Austrian Supreme Administrative Court (VwGH) confirms: receivables bearing no interest qualify as capital assets within the meaning of section 27 Austrian Income Tax Act (EStG)

Recently, the VwGH (4/9/2025, Ro 2023/13/0010) confirmed that the capital appreciation tax introduced with the Austrian Budget Accompanying Act 2011 (BBG 2011) “product-neutrally” includes all assets generating income in principle subject to section 27 para. 2 EStG in non-business contexts. Whether the respective asset actually generates income from the provision of capital assets or qualifies as a receivable bearing no interest is irrelevant.

Description

The participant was partner with limited liability of an Austrian asset management limited partnership acquiring receivables (subject to a condition precedent) below the nominal value from various creditors in 2017 and 2018 which subsequently were settled in 2019. The participant believed that the realised income is not taxable since according to previous VwGH case law regarding the legal situation prior to BBG 2011 (VwGH 11/11/2008, 2006/13/0088), the collection of defaulted receivables in non-business contexts is only taxable as income from speculative transactions during the one-year speculation period.

Contrary to the tax authority’s opinion, the Austrian Federal Tax Court (BFG) followed the participant’s opinion reasoning that section 27 para. 3 EStG formally refers to section 27 para. 2 leg. cit. According to the BFG, an appreciation in value within the meaning of section 27 para. 3 EStG only applies to those assets generating current income subject to section 27 para. 2 EStG. “If a receivable is acquired below nominal value because it is defaulted and if it is subsequently completely redeemed as a private asset, this financial advantage is not subject to income tax. This is only considered differently if the receivable is acquired at a purchase price less an amount of discounting only due to its later maturity, in such a case the assignee realises income from capital assets. However, a defaulted receivable is not assessed at a lower price in order to take into account interest due to later maturity of the receivable, rendering the realised higher redemption amount a “reversal” of a previous depreciation and thus a change in value of capital assets. Thus, any realised difference is not considered remuneration for transfer of use of capital assets within the meaning of section 27 EStG 1988.” The tax authority’s opinion that receivables are bearing interest among third-parties and thus income from redemption or sale of receivables is always considered income from realised appreciations in value does not convince the BFG, particularly as this enhances the legal definition of interest beyond its literal meaning and this is contrary to the VwGH case law mentioned above.

Ruling of the VwGH

In its statement, the VwGH referred to the aim of the capital appreciation tax introduced with the BBG 2011, according to which not only income from the provision of capital assets but also realised appreciations in value generated from capital assets should be generally subject to taxation. Despite section 27 para. 3 EStG relates to capital assets generating income qualifying as income from the provision of capital assets within the meaning of section 27 para. 2 leg. cit., this is only a formal reference, thus actually realised income from capital assets is irrelevant – as already mentioned in the decision VwGH 18/12/2017, Ro 2016/15/0026. Rather it is sufficient if current income from the respective capital asset is in principle subject to section 27 para. 2 EStG. Only in this way, the “product-neutral” taxation pursued with the capital appreciation tax and the aspired equalisation of business and non-business contexts under income tax law is guaranteed.

Since the assets under discussion are capital receivables in principle generating current income subject to section 27 para. 2 EStG, their redemption results in income from realised appreciations in value within the meaning of section 27 para. 3 EStG.

Note

The VwGH already mentioned in its decision dated 18/12/2017, Ro 2016/15/0026 in connection with classification of liabilities in foreign currencies under income tax law that regarding qualification of capital assets within the meaning of section 27 para. 3 EStG, actually realised income from capital assets is irrelevant, rather it is decisive whether current income from the capital asset is in principle subject to section 27 para. 2 EStG. In the underlying case, the VwGH confirmed its previous opinion and thus clarified that income from redemption or sale of receivables bearing no interest in non-business contexts are subsumed under income from capital assets – contrary to the legal situation prior to BBG 2011. Thus, it is irrelevant for qualification of income under income tax law, whether the acquisition costs of the asset are below the redemption value or sale proceeds due to later maturity or weak recoverability. Since capital receivables in principle may generate interest income, they are always in scope of income from capital assets and are thus subject to taxation in non-business contexts irrespective of the holding period.