The Federal Tax Court (Bundesfinanzgericht ) recently held that interest expenses incurred in connection with the acquisition of an affiliated company within a tax group are not tax-deductible. This decision contradicts a former decision of said court.
Under Austrian tax law, no deduction is possible for interest in connection with debt arising from the acquisition of shares that were, directly or indirectly, purchased from a group company or from a controlling shareholder. The question whether this prohibition also applies in case of acquisitions within a tax group (Unternehmensgruppe) is contentious. Pursuant to sec. 9 of the Austrian Corporate Income Tax Act (Köperschaftsteuergesetz ), affiliated companies may form a tax group by jointly filing a group taxation application with the tax authorities, resulting in 100% of the taxable income of each member of the group being attributed to the top-tier company in the tax group.
In a decision of 2015 (22 October 2015, RV/4100145/2012) the Federal Tax Court ruled that interest expenses are, in principle, tax-deductible as there is an economic link between interest expenses for the acquisition of a company that are borne by the toptier company and income of the top-tier company. This follows from the fact that the income of the acquired company, as a group member, is attributed to the group parent.
However, in a comparable case the Federal Tax Court recently denied the interest deduction. In its decision (10 June 2016, RV/7102088/2013), the court had to deal with an intra-group loan provided by a group member to its top-tier company for financing the acquisition of two target companies. The tax office and subsequently the Federal Tax Court denied the deduction of the interest paid by the top-tier company even though the taxpayer had referred to the decision cited above. As a result, by not allowing the deduction of the interest paid by the top-tier company and by taxing the interest income of the group member that is to be attributed to the top-tier company, double taxation occurred. An appeal against this decision is pending.
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