“Health & Beauty AG” acted as a holding company within a larger international group. It had acquired 51% of the shares in I-GmbH in 2003 and the remaining 49% in 2009 from two Irish investment companies. The acquisition of the remaining shares was financed by a €12.4 million loan from A-BV at an interest rate of 7.855%. The loan was repaid early in 2013-2014 and interest expenses were claimed for the years 2009 to 2011. It had also deducted interest expences related to financing of subsidiaries in Spain and Italy.
The tax authorities disallowed the deduction of these interest payments and an appeal was lodged, which ended up at the Austrian Federal Finance Court.
Decision
The court found that the loan agreement regarding the Acquisition of I-Gmbh was properly documented and at arm’s length and therefore the interest was deductible. It also concluded that “Health & Beauty AG” was the beneficial owner of the shares in I-GmbH, as it bore the risks and had the powers typical of an owner. Coordination with the group’s central departments did not negate its ownership status, nor did internal financial control or the fact that the purchase price was paid by another group company. The court rejected the tax authority’s claim that the structure was abusive because no tax benefits were realised from the transactions in question.
Regarding interest expenses connected to group-financed grants to subsidiaries in Italy and Spain, the Court found that a large portion of the intra-group loans effectively was hidden equity contributions, thus disallowing the corresponding interest costs.
The court also considered a dispute over the valuation of liabilities for unredeemed vouchers older than three years. It ruled that such liabilities should not be fully recognised at face value due to the extremely low probability of redemption, resulting in an upward adjustment of taxable income for 2011.
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