date | theme

25. April 2021 | GmbH & Co KG in Austria: 25% tax at German bodies!

30. April 2021 | GmbH in Austria – Taxes compared to the German GmbH

17. May 2021 | Tax law in Austria: ESt / KöSt / VAT & real estate income tax

27. November 2021 | Group taxation in Austria & German bodies in comparison (this contribution)

What is referred to in German tax law as an organization is known in a very similar form in Austria as group taxation. However, in addition to the different designation, there are also some other differences. Some of them are even quite significant. Thus, the group carrier of a group taxed by group taxation is necessarily a corporation. There may even be several group carriers. They then form a community of participation. In addition, at least 50 % of the subordinate members of the group shall participate. Furthermore, an income transfer agreement connects group carriers and group members. This contract must be valid for at least three years. However, the most significant difference between group taxation in Austria and the taxation of a German body is that an Austrian group carrier can also accept foreign group members.

We explain how Austrian group taxation differs from the taxation of a German body.

Austria and Germany have many things in common. Language, history and tax law are closely intertwined. Many tax consultants in both countries are convinced that large parts of Austrian tax law are borrowed from the German example. This also applies to what is called group taxation in Austria.

At first glance one may not find any German equivalent to this term. The Austrian name basically even more accurately indicates what this is all about. Group taxation is simply about taxing a group of companies. This refers to a group of companies that want to be taxed jointly. By now at the latest, it should be clear to all readers skilled in matters of corporate taxation that the German counterpart to Austrian group taxation is the taxation of an organization.

So with group taxation in Austria there is an analogue to the taxation of a German organization. Now, of course, this is hardly surprising, if, as described earlier, one can assume that Austria probably took many aspects of German tax law into its own. But this has always been an opportunity to think about possible improvements or adaptations to national circumstances. Therefore, a comparison between Austrian and German tax laws may often overshadow the first impression by astonishing similarities, but it is also worth looking at the differences. And it is precisely these that we want to take a closer look at here in the context of a comparison between group taxation in Austria and the taxation of an organisation in Germany.

First of all, however, we must note an introductory limitation. While group taxation in Austria is only relevant in the context of corporate tax assessment, the taxation of an organisation in Germany can take place in three ways. Because in Germany, in addition to the taxation of organs by corporation tax, there is also a trade tax and a sales tax special regulation. In this article, however, we focus exclusively on the comparable regulations contained in the corporate tax laws in Austria and Germany.

We now proceed in such a way that we present the most important aspects of both the Austrian and German legal situation in detail. In doing so, we first show which legal rules are relevant for the organisation in Germany and then show the provisions applicable to Austrian group taxation.

The organ carrier of a German organization can either be a commercially active partnership or a corporation. Therefore, both sole proprietorships and partnerships can be considered as partnerships. Companies and companies that do not engage in any commercial activity (for example a vermögensverwaltende GmbH) are excluded as organ carriers.

In Austria, neither a sole proprietorship nor a partnership can be considered as group sponsor. In order to bring about group taxation, the group carrier must therefore primarily be a corporation. This is usually a GmbH. However, other forms of enterprise can also be considered. These include cooperatives, mutual societies and credit institutions. In addition, a community of participation of several jointly acting group sponsors can be considered, but this is a special case with special rules. In addition, it should be noted that indirect participation via an intermediary partnership is also permitted.

Both a German organ carrier and an Austrian group carrier must meet the requirement of an unlimited tax liability in the respective country. But there are also exceptions in both countries. Thus, in Austria, foreign companies with limited taxation can also be considered if they have both the registered office and the place of management in an EEA country and have a registered office in the respective country.

As an organ company, only certain corporations come into consideration. For example, only the company forms GmbH, AG, KGaA and SE are permitted. In principle, the integration of a foreign company as an organ company into an organization is also possible, because the entrepreneurial conditions applicable for this are quite achievable. However, the claim also made for a civilly effective profit transfer agreement within the meaning of Section 291 (1) AktG constitutes an insurmountable hurdle for foreign companies. According to § 294 (2) AktG, only the entry of the contract in the commercial register of the registered office of the organ company brings about the required effectiveness. However, because the registered office of a potential foreign organ company is located abroad, no effective contract can be concluded under German civil law. Therefore, foreign organ companies in Germany remain virtually excluded.

In Austria too, restrictions regarding the suitability as a group member in group taxation must be observed. For example, only domestically taxable corporations and trade associations can be considered. However, foreign companies that are comparable to the aforementioned domestic companies can also be considered as group members in the group taxation. However, the prerequisite for this is that the foreign group member is either resident in the EEA area or in a country that has an agreement with Austria for the mutual tax exchange of information (Tax Information Exchange Agreement, TIEA for short). Double taxation agreements by which both contracting states undertake mutual assistance can also fulfil this condition.

German tax law stipulates in § 14 KStG that an organ carrier must be a majority shareholder in an organ company. This means that a participation of 50% or less is too low to establish an organisation under German law. At the same time, a body carrier must also have a majority of the voting rights in each of its body companies.

In order to be able to carry out group taxation in Austria, a group sponsor must also hold more than 50% of the shares in each group member (§ 9 (4) KStG). In addition, a group carrier must also have a majority of the voting rights of its group members. In this respect, there are no significant differences between the German body and the Austrian group of companies.

Furthermore, the peculiarities of a participating community as a group carrier in group taxation are important. In this case, Austrian tax law stipulates that the participation community achieves a minimum shareholding of 50% in the group member. In parallel, at least one of the members of the participating community must have an individual participation of 40 %. All other members of the participating community must also hold at least 15 % of the shares. From a purely mathematical point of view, a minimum de facto participation of 55 % is therefore necessary in order to allow a joint venture to act as a group sponsor. A member of a participating community must not be a member of a group at the same time.

The connection between the organ carrier and the organ company that establishes an organ partnership is the profit transfer agreement. In it, the organ company undertakes to transfer profits to the organ carrier. Conversely, the organ carrier also undertakes to offset losses at the level of the organ company. Furthermore, this Treaty must be valid for five years and must actually be applied. Otherwise, there may be retroactive taxation of individual companies. In addition, the offsetting of losses is only allowed within the contract period. Corporate losses that existed before joining a board are therefore not taken into account when setting losses within the board. Such losses must then offset the respective company itself with its own profits.

Also in Austria, the conclusion of a profit transfer agreement between group carriers and group members is mandatory for the application of group taxation. However, the minimum contract term required for this is only three years. However, there is also the requirement that previous losses are not taken into account in group taxation. As with the German scheme, losses incurred before the signing of the profit and loss transfer agreement must therefore be compensated within the company. In Austria, such losses are also called pregroup losses.

In order to tax a German body under the legal regulations applicable for this purpose, no separate application is envisaged.

In Austria, on the other hand, it is required that a group of companies must claim its group taxation through a joint application with the tax administration. For this purpose, the group of companies must submit a so-called group application to the financial administration. It should be noted that the financial links described above must be available throughout the marketing year. In addition, the group application must be submitted before the end of the year in order to achieve group taxation for the marketing year in question. Together with the group application, all documents proving the fulfilment of all requirements are also submitted.

In Germany, an organ carrier is entitled to offset its own losses against profits it receives from its organ companies in accordance with the contract. But also conversely, an organ carrier with its own profits is responsible for offsetting possible losses of an organ company. In this way, the taxation of all undertakings affiliated to an organisation takes place jointly.

In principle, this is also the case for group taxation in Austria. However, various special rules also apply with regard to foreign group members. Normally, however, the group taxation of foreign group members corresponds to exactly the same rules when offsetting profits and losses.

Also deviating from the German taxation model are the regulations for group taxation, with which the profit calculation for participation communities is determined. However, this is quite simple. For this purpose, the profit share of the individual companies represented in the joint venture depends on their shareholding relationship.

Finally, we would like to return to the great peculiarities of group taxation in Austria. Because it is interesting that Austrian tax law with regard to the taxation of affiliated companies took over many aspects of the German Corporate Tax Act on the organization, but set its own accents especially in the participation community and the recognition of foreign group members. However, you have to know that many years ago in Germany the multi-mother organization, which corresponds to the Austrian participation community, was also possible. As a result, the formation of corporate groups within the framework of joint ventures is possible in Austria, but excluded in Germany. This certainly represents a location advantage over Germany, especially since this can also be combined with the inclusion of foreign group members.

The integration of foreign companies as an organ company, on the other hand, is irrelevant for German legislation for two reasons. On the one hand, Germany obviously does not want to tax profits generated abroad by a potential organ company. Conversely, Germany would also like to prevent profits arising in Germany and thus taxable here from being subject to taxation abroad. In this way, Germany renounces the application of the world income principle to internationally affiliated organ companies by its German organ carriers in order, conversely, to safeguard its own taxation sovereignty.

The instrument that the German legislature uses to preserve the form according to European law with regard to the freedom of establishment, but at the same time to prevent foreign corporate companies, is the above-described adherence to a profit transfer agreement, which develops in the German legal area civil law effectiveness. The European Court of Justice (ECJ) has already ruled in the Marks & Spencers case that foreign losses must also be recognised in principle. The only conditions that a Member State of the Union or the EEA may impose on this practice are the avoidance of double offsetting of losses and tax evasion or the consequences of an unbalanced distribution of taxation powers.