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Background
Austria was obliged to introduce a so-called "interest barrier" due to an EU directive. With a delay of several years, the interest barrier ultimately came into force on 1 January 2021. The interest barrier basically states that an interest surplus (which occurs when the interest expense of a fiscal year exceeds the interest income) is only deductible to the extent of 30% of the tax EBITDA ("Earnings before Interest, Taxes, Depreciation and Amortization"), but in any case up to EUR 3 million. Due to this exemption amount, the interest barrier is therefore only likely to affect very large companies or groups.
Taxable EBITDA is described in the Act as follows: "Taxable EBITDA is the total amount of income determined before application [of the interest barrier], neutralized by tax depreciation and amortization and write-ups as well as the interest surplus [...]."
In addition, the Act also provides a regulation for the determination of the so-called "group EBITDA". This is to be applied exclusively to tax groups of companies. Basically, the regulations for the determination of the group EBITDA are similar to those for the tax EBITDA. At the level of the group parent, EBITDA is determined on the basis of all results of the group members and the group parent. In addition, the exemption amount of EUR 3 million applies in this case to the entire group. This is probably intended to prevent the allowance from being artificially multiplied due to a large number of group companies.
Draft regulation of the BMF
Basically, the definition in the law would have been sufficient to determine the tax EBITDA. However, the law provides for an ordinance authorization, on the basis of which the Federal Minister of Finance (BMF) submitted a draft ordinance for review in July.
In this draft regulation, it was specified that, when calculating the EBITDA for tax purposes, the total amount of income prior to the application of the interest barrier is to be increased by the amount contained therein:
- miscellaneous tax deductions for wear and tear within the meaning of the German Income Tax Act,
- Depreciation of fixed assets to the lower going-concern value within the meaning of the German Income Tax Act, and
- Deductible interest expenses of the respective business year.
On the other hand, in line with the system, the total amount of income before application of the interest barrier is to be reduced by the amount included therein:
- Write-ups of fixed assets within the meaning of the German Income Tax Act, as well as.
- Taxable interest income of the respective business year.
Finally, it was specified that the write-downs and write-ups described above are to be neutralized only to the extent that they have a tax effect in "this fiscal year" (which presumably means the fiscal year for which the income is determined) in accordance with the provisions of the Income Tax Act and the Corporate Income Tax Act.
When determining Group EBITDA, the principles just outlined should also apply. In addition, fifteenths of goodwill amortization or fifteenths of amounts to be subsequently recognized, a special feature of group taxation law, are to be neutralized.
Statement of the KSW
The Chamber of Tax Advisors and Certified Public Accountants (KSW) had welcomed the present draft assessment in principle, but suggested the following addition:
"Increases [...] and decreases [...] are to be neutralized only to the extent that they have a tax effect when determining the total amount of income in accordance with the provisions of the Income Tax Act and the Corporation Tax Act. To the extent that deductions for wear and tear, depreciation and interest expenses [...] are taken into account in a later fiscal year when determining the total amount of income, they are to be neutralized only then."
The wording "increases and decreases" is intended to clarify, on the one hand, that not only "depreciation" and "write-ups" are covered, but also the tax "deductions for wear and tear". This should also apply to distributable interest expenses within the meaning of the interest barrier, such as a discount.
Furthermore, the wording "determination of the total amount of income" should clarify that a tax effect is also taken into account in loss situations.
Finally, according to the KSW, the draft assessment allows the conclusion that expenses subject to distribution, such as the seventh depreciation on participations or a discount, are only to be neutralized in the first year. According to KSW, the last sentence should clarify the following: Expenses subject to distribution that have an impact in later years should also be taken into account and neutralized. This should be done in the (later) year in which they have a tax impact.
Final version of the regulation
The final version of the EBITDA Determination Regulation was published on September 10, 2021. Apart from some minor editorial changes, the only substantive change was the amendment to Section 1 line 3 (specification of the increases or decreases to be made to the total amount of income before application of the interest barrier):
"Increases [...] and decreases [...] are only to be made to the extent that they have a tax effect in accordance with the provisions of the Income Tax Act and the Corporation Tax Act when determining the total amount of income before application [of the interest barrier] in this financial year."
It is basically gratifying that there is now talk of "increases and decreases" and no longer of "write-downs and write-ups". Tax "deductions for wear and tear" are therefore covered in any case. The phrase "determination of the total amount of income" has been included and further specified by explicitly stating the total amount of income "before application [of the interest barrier]".
The proposed addition according to which deductions for wear and tear, depreciation and interest expenses are only to be neutralized in a later financial year if they are also only to be taken into account in a later financial year when determining the total amount of income (e.g. open sevenths from a partial value depreciation) was unfortunately not included in the final version.
Assessment
In our opinion, the concretization by the ordinance is to be welcomed. However, it is questionable to what extent this has resulted in a substantive change in the legal situation. In our opinion, the determination of the tax EBITDA or the group EBITDA would not have been carried out differently, even on the basis of the mere wording of the law. The regulation is therefore likely to be merely a clarification.
Do you still have questions? Our experts Werner Leiter and Matthias Jancura will be happy to assist you.
