Austrian Tax Court declares horizontal group to be permissible

In a decision of 31 March 2022 (RV/7104573/2020), the Austrian Federal Tax Court (BFG) has stated – contrary to the wording of Sec 9 Austrian Corporate Income Tax Act (KStG) – that a company group between Austrian affiliates is permissible even if the joint parent company is resident abroad and does not have a branch in Austria.

Circumstances

• A German parent company holds 100% of the shares in two Austrian corporations.
• The German company has neither a branch/permanent establishment, nor an Austrian operational partnership to which the shares in the corporations would be attributable.
• The German parent company has submitted a request to form a company group between the two Austrian subsidiaries.

Decision of the Tax Court

• Under Austrian law, group parents can only be companies subject to unlimited tax liability or companies subject to limited tax liability with a registered branch in Austria.
• The Federal Tax Court ruled that the requirement for companies subject to limited tax liability to have a registered branch contravenes the freedom of establishment.
• With reference to CJEU case law (C-39/13 SCA Group Holding, C-749/18 B and Others), the Tax Court approved the group request and established a horizontal group between the two affiliates (without the foreign parent).
• The taxable person is free to choose which of the affiliates will serve as the group parent. All Austrian revenues deriving from the individual taxable earnings of the Austrian group companies will be attributable to the group parent.
• The group request must nevertheless be submitted by the foreign joint parent company.

Implications

• Austrian affiliates that are held via a foreign joint parent company may be integrated into existing groups or establish new company groups.
• The Tax Court decision does not contain any explanations regarding the formation of groups in other situations (e.g., Austrian affiliates that are not subsidiaries).
• In our view, there are good reasons to also enable foreign subsidiaries of Austrian affiliates to be included in a company group.
• The decision can be appealed.