Austria: Cash-Box Import Mergers - Fictitious Distributions

Inbound dividends from low-tax jurisdictions may not be exempt from Austrian corporate income tax under the Austrian international participation exemption but may be subject to a switch-over to the credit method. In the past, such profits could be repatriated by way of a tax neutral import merger instead. However, a recent amendment to the Austrian Reorganisation Tax Act may lead to a fictitious distribution in such cases.

Switch-over for inbound dividends

Under the (Austrian) international participation exemption (at least 10% shareholding held for at least one year), foreign source dividends received by the Austrian parent corporation are generally exempt from Austrian corporate income tax. However, under a statutory assumption of misuse the exemption does not apply if (simplified) the predominant business purpose of the foreign corporation is the generation of passive income (passive-income test) and the income of the foreign corporation is subject to taxation that is not comparable to Austrian corporate income taxation (no-comparable-taxation test).

If misuse is assumed under these tests, a switch-over from the exemption method to the credit method applies. That is, the foreign dividends are not exempt from Austrian corporate income tax at the level of the Austrian parent corporation but the foreign tax is credited against the Austrian corporate income tax liability.

Repatriation of profits by import merger

Due to this switch-over rule, the repatriation by way of a dividend of profits from a subsidiary generating predominantly passive income (eg, interest or royalties) in a low-tax jurisdiction would be subject to Austrian corporate income tax and there would only be a credit for the (low) foreign tax on the distributed amount. As a consequence, such profits were not distributed but retained in the foreign subsidiary (cash-box).

Instead of the repatriation of profits by way of a dividend, the retained foreign profits could be repatriated by a tax neutral (import) merger of the cash-box corporation into the Austrian parent corporation within the scope of the Austrian International Reorganisation Tax Act. In this case, the difference between the book value of the shareholding and the received net assets (including the retained profits) resulted in a tax neutral book profit at the level of the Austrian parent corporation.

Fictitious distributions

With the Tax Amendment Act 2010, a new provision was introduced that applies to mergers resolved after 30 June 2010. According to this provision, there shall be a fictitious distribution in the case of an import merger if, at the effective date of the merger, the prerequisites for a switch-over under the Austrian international participation exemption are met. The new provision also covers the special switch-over rules for certain foreign portfolio shareholdings (less than 10% shareholdings). However, portfolio shareholdings should not be practically relevant within the present context.

If the prerequisites for the switch-over are met, the difference between the net assets accounted for in the balance sheet of the foreign subsidiary and the paid-in registered capital are deemed distributed as an overt distribution at the beginning of the day following the effective date of the merger.

Amount of fictitious distribution

The above-mentioned calculation of the fictitiously distributed amount (net assets reduced by paid-in registered capital) does not take into account other contributions than those made on registered capital. Under Austrian accounting law, such other contributions would be accounted for as a capital reserve. Consequently, if the prerequisites for the switch-over are met, the import merger may result in a taxable (fictitious) distribution of previous contributions accounted for as a capital reserve.

Disregarding contributions to capital reserves for present purposes was reasoned with the suspicion that there is not always a clear distinction between profit reserves and capital reserves in low tax jurisdictions. However, under the Decree of the Austrian Federal Ministry of Finance on the Repayment of Contributions, the principles of contributions and repayments of contributions shall also apply to comparable foreign corporations to the extent proof is provided that a certain payment is a repayment of a contribution. On that basis, the general restriction to paid-in registered capital seems unreasonable in cases where proof of repayment of a contribution can be provided.

Further, not the entire registered capital reduces the amount of the fictitious distribution, but only paid-in registered capital. In contrast, registered capital due to a capital increase that is funded out of the profits of the foreign corporation would not be taken into account (because such registered capital is not considered "paid-in").

Assessment at the effective date of the merger

The business purpose of a corporation may change over time. As a consequence, the retained profits of the foreign corporation may consist of profits from both periods with a predominantly passive business purpose and periods with a predominantly active business purpose. Equally, changes in the applicable local tax regime may result in profits that were subject to a tax comparable to Austrian corporate income tax and profits which were not.

When applying the passive-income test and the no-comparable-taxation test under the international participation exemption, such changes are taken into consideration. As a result, certain portions of a dividend may fall under the exemption while other portions are subject to the switch-over.

Under the new provision for import mergers, the facts and circumstances at the effective date of the merger are decisive as to whether the retained profits are deemed distributed. If the prerequisites for the switch-over are met at this time, the fictitious distribution is triggered. However, if a fictitious distribution is triggered, the exemption method should apply to portions of the fictitious distribution that were not generated under circumstances that would lead to a switch-over.

Conformity with union law?

Commentators have questioned the new provision in light of the freedom of establishment and the Merger Directive. Arguments were brought forward both for and against conformity with union law. These considerations may be relevant with respect to the import merger of a foreign subsidiary resident in another EU member state, particularly Ireland or Cyprus, however not in low-tax jurisdictions outside the EU.

This article was originally published in the schoenherr roadmap`11 - if you would like to receive a complimentary copy of this publication, please visit:

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions