Austrian Supreme Administrative Court (VwGH) confirms: setting up a company group with an EU/EEA group parent (without an Austrian branch) is possible
The VwGH (27/03/2024, Ro 2023/13/0018) has largely confirmed ruling of the tax court at first instance and confirmed that the current law conflicts with CJEU case law and EU primary law (see our newsletter), but has solved the technical aspects of the income attribution in such a “sister” tax group differently.
Facts and circumstances
A German company operating neither an Austrian branch nor an Austrian partnership, holds the majority of the shares in two Austrian operative corporations (> 50% of voting rights and shares). The German company filed an application to set up an Austrian tax group.
According to the Austrian tax group regime, EU/EEA corporations may become a group parent of a tax group if they operate a registered branch in Austria and if the shares in the Austrian group members are attributable to the Austrian branch.
Ruling of the VwGH
With reference to CJEU case law on group taxation (C-39/13 SCA Group Holding; C-749/18 B ua), the VwGH has ruled that this branch requirement is a violation of the freedom of establishment. Hence, the establishment of a sister tax group is possible in Austria. The Austrian courts did not present the CJEU with a request for a preliminary ruling but considered this to be an acte claire-case.
In contrast to the decision of the first instance, the VwGH ruled that attributing the group parent function to one of the first-tier Austrian group members is not in line with the over system of the Austrian group taxation regime. Therefore the common non-Austrian company can function as group parent.
For the calculation of the group result, the VwGH has held that the direct first-tier Austrian subsidiaries are to be treated “similarly to Austrian permanent establishments of the group parent” resulting in the total group tax base being taxable in Austria under local Austrian and under international tax law. The VwGH took the view, that the tax group is to be treated as a full consolidation for tax purposes without a legal merger. With a view to such an understanding of the Austrian group taxation regime it might even be assumed that all group members should be regarded as local PEs. However, it appears that the VwGH limits this view to the first-tier level of the Austrian “sister” tax group.
Initial considerations for practice
Pursuant to the VwGH the group result is to be calculated at the level of the EU/EEA group parent. This will most likely require a tax registration of the non-Austrian group parent in Austria.
Interesting issues arise from the statement of the VwGH that the group members are to be treated “similarly to permanent establishments”. Even if it appears that the VwGH wanted to limit this view to the first-tier Austrian subsidiaries, the implications are not quite clear. This allows for several interpretations, e.g. the parent company domiciled abroad may be the formal group parent, however, the direct Austrian subsidiaries function as material group parent. In that case, losses of both Austrian first-tier subsidiaries may be offset with the total group result (general limits of loss-utilization to be considered), rather than with its distinct own group member profit.
The detailed framework of the procedural aspects of such a “sister” tax group remains for further elaboration with the competent tax office, e.g. whether submission of a zero declaration by the group parent domiciled abroad will be required. Where reference was made to the PE status of the (first-tier) group members it might be a question if the PE definition of the applicable double tax treaty becomes relevant. Inclusion into and participation in an existing Austrian sister-structure might become more cumbersome.
Unless more guidance becomes available from the Austrian tax administration, one might still consider to establishing a straight forward tax group by e.g. a tax neutral restructuring. Alternatively or in addition, a binding ruling request might be initiated to obtain more certainty upfront.
Written by: Yasmin Lawson
