Corporate Income Tax Subjects in Austria
National Report by
Prof. Johannes Heinrich and Claudia Slawitsch
1. General Presentation of CIT in Austria
1.1. Overview of the system of CIT
The Körperschaftsteuergesetz 1988 (KStG 1988, Corporate Income Tax Act 1988), which is
the current legal source for taxing corporations in Austria, entered into force on 1st January
1989. The preceding tax acts were the KStG 1966 and the German KStG 1934. The German
KStG 1934 was introduced in Austria in 1938 due to the annexation of Austria into the
German Third Reich. After 1945 the German law remained in force until it was replaced by
the KStG 1966 which got into force on 1st January 1968.1
Before the annexation in 1938, corporations were subject to an income tax according to the
“II. Hauptstück” of the “Personalsteuergesetz 1896”, which took effect on 1st January 1898.
Entities which were obliged to publish their annual financial statements were taxed on a rate
of 10 % of their taxable profits. There was a minimum tax amounting to 0,1 % of the nominal
capital of the company. In 1924 the “II. Hauptstück” of the “Personalsteuergesetz” was
significantly altered.2 Since then, the different forms of corporate bodies subject to the
“Personalsteuer” were enumerated within the law. Additionally, commercial institutions of
legal persons governed by public law (federal state, countries, counties, communities) were
included in the number of taxable entities. The obligation to publish the annual financial
statement was no criterion for being taxed anymore.3
In Austria corporations are taxed separate from their shareholders, whereas partnerships are
not regarded as taxable subjects. The profit of a partnership is calculated on the level of the
partnership and the partnership has to file a tax return. But finally the partners have to pay tax
on their share in the partnership´s profit (tax transparency). Due to the fact that corporate
entities are taxable entities on their own, they can enter into dealings with their shareholders
as far as dealings are at arm´s length. Transactions between partnerships and its partners, on
the contrary, are for income tax purposes not taken into consideration. Remunerations paid by
1
For the historic evolution of the CITA see Quantschnigg/Renner/Schellmann/Stöger, Die Körperschaftsteuer
(loose leaf) Einleitung Rz 5 et seq.
2
See Law of 6.6.1924, BGBl 1924/187.
3
See Hohenwarter in Lang/Schuch/Staringer, KStG (2009) § 1 Tz 2.
1
the partnership to a partner for rendering services or letting assets are part of the partner´s
share in the partnership´s profit.4
Table 1 shows the number of legal entities in Austria registered with the commercial register
itemized with respect to their legal form: 5
Table 1: Development of number of entities registered with the commercial register
Legal entities
31.12.2006
31.12.2011
% of all
entities
(2011)
Stock corporation
2.063
1.856
0,86%
111.505
124.474
57,96%
Cooperative
1.903
1.853
0,86%
Private Foundation
3.054
3.313
1,54%
Savings bank
28
25
0,01%
Mutual insurance society
12
12
0,01%
Societas Europaea
11
27
0,01%
476
588
0,27%
General partnership
15.907
17524
8,16%
Limited partnership
41.497
42.619
19,85%
27
30
0,01%
9.960
22.427
10,44%
186.443
214.748
100,00%
Limited liability company
Other entities (most of them with legal
personality and therefore taxable entities
regarding CIT)
European economic interest grouping
Registered sole proprietors
Total
Sole proprietors and partnerships with annual turnovers of less than Euro 700.000 are not
obliged to register with the commercial register. Among the registered entities the limited
liability company is the most commonly used legal form for running a business.
4
5
See Mayr/Herzog/Blasina/Schwarzinger/Schlager, SWK spezial, Körperschaftsteuer 2010 (2010) 24 et seq.
See Haybäck, Firmenbuch-Gesellschaften-H@y-Statistik 2012, PSR 2012, 44.
2
Table 2 shows the revenue of different kind of federal taxes put together in classes in absolute
figures and as percentage of the total tax revenue of the federal state and in relation to the
GDP.6
Table 2: Revenue of federal taxes
2011
Income tax
Revenue of federal
% of total tax
taxes in Mill Euro
revenue
% of GDP
27.174,3
38,9%
9,0%
5.277,1
7,6%
1,8%
23.391,4
33,5%
7,8%
Consumption taxes
6.102,9
8,7%
2,0%
Transfer taxes
5.627,0
8,1%
1,9%
Others
2.285,0
3,3%
0,8%
Total
69.857,7
100%
23,2%
GDP7
300.712,0
Corporate Income Tax
VAT
In Austria there is no other tax which resembles the Austrian CIT. The only personal taxes are
the individual income tax (IIT) and the CIT.8 The “Gewerbesteuer” (business tax), which was
a community tax, was abolished in 1993. Since 2011 banks are subject to the
“Stabilitätsabgabe” (stability tax). Tax base of the stability tax is the adapted balance sheet
total and the transaction volume of derivative financial instruments.
1.2. Historical Evolution
Having a look on the evolution of CIT, the following topics are in the centre of interest:
− Economic double taxation of corporate profits with regard to natural persons as
shareholders and its elimination,
− elimination of economic double taxation of corporate profits with regard to a group of
companies (affiliation privilege),
6
http://m.bmf.gv.at/budget/akthh/2011/201112bvug16.htm (22.12.2012).
See http://www.statistik.at/web_de/statistiken/oeffentliche_finanzen_und_steuern/oeffentliche_finanzen/steuer
einnahmen/index.html (22.12.2012).
8
See Achatz/Bieber in Achatz/Kirchmayr, Kommentar Körperschaftsteuergesetz (2011) § 1 Rz 18.
7
3
− group taxation systems
− personal scope of CIT.
Table 3: Evolution of tax rates and measures to eliminate economic double taxation
Act
KStG 1966
Year
1968 - 1972
CIT rate
24 % - 44 %
IIT on dividends
Fully taxable
½ CIT rate on distributed
profits
1973 - 1988
30 % - 55 %
Since 1982 marginal IIT
½ CIT rate on distributed rate 62 %
profits
Since 1986: ½ average tax
rate on dividends
KStG 1988
1989 - 1994
30 %
½
average
tax
rate
(marginal tax rate 50 %)
1994 - 2004
34 %
½ average tax rate or 25 %
final tax
Since 2005
25 %9
since 2012: 25 % final tax10
or marginal tax rate11
National and international affiliation privilege
Under the KStG 1966 dividends paid by a domestic corporation to another corporation subject
to unlimited tax liability were exempt from CIT, if the parent company held a participation of
at least 25 % in the capital of the subsidiary for more than one year. In 1973 the affiliation
privilege were extended to comparable participations in foreign companies.12
Under the KStG 1988 dividends paid by domestic corporations (limited liability companies,
cooperatives) and comparable payments due to a participation in form of jouissance rights are
9
Sec 22 (2) KStG.
Sec 97 or Sec 27a EStG.
11
The taxpayer may opt to be taxed at his marginal tax rate.
12
See Sec 10 Abs 2 KStG 1966 as amanded bei law, BGBl 1972/441.
10
4
generally exempt from CIT, regardless of the extent of the participation or a minimum
holding period.
When the KStG 1988 got into force, dividends paid by foreign companies were exempt under
the same preconditions as under the KStG 1966. In case that the foreign subsidiary mainly
receives passive income (interest, royalties) dividends are only exempt, if the CIT rate of the
other state is more than 15 %. Otherwise the Austrian parent company may apply for a tax
credit of the foreign CIT. Additionally, as part of the foreign affiliation privilege capital gains
of foreign participations were subject to an exemption.
Due to the accession of Austria to the European Community in 1995 some small adaptions of
the international affiliation privilege had to be made in order to comply with the ParentSubsidiary-Directive.
In 2009 and in 2011 Sec 10 CITA, which governs the exemption for dividends and the
international affiliation privilege, was due to case law of the Austrian Administrative Court13
and the ECJ14 retroactively changed in that way, that nowadays also portfolio dividends paid
by foreign companies are exempt under the following conditions:
Portfolio dividends paid by companies mentioned within the Parent-Subsidiary-Directive are
exempt, if
− the foreign subsidiary is subject to a tax comparable with the Austrian CIT,
− the CIT rate of the state of residence of the subsidiary is not more than 10 % less than
the Austrian CIT rate (which is 25 % at the moment),
− the foreign subsidiary is not subject to a personal exemption.
Otherwise the Austrian parent company may apply for a tax credit amounting to the CIT paid
by the subsidiary in its state of residence.
Portfolio dividends paid by a foreign company resident within a third country or a country of
EEA are only subject to a preferential treatment (exemption or tax credit under the above
mentioned circumstances), if the other state provides for administrative assistance.
Group taxation
In 1972 the “Organschaft” as a kind of group taxation system was introduced into the KStG
1966. The “Organschaft” originated from case law of German courts and became later on part
13
14
Verwaltungsgerichtshof (Austrian Court of Administration; subseq: VwGH) 17.4.2008, 2008/15/0064.
ECJ 10.2.2011, C-436/08 and C-437/08, Haribo and Österreichische Salinen AG.
5
of the turnover tax and business tax law. In 1945 the rules of German tax law remained to be
part of the Austrian law. For CIT purposes the “Organschaft” was applicable due to a decree
of the Minister of Finance. The conditions for the tax group were rigorous. The subsidiary had
to be subordinated under the parent company in a financial, economic and organizational way.
Additionally, the parent company and the subsidiary had to enter into a profit and loss transfer
agreement (Ergebnisabführungsvertrag). Under such circumstances the profits and/or losses
of the parent company and its subsidiaries were totalized.15 The rules for the “Organschaft”
remained the same under the KStG 1988 until 2005, when the rules were replaced by a
modern group taxation system. The only criteria for forming a tax group are nowadays having
a majority in the capital and the voting rights of the affiliated company. It is also possible to
form a tax group between domestic and foreign companies. In this case, losses of the foreign
group member may be deducted from the parent company´s profit. If the loss subsequently
may be deducted in the state of residence of the subsidiary, it will be added to the profit of the
Austrian parent company.16
Changes in the personal scope of CIT
Under the “Personalsteuersteuergesetz 1896” entities, which were obliged to publish their
annual financial statements, were taxable subjects. The law explicitly mentioned stock
companies, partnerships limited by shares, businesses of the bergrechtliche Gewerkschaften17,
insurance companies, banks, the state owned railway company, businesses of cooperatives
and, since their introduction into company law in 1906, limited liability companies as taxable
entities. Additionally, charitable businesses and societies like e.g. charitable cooperatives,
mutual saving banks and mutual insurance companies were taxable entities but in many cases
their incomes were in favour of a preferential treatment.
In 1924 the “II. Hauptstück” of the “Personalsteuergesetz” was significantly altered.18 Since
then the different forms of corporate bodies subject to the “Personalsteuer” were enumerated
within the law. Additionally, commercial institutions of legal persons governed by public law
(federal state, countries, counties, communities) were included in the number of taxable
entities.
15
For the „Organschaft“ see Vock in Quantschnigg/Renner/Schellmann/Stöger, KStG § 9 Rz 1 et seq.
See Sec 9 CITA.
17
„Bergrechtliche Gewerkschaft“ is an old form of a corporate entity in the field of mining. It must not be
mistaken for a labour union which is also called Gewerkschaft.
18
See Law of 6.6.1924, BGBl 1924/187.
16
6
Under the German KStG 1934, which was applicable in Austria from 1938 until 1945 and
became part of the Austrian law after World War II, the following entities were subject to
unlimited tax liability, if they had their place of management or their seat in the home
country:19
− Companies (stock corporations, partnerships limited by share, limited liability
companies, “Kolonialgesellschaften”, “bergrechtliche Gewerkschaften”),
− cooperatives,
− mutual insurance societies,
− other legal persons governed by private law,
− societies, institutions, foundations and other special purpose funds, not having legal
capacity, if no other taxable person is taxed on that income20,
− commercial institutions of a legal person governed by public law (“Betriebe
gewerblicher Art”).
Corporate bodies, societies and estates having neither their place of management, nor their
seat in the home country are only taxable with income deriving from domestic income sources
(limited tax liability).21 Corporate bodies, societies and estates which are not subject to
unlimited tax liability are taxed on income, which is subject to a source tax.22
Sec 1 KStG 1966 almost had the same wording than Sec 1 KStG 1934. The list of examples
representing companies were reduced to stock corporations and limited liability companies,
since the other three legal forms enumerated within the German KStG 1934 did not exist
within Austria. Today, according to Sec 1 KStG 1988 legal persons governed by private law
in general fall under CIT. The law does not distinguish between companies and other legal
persons governed by private law and does not provide for any examples. A new legal form,
introduced into Austrian company law in 1993, is the private foundation.23 Private
foundations are legal persons governed by private law. Therefore they full under CIT. Under
certain conditions they are exempt from unlimited tax liability.24
Over the years, the catalogue of entities being exempt from CIT has changed. For domestic
entities, which are subject to limited tax liability, the extent of taxable income has changed
19
20
See Sec 1 KStG 1934.
21
Sec 2 Abs 1 KStG 1934.
Sec 2 Abs 1 KStG 1934.
23
See Privatstiftungsgesetz, BGBl 1993/694.
24
Sec 5 Z 11 combined with Sec 13 KStG 1988.
22
7
significantly. Limited tax liability is not anymore restricted to income subject to a source tax,
but all capital income and income from the alienation of real estate is nowadays taxable
income.25
2. Legislative technique
Sec 1 KStG 1988 enumerates classes of legal entities, which fall under CIT. Legal persons
governed by private law are subject to unlimited tax liability. Legal persons governed by
public law are subject to limited tax liability. Thus, legal personality is one criterion to define
taxable entities under CIT. Whether a legal entity governed by private law has legal
personality is exhaustively regulated by Austrian company law. Whether a legal entity is a
legal person governed by public law is usually explicitly announced within the law
establishing the entity.
Separate from a legal person governed by public law a “Betrieb gewerblicher Art”, which is a
commercial institutions established and owned by the legal person governed by public law
and which is lacking any personality, is deemed to be a taxable entity. In this case, the
commercial activity is the general criterion to qualify as a taxable entity with respect to CIT.
The formal criteria for a “Betrieb gewerblicher Art” are set out in Sec 2 KStG.
According to Sec 1 (2) 3 KStG societies, institutions, foundations and other special purpose
funds, not having legal capacity, are taxable entities, if the income is not taxed in the hands of
another person (Sec 3 KStG). This norm must be understood as “catch-all” clause.
Foreign entities fall under CIT, if they resemble a domestic taxable entity.26
3. Domestic entities
3.1. First approach
The first sentence of Sec. 1 KStG states: Only corporate bodies fall under CIT. The following
domestic entities are classified as corporate bodies subject to unlimited CIT liability:
1. Legal persons governed by private law (stock corporation*, limited liability
company*, societas europaea, commercial and industrial cooperatives*, mutual
insurance society*, association, private foundation, foundations and funds according
25
26
See Sec 21 (2) and (3) KStG.
Sec 1 (3) 1 KStG
8
to the BStFG27 and comparable acts of the nine federal countries, institutions and other
special-purpose assets having legal capacity, mutual savings banks* and associations
of persons in matters connected to agrarian reform and “Siedlungsträger” which are
entities which have the task to buy properties, further decedent estates, if there is no
heir.28
2. ”Betriebe gewerblicher Art” (commercial institutions) of legal persons governed by
public law*.
3. Societies, institutions, foundations and other special purpose funds, not having legal
capacity, if no other taxable person is taxed on that income.
Austrian legal persons governed by public law as well as corporate entities mentioned above,
which are exempt from CIT (e.g. charities), are subject to limited tax liability.29
The Parent-Subsidiary-Directive mentions in its annex all legal entities marked above with a
star (*). Additionally the directive names “other companies constituted under Austrian law
subject to Austrian corporate tax“. The meaning of the latter phrase is unclear. If a “company”
in the meaning of this phrase is a legal entity owned by shareholders, then according to
Austrian law there are no other forms of companies which could qualify for the benefits of the
directive. Partnerships are no taxable entities in Austria with respect to income taxes and other
corporate bodies, which fall under CIT (like associations and private foundations), do not
have shareholders and thus do not qualify as companies.30 If the term “company” is
understood in a broad sense, than associations and foundations should at least be able to
qualify as parent companies. But, maybe the relevance of this phrase is somewhere in the
future, when new forms of legal entities are introduced in Austrian commercial law. Besides,
prior the amendment of the Parent-Subsidiary-Directive by Directive 2003/123/EG only stock
corporations and limited liability companies were enumerated within the annex to the
directive.
According to the annex to the Interest-Royalty-Directive only stock corporations and limited
liability companies fall under the directive.
The CCCTB-Draft-Directive provides for the same list of companies subject to the directive
than the Parent-Subsidiary-Directive. Once again, it can be discussed over the meaning of the
phrase “other companies constituted under Austrian law subject to Austrian corporate tax”.
27
Bundes-Stiftungs- und Fondsgesetz, BGBl 1975/11.
See Körperschaftsteuerrichtlinien (guidelines [decree] by the Ministry of Finance for CIT; subseq: KStR) Rz 7
et seq; Achatz/Bieber in Achatz/Kirchmayr, KStG, § 1 Tz 88 - 110.
29
See Sec 1 (3) 2 and 3 KStG.
30
See Kofler, Mutter-Tochter-Richtlinie, Kommentar (2010) Art 2 Rz 19.
28
9
No taxable entities with respect to CIT are any form of a partnership like a general
partnership, a limited partnership. Even hybrid forms like a limited partnership with a limited
liability company as only fully liable partner (GmbH & Co KG) is not a taxable person,
further civil law partnerships, the European Economic Interest Grouping and (atypical) silent
partnerships.31 All kind of partnerships are treated tax transparent.
Societies, institutions, foundations and other special purpose funds, not having legal capacity,
are not taxed under the CITA, if their income is taxed in the hands of other persons.32 Income
of decedent estates is attributed to the heirs and taxed in their hands.33 If there are no heirs,
then the decedent estate is a taxable entity.
Whether an entity is fall under CIT primarily depends on the legal form of the entity.
Corporate bodies having legal personality are taxable entities with respect to CIT,
partnerships are transparent. Partners of a partnership - according to company law – have
usually the right to withdraw their share in the partnership´s profit.34 Additionally, partners of
a partnership are liable for the partnership´s debt. Albeit, limited partners are only liable to the
extent they have promised to pay in their capital contribution. General partners are appointed
by law to manage the partnership. For those reasons the partnership´s profit is attributed to the
partners and taxed in their hands. Moreover, the Austrian tax law (like the German tax law)
aims to treat partners of a partnership, called co-entrepreneurs, like sole-entrepreneurs. Hence,
remunerations paid by the partnership for services rendered by the partner are deemed to be
part of the income received from the partnership and not income from rendering such
services.
In contrast, shareholders of a company are only entitled to dividends. The amount of the
dividends depends on the profit distribution decision. The company may also retain the
profits. Shareholders are not liable for the company´s debts. Companies are not necessarily
managed by shareholders. Companies are to a certain degree independent from their
shareholders. Because of this independency corporations have their own ability to pay taxes.
Additionally, for reasons of competition, it seems necessary to tax corporations at least on
retained profits. If, on the other hand, corporate profits are taxed in general, it seems
necessary to set measures to avoid or at least reduce the effects of economic double taxation.
The many differences between corporations and partnerships with respect to company law
justify to tax corporations and partnerships differently. But the decisive factor for being a
31
See Mayr/Herzog/Blasina/Schwarzinger/Schlager, SWK spezial, Körperschaftsteuer 2010, 14ff.
Sec 3 KStG.
33
Achatz/Bieber in Achatz/Kirchmayr, KStG § 1 Tz 208 et seq.
34
Sec 122 (1) Commercial Code (Unternehmensgesetzbuch).
32
10
taxable entity regarding CIT is – according to Austrian tax law – not the extent of liability, the
question, who is managing the company, or anything else, but solely the legal form of the
company.
“Betriebe gewerblicher Art” of legal persons governed by public law are subject to unlimited
tax liability because of reasons of competition. If such legal persons render services, which
could also be performed by private persons, they have to pay the same taxes as private
persons.35
3.2. More details
3.2.1. Link between company law and tax law
Only corporations are taxable entities with respect to CIT. Legal persons governed by private
law are subject to unlimited tax liability.36 Whether an entity is a legal person governed by
private law is provided for by the various company law acts or other acts establishing special
purpose entities. Partnerships, according to company law, have legal capacity to a certain
degree, but they are not deemed to be legal persons. Finally, it should be mentioned that it is
not possible to invent a new type of company or to establish a legal person simply by
concluding a treaty or a statute. The way, how to establish a legal person, is regulated by the
existing company law.
Legal persons governed by public law are subject to limited tax liability.37 Whether an entity
established under public law has legal personality, is usually stated within the act establishing
the legal entity.
Generally, it must be said, that there is a close link between company as well as public law in
that way, that corporate entities with legal personality are taxable entities with respect to CIT.
The “Betrieb gewerblicher Art” is an exception from that rule. It is – according to civil law –
a dependent administrative unit of a legal person governed by public law.38 Societies,
institutions, foundations and other special purpose funds, not having legal capacity, are
taxable subjects, if no other taxable person is taxed on that income. “Without legal capacity”
in this context does not mean, that those entities do not have any legal capacity, but that those
entities lack legal personality. This provision is to be understood as a “catch all”-rule. The
scope of this provision is very narrow, because Austrian entities without legal personality are
35
See Achatz in Achatz/Kirchmayr, KStG § 2 Rz 5.
Sec 1 (2) 1 KStG.
37
Sec 1 (3) 2 KStG.
38
See Achatz/Bieber in Achatz/Kirchmayr, KStG § 1 Rz 213.
36
11
taxed transparently (e.g. partnerships) and foreign entities resembling an Austrian entity (e.g.
a foreign partnership) are taxed like the comparable Austrian entity. Only foreign entities
without legal personality, which are not comparable with any Austrian tax transparent entity
and has a place of management within Austria, could fall under that rule.39 Anyhow, this is
another exception from the rule, that only legal persons governed by private or public law are
taxable entities with respect to CIT.
As a result of the formal distinction between legal entities governed by private law, being
taxable subjects with respect to CIT, and partnerships, being taxed transparently, even a
GmbH & Co KG (i.e. a limited partnership with a limited liability company as only liable
partner) is not a taxable entity with regarding CIT, but it´s profit is attributed to the partners. 40
On the other hand, a limited liability company, which is 100 % owned and managed by the
only shareholder (one-person company), is a taxable entity regarding CIT.41 It should be
mentioned, that in the latter case the tax authorities more and more often raise the question,
who is the person participating in the market and therefore receiving taxable income. In case
of services, which are usually rendered by natural persons (eg services of artists or scientists),
the income is attributed to the shareholder and not the company.42
Corporations cannot be outside the scope of CIT, but they can be exempt from unlimited tax
liability. In this case they remain to be subject to limited tax liability.
3.2.2. Charitable organizations and associations
Corporations in the meaning of Sec 1 (2) KStG, if serving public benefit purposes, charitable
purposes or religious purposes, are exempt from unlimited tax liability.43 They are taxed on
certain kind of income like capital income and income from the alienation of real estate44 and
further on income derived from running a business, except the business is necessary to reach
the charitable goals of the corporation. To be a charitable organization has no effect on the
fact, that the corporation is a taxable entity regarding CIT, but it effects the extent of taxable
income.
39
See Hohenwarter in Lang/Schuch/Staringer, KStG § 1 Rz 46.
See Mayr/Herzog/Blasina/Schwarzinger/Schlager, SWK spezial, Körperschaftsteuer 2010, 14 et seq.
41
See Blasina/Moderessy in Quantschnigg/Renner/Schellmann/Stöger, KStG § 1 Rz 142.
42
See Einkommensteuerrichtlinien (guidelines [decree] of the Ministry of Finance for IIT; subseq: EStR) Rz 104
et seq.
43
Sec 5 Nr 6 KStG combinded with Sec 34 – 47 Fiscal Code.
44
Sec 21 (2) and (3) KStG.
40
12
Charitable corporations are taxpayers for VAT purposes. Services rendered by charitable
corporations are, if not tax exempt45, taxed at a reduced VAT rate46. If a person a priori does
not aim to make a profit, he is no taxpayer at all.47 There is a presumption that charitable
associations do not have business activities relevant for VAT purposes. Since in this case
charitable organizations are not entitled to deduct input VAT, they can opt for taxation, if the
revenue of those activities regularly exceed Euro 2.900 each year.48 This practice bases on a
decree by the Minister of Finance, it has no legal basis.
The exemption for charitable organizations from unlimited tax liability is applicable to
foreign corporations having neither a place of management nor a seat within Austria, if they
have a seat or place of management within the EU or the EEA or if they serve for a public
benefit purpose, a charitable or religious purpose mainly within Austria.49 The foreign
corporation, on request of the tax administration, has to prove, that all requirements for being
a charitable organization are fulfilled.50
3.3.3. Miscellaneous on CIT subjects
The legal form of a trust does not exist in Austria. An Austrian private foundation is similar to
a trust in that way, that the foundation is a special purpose fund without any owners. A private
foundation has legal personality.51 Hence, the private foundation is a taxable entity regarding
CIT. If the private foundation complies with the obligations concerning disclosure of the
beneficiaries, then the private foundation is subject to a preferential tax treatment.52
Income from a silent participation in a company is treated like income from a loan given to
the company. The company may deduct the silent partner´s share in profit as business
expenses. The silent partner receives income from capital investments. If a silent partner does
not only participate in the company´s profit but also in hidden reserves of the company, then
this silent partnership (called atypical silent partnership) is treated like any other co-
45
Sec 6 (1) Turn Over Tax Act (Umsatzsteuergesetz).
Sec 10 (1) 7 Turn Over Tax Act.
47
Sec 2 (5) Turn Over Tax Act.
48
See Vereinsrichtlinien (guidelines [decree] of the Ministry of Finance for the taxation of associations; subseq:
VereinsRL) Rz 463.
49
Sec 21 (1) 1 KStG.
50
Sec 34 (1) Fiscal Code (Bundesabgabenordnung).
51
See Kubik, Der Trust im Steuerrecht (2011) 52 et seq.
52
Sec 13 KStG.
46
13
entrepreneurship (partnership). This means, atypical silent partnerships are no taxable entity
with respect to CIT, they are tax transparent.53
State-owned corporations are taxed like any other corporation. There are some special profit
calculation rules for public utility companies54, but those rules do not affect the companies to
be a taxable entity with respect to CIT.
“Betriebe gewerblicher Art” of legal persons governed by public law are in general subject to
unlimited tax liability separate from the legal person owning the business. If the services
rendered by the “Betrieb gewerblicher Art” are for public or charitable purposes, the “Betrieb
gewerblicher Art” is exempt from unlimited tax liability like other corporate entities.
Companies may apply for being taxed as a group, if the parent company (group leader)
directly or indirectly holds more than 50 % of the shares of the subsidiary (group member)
and has the majority in voting rights. Companies belonging to a group remain to be taxable
entities. They first have to calculate their taxable profit on a stand-alone basis. This affects
e.g. the deduction of pre-group losses55, the deduction of domestic and foreign tax credits56
and the minimum CIT57. The tax administration has to provide a notice stating the amount of
the group member´s profit.58 In a second step, the group member´s profit is attributed to the
group leader. The group leader pays CIT on basis of the consolidated profits and losses.
3.3.4. Partial implementation of CIT
Limited partnerships are considered tax transparent. There is no option for partnerships to
fully or partially fall within the scope of CIT.
3.3.5. Tax planning
Corporations and partnerships are taxed differently. The most significant disparities are
related to the structure of the marginal tax rate, the taxation of retained profits and the
possibility to compensate losses. When in 2005 the CIT rate was reduced from 34 % to 25 %,
there was a run into the legal form of a limited liability company. The combined marginal tax
rate of CIT and IIT since then amounts to 43,75 %, which is lower than the nominal marginal
53
See Mayr/Herzog/Blasina/Schwarzinger/Schlager, SWK spezial, Körperschaftsteuer 2010, 16.
See Sec 2 (4) KStG.
55
Sec 9 (6) 4 KStG.
56
Sec 24a (1) 1 KStG.
57
Sec 24a (4) KStG.
58
Sec 24a (1) 1 KStG.
54
14
tax rate for individuals (50 %). In the meantime, individuals can make use of a tax exempt
amount of up to 13 % of the profit (the tax exempt amount is limited to an amount of Euro
100.000; in the years 2013 – 2016 the amount is reduced for budgetary reasons). The tax
exempt amount reduces the marginal IIT rate in the optimum case to 43,5 %, which is equal to
the marginal tax rate for distributed company profits.
The disadvantages of the CIT rate structure (flat rate instead of progressive IIT rate) can be
circumvent by paying director´s fees or other remunerations to the shareholders.
Companies (corporations) subject to unlimited tax liability have to pay a minimum CIT, no
matter if they achieve a profit or not. The minimum CIT can be carried forward and is
creditable against future CIT liabilities.59
If a company is under control of one person (alone or together with relatives), has no
personnel and the services rendered by the company are services, which by law or usually are
rendered by individuals (services of artists, scientists, lecturers, company directors, members
a supervisory board), then the income derived is attributed to the shareholder and not to the
company, even if the company is obliged by contract to render the services.60
Individuals running a business with revenues of less than Euro 220.000 may calculate their
profit on a lump-sum basis.61 This also applies to individuals as partners of a partnership. In
this case, the partnership´s revenues may not exceed the amount of Euro 220.000. Partners of
a partnership may offset losses of the partnership against other income. These are the tax
advantages for partnerships.
The most relevant disadvantages of companies result from company law: In order to form a
limited liability company it is necessary to provide it with capital of at least Euro 35.000
(Euro 70.000 for stock corporations), the profit is always calculated under double entry bookkeeping, the annual financial statement has to be filed with the commercial register or even
published within a certain newspaper, the annual financial statements of companies and
partnerships with limited liability, if no individual is liable as general partner, and the
financial statements of corporations are subject to a statutory audit. Only small companies
(limited partnerships) are exempt from that duty.
In the 1980ies and 90ies there was a broader discussion about the necessity or possibility to
introduce a business tax system, that should be neutral with respect to the legal form of the
59
Sec 24 (4) KStG.
See EStR Rz 104 et seq.
61
Sec 17 EStG.
60
15
entity running the business.62 Since then, the discussion about a neutral taxation of the
different legal forms is more or less reduced to the claim for measures to eliminate economic
double taxation of dividends and on level of CIT to exempt profits from the alienation of
shares. In 2003 the legislator introduced a preferential tax system for retained profits on level
of IIT. The system was difficult to apply and to administrate and was therefore abolished in
2009.
In case that a partner of a partnership leases real estate to a partnership, the real estate is for
tax purposes treated like business property of the partnership. Profits from the alienation of
that property were taxable. If on the other hand a shareholder leases real estate to his
company, the real estate remains part of the shareholder´s private property. Until April 2012
the alienation of private real estate was not taxable, if the real estate was sold more than 10
years after it was bought. Nowadays profits from the alienation of real estate, which is part of
the long-term assets of a business, as well as real estate, which is part of the private property
of an individual, is equally taxed at a flat rate of 25 %.63 Hence, it is not disadvantageous any
more to form a partnership in case of letting private real estate to the business.
The differences in the taxation of partnerships and companies are used for tax planning in
Austria. It would be easier and maybe more fair, if at least partnerships with annual turnovers
of more than Euro 700.000, which are obliged to calculate their profits according to
commercial law under double entry book-keeping, are taxed like companies.
4. Cross-border situations
Foreign entities fall under Austrian CIT, if they resemble a domestic corporate entity in the
meaning of the KStG. In connection with limited tax liability Sec 1 (3) 1 KStG states: “As
corporate entities count:
a) Corporate entities, associations and funds, which resemble a domestic legal person.
b) Societies, institutions, foundations and other special purpose funds, not having legal
capacity, if no other taxable person is taxed on that income (Sec 3).”
62
See Gassner, Steuerreform 2005 - Wie soll es weitergehen?, FJ 2004, 89; Kirchmayr/Achatz, Die
Unternehmenssteuerreform auf dem Weg zur Business Tax, taxlex 2006, 49; Heinrich, Die
Rechtsformneutralität der Besteuerung – rechtspolitisches Ziel oder rechtliches Gebot, in Achatz et al (editors),
Steuerrecht, Verfassungsrecht, Europarecht, Festschrift Ruppe (2007) 203 with references to the discussion in
the 80ies and 90ies.
63
Sec 30 EStG.
16
Though not stated explicitly within the law, the resembling test is also used for determining
whether a foreign entity, which has a place of management within Austria, is subject to
unlimited tax liability, because it resembles an Austrian legal person of private law.64
The qualification of a foreign entity as legal person or taxable entity according to the civil or
tax law of the other state is not material for the treatment of the entity under Austrian CIT.
The foreign entity must resemble an Austrian entity against the background of Austrian
company law. It is not necessary, that the foreign entity resembles an Austrian entity in every
particular. In the whole, the foreign entity must be comparable to an Austrian entity with
respect to its economic position and its legal organizational structure.65
A foreign company should resemble an Austrian company with respect to the following
criteria:66
− Legal personality due to foreign law,
− share capital, which is independent from profits or losses, and assets, that belong to the
company,
− shareholding of one or more persons in the capital of the company,
− limited liability to the amount of the company´s assets,
− participation of the shareholders in the decision-making process,
− transferability of shares without consent of other shareholders,
− duty to pay in the share capital,
− duty to register with the commercial register.
Foreign entities, alike Austrian entities, cannot opt for being treated transparent or opaque.
The treatment of an entity as taxable entity regarding CIT depends solely on the legal form of
the entity and in case of a foreign entity on the result of the resemblance test.
Art 2 a (iii) of the Parent-Subsidiary-Directive is of no relevance with respect to Austrian
companies, because there is no choice to fall within the scope of CIT. With respect to foreign
companies the “subject to CIT” condition is not material since dividends of companies, which
fall under the Parent-Subsidiary-Directive, are favoured under the Austrian international
affiliation privilege, which is more generous than the standards given by the ParentSubsidiary-Directive. Such dividends are either exempt or, in case of a subsidiary, which is
resident within a low tax country and mainly receives passive income, the parent company my
64
Sec 1 (2) KStG.
See KStR Rz 110.
66
See KStR Rz 110a.
65
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credit the foreign CIT against its tax liability.67 For the application of the international
affiliation privilege it is not material, that the foreign company is – according to its domestic
law – treated as a taxable entity or opted to be tax transparent.68
In the opinion of the Ministry of Finance, the international affiliation privilege, which serves
to implement the Parent-Subsidiary-Directive, is not applicable to companies which fall under
the Parent-Subsidiary-Directive, but resemble an Austrian partnership (e.g. a foreign limited
partnership, which is treated as company in its state of residence). In this case, the foreign
partnership´s profit should be attributed to the Austrian parent company in the year of its
accrual. The profit is not taxed in the hands of the parent company, because due to the
application of a double tax treaty it is exempt as business income derived through a permanent
establishment situated within the other contracting state. If later on the profit is withdrawn
from the partnership, this is no taxable event due to Austrian tax law.69 Unfortunately, the
Ministry on Finance gives no answer to the question, how double taxation is eliminated in that
case, that the subsidiary is not receiving business income but income (like e.g. interests),
which – in case of a transparent partnership – might be taxed by the state of residence of the
partner. Applying the opinion of the Ministry of Finance, the profit of the foreign entity would
be subject to CIT in the foreign state, where the partnership has its seat, and a second time in
Austria as income of the parent company, which is regarded as partner in a transparent
partnership. This result seems to infringe the rules of the Parent-Subsidiary-Directive.
67
Sec 10 (1) 7 combined with (2) and (4) KStG.
See KStR Rz 551.
69
See KStR Rz 551.
68
18