Ordinance on the transfer of interest and EBITDA carryforwards during reorganisations published
An ordinance published on 2 June 2022 (“Zinsvortrags-ÜbergangsV”) provides the legal framework for the transfer of interest and EBITDA carryforwards to the receiving entity in the context of corporate reorganisations.
Austrian interest limitation rule in a nutshell
According to the Austrian interest limitation rule the deductibility of net interest expense for corporations is limited to 30% of their tax EBITDA (applicable for financial years beginning after 31 December 2020). Non-deductible interest expense can – similar to a tax loss carryforward – be carried forward into subsequent periods and, in certain circumstances, be offset (“interest carryforward”). In case of unused interest capacity, i.e. if 30% of the tax EBITDA exceeds the net interest expense, the exceeding amount of tax EBITDA can be carried forward into the next five financial years and is available for additional interest deduction (“EBITDA carryforward”).
Transfer of interest and EBITDA carryforwards in course of reorganisations
The transfer of interest and EBITDA carryforwards to a receiving entity in the context of reorganisations has been regulated by an Austrian ordinance (“Zinsvortrags-ÜbergangsV”). The ordinance applies to reorganisations that were concluded or contractually signed after 31 December 2021. An overview of the rules is provided below:
- The transfer to a legal successor of any interest and EBITDA carryforwards, which a transferring entity has as of the effective reorganisation date, shall in general require a reorganisation with continuation of the predecessor’s book values as well as a receiving corporation.
- Furthermore, the transfer of interest and EBITDA carryforwards is linked to the rules of transfer of loss carryforwards in course of reorganisations.
- In the context of a merger and a conversion, the interest and EBITDA carryforwards of the transferring entity are transferred to the receiving entity, provided that these are attributable to the transferred assets, and these assets are actually available on the effective reorganisation date and are comparable in terms of volume. In the event that any interest and EBITDA carryforwards are not transferred, these shall cease to exist. The interest and EBITDA carryforwards of the receiving entities shall remain unchanged.
- In the context of contributions and demergers, the interest and EBITDA carryforwards shall be transferred to the extent that they are attributable to the transferred assets and these are still available on the effective reorganisation date in a comparable volume. Non-transferred interest and EBITDA carryforwards shall continue to exist at the transferring entity. Interest and EBITDA carryforwards of the receiving entity will not be affected.
- In case it is not possible to clearly attribute an interest or EBITDA carryforward to the transferred assets or business, an “appropriate” attribution must be made.
- These rules also apply, mutatis mutandis, to an interest or EBITDA carryforward of an Austrian tax group’s group parent: Reorganisations of a group parent shall reduce the existing group interest carryforward or group EBITDA carryforward to the extent that the assets associated with the interest or EBITDA carryforward no longer exist to a sufficient extent within the group. This should also apply for reorganisations at the level of group members, i.e. the reorganisation of a group member can lead to a reduction of a group interest carryforward or a group EBITDA carryforward at the level of the group parent.
The ordinance on transfers of interest and EBITDA carryforwards (Zinsvortrags-ÜbergangsV) sets out the conditions for the transfer of interest and EBITDA carryforwards in the course of reorganisations. The transfer of carryforwards will need to be considered when planning transactions and reorganisations. The extent to which the interest and EBITDA carryforwards are actually transferred to the legal successor will need to be determined in each individual case based on the specific circumstances. This may lead to complex challenges, particularly in relation to Austrian tax groups.
Link to the Ordinance (available in German only): https://www.ris.bka.gv.at/Dokumente/BgblAuth/BGBLA_2022_II_210/BGBLA_2022_II_210.html