Austria vs “Bf AG”, June 2022, Bundesfinanzgericht, Case No RV/7102083/2009

« | »

“Bf AG” had outstanding trade receivables from a sister company, “Leuchten GmbH”. These receivables were non-interest bearing.

Following an audit for FY 2002-2004 the tax authorities issued an assessment where additional corporate income tax for FY 2002 to 2004 had been assessed. According to the tax authorities the lack of interest on the outstanding receivables constituted a hidden distribution of profits. The additional taxable income was determined by applying average interest rate to the outstanding amounts.

A complaint was filed by “Bf AG” with the Tax Court. The Court decided in favour of tax authorities and found that similar terms would not have been granted to a unrelated company.

An application for appeal was then filed by “Bf AG” with the Federal Tax Court.

Judgement of the Federal Tax Court

The Court allowed the appeal, set aside the decision of the Tax Court, and decided in favour of “Bf AG”.

Excerpts

“The case law of the highest courts on obvious hidden distributions is rare. Moreover, neither the EStR 2000 nor the KStR 2001 make explicit general statements on the conditions under which an obvious hidden distribution exists (BFG 19.11.2015, RV/5100487/2013). The transfer pricing guidelines did not need to be addressed, as they were only issued in 2010 and thus could not in fact represent a standard in the periods in dispute.”

“In the case at hand, the Federal Fiscal Court also takes the view that if – even before conducting a due diligence examination pursuant to section 3 of the Ordinance on the basis of the case law of the courts of public law and generally accessible administrative practice – the circumstances of the individual case do not allow the conclusion beyond doubt that there is an intention to grant an advantage under company law, there can be no obviousness of a hidden distribution.”

“Although in the corporate tax proceedings the recognising senate assumed an intention to grant an advantage, the complainant presented credible, valid economic reasons that cast doubt on the complainant’s knowledge and intention to grant an advantage.
“Other, unconnected debtors have in part received longer payment terms. No interest had been charged even if there were no interconnections under company law, even if payment terms had been exceeded to a comparable extent. It was the business policy of the complainant that no interest was charged. The focus was on securing its own business and maintaining the business relationship, in particular because there was a question of withdrawing production from Austria”. Reference is made to the further explanations in this finding.
If the existence of a group intention to grant an advantage is established, but cannot be readily concluded from the circumstances of the case, in particular because not insignificant factual elements speak against this finding, it is not possible to speak of an obvious hidden distribution.
Since an obvious hidden distribution cannot be established, the complainant must refrain from withholding the capital gains tax.
Therefore, pursuant to § 94a, para. 1 of the Income Tax Act 1988, as amended by Federal Law Gazette No. 797/1996 and Federal Law Gazette I, No. 71/2003, a capital gains tax was not to be imposed on the complainant by way of liability.
The appeal was therefore to be upheld and the notices were to be repealed without replacement.”

“The question under which conditions a hidden distribution is obvious, in particular if an intention to grant a group advantage cannot be inferred beyond doubt from the established facts, goes beyond the individual case at hand (see also generally BFG 19.11.2015, RV/5100487/2013).
An appeal was therefore to be allowed.”

 
Click here for English translation

Click here for other translation

Austria rv-7102083-2009

Related Guidelines

Leave a Reply

Your email address will not be published. Required fields are marked *