“DCF AG” had acquired 52.99% of the shares in a Turkish company from a related party for a purchase price of EUR 116,599,677.
The Austrian tax authority believed the agreed price was not at arm’s length, pointing to a significantly lower price paid by a Turkish buyer for a 15% share shortly beforehand and alleging that the taxpayer should have realized the valuation was excessive.
In its defence “DCF AG” relied on two independent valuation reports that used recognized DCF methods, explained why the earlier third-party sale was not a valid comparison, and showed that at the time of purchase there were strong indications the target’s sales and profits would grow.
Judgment
The Court ruled in favour of “DCF AG”.
The Court noted that expert opinions based on recognized valuation standards (in this case, DCF analyses by KPMG Turkey and Deloitte Turkey) confirmed the appropriateness of the purchase price. It found no decisive indicators that the taxpayer’s management had knowingly agreed on an inflated transfer value or that an “obvious hidden distribution” existed. A court-appointed expert’s assessment further supported that the transaction price was in line with generally accepted valuation practice. Because the price did not deviate from the range established by these valuations and no subjective intention to enrich the parent company could be inferred, the Court held that no hidden distribution and thus no capital gains tax liability arose. It therefore annulled the contested tax assessment and denied the possibility of an appeal to the Administrative Court, concluding that the valuation was carried out correctly and that the taxpayer had not breached the arm’s length principle.
Excerpts in English
“Even a proper arm’s length comparison allows a certain leeway in terms of substance, and not every slight deviation from a benchmark requires the recognition of a hidden distribution (VwGH 30.5.1989, 88/14/0111).
Whether the purchase price of the approximately 53% interest was excessive must therefore be determined on the basis of an arm’s length comparison. In order to carry out this arm’s length comparison, the appellant has already submitted two valuation documents, both of which were prepared in 2012, but before the shares were purchased. The purchase price actually set by the seller was even (partly) below the values determined as arm’s length values.
In accordance with a request by the relevant authority, the Federal Finance Court appointed an expert in company valuations who deemed the purchase price set by the complainant to be at arm’s length.
In this respect, there is no objective basis for a hidden distribution. Thus, the reason for reopening cited by the relevant authority does not apply either.”
“In the case at hand, the Federal Finance Court comes to the conclusion that, based on the circumstances of the individual case (two company valuation reports prepared close to the date of the transfer; several calculation variants by the authority in question, each of which led to seriously different company values), the determination of an arm’s length value is highly complex and therefore it cannot be concluded beyond doubt that there was an intention under company law to grant an advantage (especially since the sales price set in the group is within the range of the previously prepared valuation reports) and thus there can be no obviousness of a hidden distribution. Since an obvious hidden distribution within the meaning of the regulation BGBl No. 56/1995 cannot be established, the complainant was not subject to a capital gains tax under § 94a (1) EStG 1988 as amended by BGBl No. 797/1996 and BGBl I No. 71/2003, for this reason either.”
“Finally, the reason for the transfer of the Turkish holdings from Luxembourg to Austria is mentioned in a supervisory board protocol of the complainant: the transfer of the holdings was carried out for purely tax reasons, especially since the Austria-Turkey DTA is 5 percentage points more favourable than the DTA between Turkey and Luxembourg with regard to the withholding tax rate for distributions.
The Administrative Court shares the opinion of Stoll, BAO, Kommentar, 246 ff, that in general not a single legal step, but always a chain of legal acts fulfils the facts of the case, to which the consequence of § 22 BAO is linked. Real acts in themselves, such as the transfer of an interest or the establishment of a corporation as such, i.e. acts that are not an inseparable part of an overall arrangement (‘under civil law’), cannot constitute an abuse (VwGH 10 December 1997, 93/13/0185). Apart from that, taxpayers are generally not prevented from using forms and possibilities of organisation under civil law in such a way that the lowest tax burden is achieved.
The purchase of the 52.99% shares in ***AB*** cannot therefore constitute an abuse in itself. If the interest in ***AB*** had not been sold in 2013 and 2014 but had continued to be held by the complainant, there would have been no capital loss due to the decline in the going concern value, but there would have been greater potential for a write-down to the going concern value. In this respect, no suspicion of abuse can arise from this circumstance.
The complaint was therefore to be upheld and the contested decision to be set aside without replacement.”
Click here for English translation
Click here for other translation