Compensation for Losses II

The Guidelines on the Extension of the Grant of Compensation for Losses were published in the Austrian Federal Law Gazette on 28 July 2021 and amended on 23 December 2021. In the following entry (last updated 7 February 2022), we provide information on the most important points.

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.

The compensation for losses (“CFL”) will be granted from a revenue shortfall of at least 50% under the condition that the CFL amounts to at least EUR 500 in total. Companies which suffer a loss within the meaning of the Guidelines are eligible to apply. The losses must have been incurred between 1 July 2021 and 31 December 2021.

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 affiliates 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 CFL is 70% of the calculated assessment base. For small or micro-businesses, the compensation rate increases to 90% of the assessment base. The CFL per company is capped in both cases at max. EUR 12m. Subsidies which were granted in accordance with the Guidelines on Compensation for Losses for assessment periods from 16 September 2020 to 30 June 2021 must be recognised when calculating the maximum amount.

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. 6 assessment periods may be selected between 1 July and 31 December 2021. The assessment periods must be selected in such a way that all the assessment periods are consecutive.

In the case of assessment periods for which the RSB II (July, August, or September 2021) or RSB III (November and December 2021) can be applied for, the application must be made prior to an application for the CFL II. If a request for payment of the first instalment of the CFL II has already been submitted, the application for the RSB II or RSB III must be submitted prior to the request for payment of the second instalment of the CFL II.

Application process

Applications for the grant of the CFL may only be submitted via FinanzOnline. COFAG will decide whether they will be granted.

The application for grant of the CFL 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 CFL with application possible between 16 August 2021 and 9 January 2022.
      • The second instalment can be applied for since 10 January 2022 with a deadline of 30 June 2022. With this instalment, the remainder of the CFL will be paid.

When applying for the first instalment, the amount of the loss and the revenue shortfall must be estimated as accurately as possible (forecast). The estimated loss forecast for the first instalment can be calculated as a fixed rate based on the previous year’s data.

When applying for the second instalment, adjustments may need to be made to the application for the first instalment (actual costs and revenue shortfall). Further, the chosen assessment periods can be changed by the applicant. If the first instalment has already been paid out, such adjustments should be offset against 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) and the same person should also submit the application.

Obligations

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 had been made as at 31 December 2021, which exceeded more than 50% of the bonus payments for the financial year 2019;
      • it is acknowledged that the grant of the CFL 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 1 July 2021 to 31 December 2021 must be adjusted to the economic circumstances. In particular, the grant of CFL in the period between 1 July 2021 and 31 December 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 30 June 2022.

Further information on compensation for losses can be found on the following site: https://www.fixkostenzuschuss.at/verlustersatz-verlaengert/

 

Authors: Daniela Stastny, Alexandra Velic

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