Tax & Legal

In a recent judgment the Supreme Tax Court held that the granting of a loan at an interest rate which is not customary in the market is subject to gift tax as gratuitous contribution. When calculating the interest advantage the standard (typically used) interest rate of 5.5% as mentioned in Section 15 (1) of the Valuation Act cannot be applied if a lower market value for comparable loans has been established.

In a decision published on 14 December 2023 on Section 4 (4a) of the German Income Tax Act (restriction of deductible interest expense in the case of excess drawings), the Supreme Tax Court decided that the rule whereby Section 4 (4a) Income Tax Act (ITA) is to be applied for each business in isolation – a so-called business-related application - also applies to multi-level partnership structures. As a result, the transfer of a rolled-over profit in accordance with Section 6b ITA (roll-over relief) to another legal entity does not lead to a contribution to the transferring legal entity - (i.e. a contribution which would reduce the level of excess drawings) - due to the fact that no contributable asset was involved.

On 11 May 2022, the European Commission published a draft Directive which is intended to mitigate the tax induced debt-equity bias in corporate investment decisions. Technically, this is to be achieved through, on the one hand, an allowance that provides for the deductibility of notional interest on equity and, on the other, by introducing further restrictions on the deductibility of interest on debt.

The Supreme Tax Court has held that the pre-2008 disallowance of loan interest on related-party finance for the purchase of shares refers to direct investments only.

The Supreme Tax Court has held that the hedge costs on a foreign currency loan are to be deducted from the interest received in calculating the net foreign income as the basis for the foreign tax credit available.

The Supreme Tax Court has held that payment of interest only if the payer remains profitable means that the payment is profit sharing and subject to withholding tax under the Austrian treaty.