COVID-19: Compensation for Losses
The Guidelines on Compensation for Losses initially entered into force in December 2020 and were subsequently amended on 16 February 2021 and 22 November 2021. In the following entry (last updated 23 November 2021), we provide information on the most important points, including the changes arising from the amendments:
General prerequisites for application
Companies which have their legal seat or permanent establishment (PE) in Austria, and which carry out operational activities in Austria, which lead to (business) income in accordance with Sections 21, 22, or 23 Austrian Income Tax Act (EStG).
If companies are currently involved in insolvency proceedings, they are excluded from application due to the lack of operational activities, except in the event that reorganisation proceedings have been opened. In addition, the prerequisites of the general application requirements under Point 3.1 of the Guidelines must be fulfilled and the company must not be excluded under Point 3.2 of the Guidelines.
Companies which on 31 December 2019 constituted “undertakings in difficulty” in accordance with the EU’s General Block Exemption Regulation (GBER) can apply for compensation for losses under the EU’s De-minimis Regulation, up to a maximum amount of EUR 200,000. There are further exceptions for undertakings in difficulty, if these are small or medium-sized enterprises (SMEs) within the SME definition of Annex 1 of the GBER.
Compensation for losses will be granted for a revenue shortfall of min. 30%, under the condition that the total compensation for losses amounts to at least EUR 500. Only companies which suffer a loss within the meaning of the Guidelines are eligible to apply. The losses must have been incurred between 16 September 2020 and 30 June 2021 at the latest.
Definitions of losses, revenues, and expenses
According to the Guidelines, losses are the difference between the revenues and the directly and indirectly related expenses of the company in the assessment periods relevant to the application.
Expenses and revenues, which are charged between associated undertakings due to (direct) service relationships, constitute expenses and revenues within the meaning of the Guidelines if they are appropriate and of an arm’s length nature, taking into account the obligation to limit damages.
Intercompany recharging of services within the group will only be recognised if these were also charged prior to 16 September 2020.
Revenues within the meaning of the Guidelines are:
- revenues under Point 4.4. of the Guidelines;
- inventory changes;
- own work capitalised;
- other business revenues, with the exception of revenues from the disposal of fixed assets.
Expenses are deductible business expenses in accordance with Sec. 4 para 4 Austrian Income Tax Act (EStG) and Sec. 7 para 2 Austrian Corporate Income Tax Act (KStG), except for the following:
- unscheduled write-downs (one-off losses from impairments) of fixed assets and
- expenses from the disposal of fixed assets.
The expenses also include the interest costs which are payable in the assessment periods relevant to the application, if these exceed the interest revenues. When determining profits using the net equity comparison method, the pro-rata amount of the remaining interest costs incurred by the acquisition of financial assets does not need to be considered.
Calculation and amount of the compensation for losses
The determined loss amount must be reduced by the following amounts, to the extent that these were not already considered when determining the revenues and expenses, and they arise in the assessment periods relevant to the application and/or relate to these assessment periods:
- revenues from participations (distributions, dividends) if these amount to more than half of the revenues in the assessment periods relevant to the application
- performances under an insurance policy
- payments from local or regional authorities in connection with the COVID-19 crisis
- subsidies in connection with short-time working
- compensation under the Austrian Epidemic Act
The amount of the compensation for losses is 70% of the calculated assessment base. For small or micro-businesses, the compensation rate increases to 90% of the assessment base. The compensation for losses per company is capped in both cases at max. EUR 10m.
The compensation for losses cannot be granted if the company claims a fixed costs subsidy of up to EUR 800,000 (“FCS 800k”), or an advance payment of the FCS 800k as part of the revenue shortfall bonus under the Guidelines on the Revenue Shortfall Bonus. However, there is an option to switch from the FCS 800k to the compensation for losses prior to submitting the application for the second instalment of the FCS 800k.
Calculation of the revenue shortfall
When calculating the amount of the revenue shortfall, reference should be made to the earnings from the relevant goods and/or services which are included in the income tax return or the corporate income tax return.
When calculating the revenue shortfall, max. 10 assessment periods may be selected between 16 September 2020 and 30 June 2021. The assessment periods must be selected in such a way that all the assessment periods are consecutive.
A gap is only permissible if the assessment periods November 2020 and/or December 2020 are excluded during application for the reason that lockdown revenue compensation or lockdown revenue compensation II was claimed for these periods.
In order to ensure the orderly processing of both subsidies, the application for lockdown revenue compensation II must always be submitted before the application for compensation for losses.
The revenue shortfall is calculated by determining the difference between the total revenues in the assessment periods relevant to the application and the total revenues in the relevant comparison periods in the year 2019.
Applications for the grant of compensation for losses may only be submitted via FinanzOnline. COFAG will decide whether they will be granted.
The application for grant of compensation for losses must be confirmed and submitted by a tax advisor, auditor, or accountant.
The subsidy can be applied for in 2 instalments:
- The first instalment covers 70% of the anticipated compensation for losses and can be applied for between 16 December2020 and 30 June 2021.
- The second instalment can be applied for between 1 July 2021 and 31 March 2022. With this instalment, the remainder of the compensation for losses will be paid.
The account statement must be completed by 31 March 2022 and must be carried out in the course of the application for the second instalment.
When applying for the first instalment, the amount of the losses and the revenue shortfall must be estimated as accurately as possible (forecast).
When applying for the second instalment, the amount of the losses and of the revenue shortfall must be confirmed by a tax advisor, auditor, or accountant by means of an expert opinion report (final accounts). The final accounts can only be assessed if the tax advisor, auditor or accountant has sufficient accounting documents at their disposal to issue this expert opinion report.
When submitting the application, the company must agree to the following:
- to fulfil the general prerequisites for application;
- as part of the overall strategy, loss limitation measures were introduced to manage the losses due to the COVID-19 crisis;
- the losses are not covered by insurance or other support from the government in relation to the economic consequences of the COVID-19 outbreak;
- no inappropriate remuneration or remuneration components were or will be paid, or other payments made, in particular, no bonus payments to the board of directors or managing directors were made in the years 2020 and 2021, which exceeded more than 50% of their bonus payments for the previous fiscal year;
- it is acknowledged that the grant of the fixed costs subsidy will be recorded in the transparency database.
The applicant must also agree to the following:
- to pay special attention to maintaining the employment level in the company, and to take all reasonable measures to generate revenues and preserve jobs (e.g. using short-time working);
- the owner’s draw or dividends paid to owners in the period March 2020 to 31 December 2021 must be adjusted to the economic circumstances. In particular, the grant of a fixed costs subsidy in the period between 16 March 2020 and 30 June 2021 will be prevented by (i) the distribution of dividends or other legally non-mandatory profit distributions and (ii) the repurchase of own shares. Subsequently, an appropriate dividend and profit distribution policy must be put in place for the period until 31 December 2021.
Further information on compensation for losses can be found on the following site: https://www.fixkostenzuschuss.at/verlustersatz/
Authors: Daniela Stastny, Alexandra Velic