Supreme Court supports interest deduction for ‘staggered’ group acquisition


In Austria, deduction of interest expense from tax is restricted in case of an intra-group acquisition of a participation. However, a right to deduct interest exists if a participation is acquired from an unrelated party.

In the view of the Austrian tax authorities, a harmful intra-group acquisition of a participation exists if the overall transaction during the acquisition of a group is ‘staggered’, with the domestic (Austrian) participations being acquired first, later followed by the acquisition of the remaining group entities.

In a very recent judgment (Ro 2019/13/0018), the Austrian Supreme Administrative Court (VwGH) rejected this view of the Austrian tax authorities. According to the VwGH, thre is only a harmful intra-group acquisition of participations if a group relationship already exists at the point of acquisition of the participation. This is the case even if multiple shares are acquired simultaneously. Thus, if no group relationship previously existed, the restriction shall not apply.

The aim and purpose of the limitation of interest deduction is to prevent undesirable acquisition arrangements within an existing group, by means of which participations are transferred in order to achieve an interest deduction. However, in the circumstances underlying the given case, the whole Group A was acquired by Group B, which was financially unrelated and had no controlling influence. According to the VwGH, this did not constitute ‘artificial’ generation of deductible loan expenses. 

Author: Lisa Hoflehner

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