“ACQ-Group” had acquired the shares in foreign subsidiaries and financed the acquisition partially by intra group loans. Furthermore, in the years following the acquisition, goodwill amortisations were deducted for tax purposes.
The tax authorities issued an assessment where the interest rate on the loans had been reduced, and where costs related to external financing and amortisations of acquired goodwill had been denied.
An appeal was filed by “ACQ”.
Decision of the Federal Tax Court
Before the judgment was delivered the appeal filed by “ACQ” in regards of the interest rate on the intra group loans was withdrawn.
“***Firma*** Services GmbH pays interest of a non-variable 9% p.a. to the affiliated (grandparent) company ***6*** for an intercompany loan (“Intercompany Loan”). As stated in the statement of facts in the enclosure, the high difference between the intercompany loan interest rate and the arm’s length interest rate is a clear violation of the arm’s length principle as defined in the OECD Transfer Pricing Guidelines and the current case law of the Administrative Court. The payments exceeding the arm’s length interest rates constitute a hidden distribution.”
The Court partially upheld the appeal and amended the assessment in regards of goodwill amortisations and financing costs.
Goodwill amortisation within the meaning of section 9(7) KStG 1988 and the deduction of interest on borrowed capital in the case of acquisitions of shareholdings pursuant to section 11(1)(4) KStG 1988 were introduced with the 2005 Tax Reform Act in order to make Austria more attractive as a business location. § Section 9 (7) KStG 1988 contained a “group barrier” from the beginning in order to prevent arrangements within the group or within the group of companies. Thus, goodwill amortisation is not available if the participation is acquired by a company belonging to the group or by a shareholder exercising a controlling influence. The Budget Accompanying Act 2011 restricted the deductibility of interest on borrowed capital to the extent that debt-financed group acquisitions should no longer lead to a deduction of operating costs. The explanatory notes justified this change in the law by stating that undesirable arrangements in the group, which led to an artificial generation of operating expenses, should be prevented.