A taxpayer with a 98% shareholding in a joint stock company, CH AG, based in Switzerland had provided EUR 30 million as an interest-free shareholder loan to the company. There was no written agreement. CH AG used this capital to provide loans to two affiliated companies in Austria and Germany, each with an interest rate of 2%.
The tax authorities added a 2% interest to the the shareholder loans – based on the interest on the loans passed on by CH AG to its affiliated companies.
EXCURSION: In the present case, the argumentation of the taxpayer or the tax representative against interest on the loan was also interesting: In the complaint – with reference to the so-called “relatives’ case law” – it was stated that due to a lack of sufficiently clear agreements, lack of collateral, etc., not at all a “loan” in the tax sense is to be assumed, but that the financing in question is rather a question of equity-replacing grants ( hidden deposits ) and therefore no interest rate is justified. In the preliminary appeal decision, the tax authorities replied that the nature of the loan could very well be derived from various documents and information (probate proceedings and accounting treatment at CH AG). OneIn addition, reclassification of the loans in question as hidden contributions or hidden share capital is only permissible under “ special circumstances ”, with reference to the relevant case law. In the opinion of the tax authorities, this question did not arise in the present case because CH AG did not have any financial difficulties at the time the funds were injected and had sufficient equity capital.
Judgement of the Court
The court found that the shareholder loan was not covered by the scope of the Austrian arm’s length provision which requires the existence of a domestic company or a domestic permanent establishment and is therefore only relevant when determining business income. If no interest has actually accrued, no fictitious interest can be subject to taxation for such an interest-free shareholder loan.
The question of whether the amounts given were actually loans or (hidden) equity was left undecided by the court.
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Austr vs XY BFG RV-1100628-2016 180719