In the course of the enactment of the Austrian Alternative Investment Funds Managers Act, the Austrian fund taxation regime was amended, thereby becoming applicable to any and all alternative investment funds, irrespective of their state of origin and the legal form in which they are organized.
Austrian fund taxation regime
Austrian tax law provides for a specific tax regime for investment funds. Such fund tax regime is characterized by the fund being treated as a tax-transparent vehicle (thereby having no shielding effect). As a result, any income will be taxed on the level of the investors. This applies to income distributed by the fund, as well as to any income accrued but not distributed to the investors (so-called deemed distributions). Prior to the enactment of the Austrian Alternative Investment Funds Managers Act (AIFMA) into Austrian law, this fund taxation regime applied to Austrian investment funds (comprising regulated vehicles within the scope of the Austrian Investment Funds Act (AIFA)), as well as to foreign investment funds. The latter were defined as any assets subject to a foreign jurisdiction that, irrespective of the legal form in which they are organized, were invested according to the principles of fund risk diversification on the basis of a statute, of the entity's articles, or of customary exercise. Despite such a rather broad definition, private equity funds were typically outside the scope of the Austrian fund taxation regime if, in particular, the funds were actively engaged in the management and business of the target companies and the participations held in the target companies exceeded a threshold of 25%. As a result thereof, Austrian resident investors of private equity funds set up in a legal form comparable to an Austrian corporation were only subject with income distributed by the fund.
Amendment of the Austrian fund taxation regime
In the course of the enactment of the AIFMA, which implements the provisions of EC Directive 2011/61/EC on Alternative Investment Fund Managers (AIFMD), both the definition of the terms "Austrian investment fund" and "foreign investment funds" were amended. More precisely, both terms were extended and now also comprise alternative investment funds (AIF). As a result, any AIF, irrespective of whether it is an Austrian or a foreign vehicle and whether it is set up as a corporation, partnership or fund structure, will be subject to the Austrian fund taxation regime.
Definition of AIFs
The AIFMA defines an AIF as a collective investment undertaking, including investment compartments thereof, which (i) raises capital from a number of investors with a view to investing it in accordance with a defined investment policy for the benefit of these investors and without the capital raised directly serving operating activities, and (ii) does not require authorization under Art 5 of EC Directive 2009/65/EC, ie it is not an undertaking for collective investment in transferable securities (UCIT). Given that rather broad definition of an AIF, its scope is not entirely clear. Considering, however, that the provisions of AIFMD primarily target private equity funds and hedge funds, these types of vehicles will most likely be within the scope of the term AIF, thereby triggering application of the Austrian fund taxation regime.
In particular, it may be questionable whether acquisition vehicles or finance vehicles may qualify as AIF thereby being subject to the Austrian fund taxation regime. As a result, even if such vehicle were set up in a legal form comparable to a corporation, this would not shield the investors from immediate taxation with income accrued on the level of the fund.
Since the concept of AIF has been introduced into Austrian (tax) law only recently, there are no precedents nor published rulings available in this respect. Due to the tax provisions technically referring to the definition of an AIF in the sense of the AIFMA, one may argue that the qualification of a vehicle for regulatory purposes shall also be relevant (and binding) for Austrian tax purposes. In particular with respect to foreign vehicles, it is currently not clear whether the Austrian tax authorities will follow the qualification of a foreign vehicle as either being an AIF or as being exempt resolved on by a foreign regulatory authority in any case (eg if the foreign supervisory authority qualifies a vehicle as being outside the scope of the AIFMD), but may rather pursue their own analysis leading to a different result.
Summarizing, domestic as well as international tax planning structures have to be carefully analysed in order to avoid any negative impact on the investors' level due to eg an Austrian or a foreign acquisition or finance vehicle being treated as an AIF, thereby triggering application of the Austrian fund taxation regime.
Quote: Due to the implementation of the EC Directive on Alternative Investment Fund Managers into Austrian law, both domestic and international tax planning requires careful structuring in order to avoid the application of the Austrian fund taxation regime.
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