggering a net tax. If two or more related companies decide to form a tax group, their taxable results will be assesed on the level of the “group parent”. Tax losses of some can be offset with taxable profits of other members. A tax group can also include foreign companies. Their losses can be offset with Austrian profits. As soon as the foreign subsidiary starts making profit (and is offsetting its profits against the foreign loss carry forward), the Austrian company has to pay tax on the earlier losses at a corporate tax rate of 25 percent. In the end it works like a tax deferral.
To qualify as a tax group the following conditions have to be executed:
• a qualified participation of more than 50 percent (directly or indirectly)
• a written request including an agreement on the spreading of the tax costs
The group members have to file an application with the tax authorities including the shares held by all group members. For international groups in Austria, this group system is an interesting way to optimize tax charges for the whole group by offsetting losses of foreign companies. For prospective gains of the subsidiaries the impact of interest will last anyway.
Taxation of foreign dividends
Dividends received from a foreign company listed in the EC parent-subsidiary directive or dividends from a foreign company comparable to an Austrian company resident in certain EEA (European Economic Area) countries are exempt from corporate tax. Dividends received from a foreign company that do not fulfill the above criteria are exempted from tax if the following criteria are achieved (International Participation Exemption):
• the foreign company is comparable to an Austrian one
• the parent company holds directly or indirectly at least ten percent of the equity capital
• the investment is held continuously for at least one year
In the case of participations of below 10 percent (portfolio dividends) different rules apply to EEA and not EEA located companies.
• Portfolio dividends from participations in EEA countries are exempt from corporate income tax in Austria in the case of exchange of information and mutual assistance for the recovery of the tax receivables by the country of the distributing company. In the case of low tax countries (corporate tax rate below 15 percent) a such switch to the tax credit method has to be done.
According to decision of the Europeen Court of Justice (Rs C-436/08, C-437/09) Austria will change the taxation of dividends received from participations out of EEA countries (below ten percent): a draft law of the Ministry of Finance is foreseeing a full tax exemption of dividend payments, only in the case of low tax countries (corporate tax rate below 15 percent) there is an obligatory switch to the tax credit method.
Double tax agreements
An elaborate network of double tax agreements is a key factor in the ability of a territory to develop as an attractive holding company location. Currently Austria has 92 double taxation treaties in place. The agreements cover all important economic power countries around the world.
Worth talking about
• How can I organize my business more flexibly and transfer assets without having to worry about triggering a net tax?
• Do I qualify for group taxation in Austria – or anywhere else, for that matter?
• Are dividends my company earns possibly exempt from corporate taxes?
Author: David Gloser, ECOVIS Austria Wirtschaftsprüfungs- und Steuerberatungsgesellschaft mbH
This can be attractive because it gives taxpayers flexibility to organize their business activities and engage in internal restructurings and asset transfers without having to worry about triggering a net tax. If two or more related companies decide to form a tax group, their taxable results will be assesed on the level of the “group parent”. Tax losses of some can be offset with taxable profits of other members. A tax group can also include foreign companies. Their losses can be offset with Austrian profits. As soon as the foreign subsidiary starts making profit (and is offsetting its profits against the foreign loss carry forward), the Austrian company has to pay tax on the earlier losses at a corporate tax rate of 25 percent. In the end it works like a tax deferral.
To qualify as a tax group the following conditions have to be executed:
• a qualified participation of more than 50 percent (directly or indirectly)
• a written request including an agreement on the spreading of the tax costs
The group members have to file an application with the tax authorities including the shares held by all group members. For international groups in Austria, this group system is an interesting way to optimize tax charges for the whole group by offsetting losses of foreign companies. For prospective gains of the subsidiaries the impact of interest will last anyway.
Taxation of foreign dividends
Dividends received from a foreign company listed in the EC parent-subsidiary directive or dividends from a foreign company comparable to an Austrian company resident in certain EEA (European Economic Area) countries are exempt from corporate tax. Dividends received from a foreign company that do not fulfill the above criteria are exempted from tax if the following criteria are achieved (International Participation Exemption):
• the foreign company is comparable to an Austrian one
• the parent company holds directly or indirectly at least ten percent of the equity capital
• the investment is held continuously for at least one year
In the case of participations of below 10 percent (portfolio dividends) different rules apply to EEA and not EEA located companies.
• Portfolio dividends from participations in EEA countries are exempt from corporate income tax in Austria in the case of exchange of information and mutual assistance for the recovery of the tax receivables by the country of the distributing company. In the case of low tax countries (corporate tax rate below 15 percent) a such switch to the tax credit method has to be done.
According to decision of the Europeen Court of Justice (Rs C-436/08, C-437/09) Austria will change the taxation of dividends received from participations out of EEA countries (below ten percent): a draft law of the Ministry of Finance is foreseeing a full tax exemption of dividend payments, only in the case of low tax countries (corporate tax rate below 15 percent) there is an obligatory switch to the tax credit method.
Double tax agreements
An elaborate network of double tax agreements is a key factor in the ability of a territory to develop as an attractive holding company location. Currently Austria has 92 double taxation treaties in place. The agreements cover all important economic power countries around the world.
Worth talking about
• How can I organize my business more flexibly and transfer assets without having to worry about triggering a net tax?
• Do I qualify for group taxation in Austria – or anywhere else, for that matter?
• Are dividends my company earns possibly exempt from corporate taxes?
Author: David Gloser, ECOVIS Austria Wirtschaftsprüfungs- und Steuerberatungsgesellschaft mbH
