Tax Transactions Guide

Transcription

1 Tax EMEA Tax Transactions Guide 2014

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3 Foreword Dear Reader, We are happy to present to you the fourth edition of Baker & McKenzie s EMEA Tax Transactions Guide. With cross-border M&A activity on the increase, we believe this Guide will be a unique tool to support you at an early stage in the M&A process in assessing the risks and opportunities of the intended transaction. The aim of this Guide is to provide you with basic information regarding the taxation of transactions taking place or involving entities established in a number of EMEA jurisdictions. Each country chapter compares, in general terms, the tax consequences of acquisitions through asset deals versus acquisitions through share deals. Financing issues are also briefly addressed from a tax angle, and the opportunities for debt pushdown are highlighted. Country chapters also address the tax aspects of holding of the investment, as well as its future disposal (exit strategies). Finally, the basic tax regime for restructuring operations and pre-transaction carve-outs is briefly described, and country chapters also indicate whether special holding or investment regimes exist in the relevant jurisdiction. The Guide was prepared by Baker & McKenzie tax lawyers (in each of the relevant jurisdictions) who specialize in tax transactional work. Together, they form a network of specialists called the EMEA Tax Transactions Group, which regularly assists clients involved in crossborder (or local) transactions, and in dealing with all the relevant tax aspects (structuring, due diligence and negotiation and drafting of contracts taking into account due diligence findings).

4 The editorial board thanks all the authors for their willingness to share their expertise in tax transactional work and for the time they spent in preparing their respective country chapters. We invite readers to contact any of the authors directly or through their regular B&M contact if they would like any further information or advice in relation to a specific country. We trust that this 2014 EMEA Tax Transactions Guide will provide you with useful information in determining your strategy for acquiring or disposing of businesses in the jurisdictions concerned. The editorial board James Smith Baker & McKenzie London Guillaume Le Camus Baker & McKenzie Paris Philippe Lion Baker & McKenzie Brussels Rodrigo Ogea Baker & McKenzie Madrid Herman Huidink Baker & McKenzie Amsterdam Massimo Giaconia Baker & McKenzie Milan

5 2014 EMEA Tax Transactions Guide Table of Contents Austria... 1 Belgium Czech Republic France Germany Hungary Italy Luxembourg Morocco The Netherlands Poland Russia Spain Sweden Switzerland Turkey United Kingdom Ukraine

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7 2014 EMEA Tax Transactions Guide Austria Austria Imke Gerdes, LL.M., Partner Imke Gerdes specializes in Austrian tax law as well as in international tax law and has provided tax advice in several international company reorganizations. She has several years of practice in advising purchasers as well as sellers in M&A transactions and their related tax structures. She obtained an LLM in International Tax Law at the University of Economics Vienna. She is admitted to the Vienna bar as well as to the Cologne bar. She is further admitted to the Chamber of Tax Advisors Vienna as Steuerberater (currently inactive). Tel: Baker & McKenzie Diwok Hermann Petsche Rechtsanwälte GmbH Schottenring Vienna Austria Baker & McKenzie 1

8 At a Glance Corporate income tax (CIT) rate (%) 25 Local income tax rate (%) N/A Capital gains tax rate (%) 25 1 Tax losses carry forward (years) Tax losses carry back (years) Limitations to transfer of tax losses Domestic withholding tax rate on dividends (%) Domestic withholding tax rate on interest (%) Indefinite N/A Yes 25 or or 0 3 Capital duty (%) 1 4 Transfer tax rates (%) Sale of movable assets 0 Sale of real estate assets 3.5 Sale of shares of a real estate oriented company An exemption applies for certain capital gains on shares. 2 Subject to the domestic implementation of EU directives or based on Double Tax Treaty relief. 3 Subject to the domestic implementation of EU directives. 4 This levy has been abolished as of January 1, If 100% of the shares are combined in the hands of one shareholder. 2 Baker & McKenzie

9 2014 EMEA Tax Transactions Guide Austria Standard value-added tax (VAT) rate (%) 20 Neutral tax regime for restructuring operations Tax Consolidation VAT grouping Yes Yes Yes I. Acquiring the investment 1. Acquisition through an asset deal 1.1 CIT In the case of an asset deal, a step-up in basis can be achieved by the acquirer as he will usually receive the assets and liabilities at fair market value. Among unrelated parties, any purchase price can be agreed on that does not necessarily need to be the fair market value. A transfer among related parties has to occur at arm s length prices. As a general rule, however, all tangible assets acquired will be revaluated at fair market value (and can thus be further depreciated on that revaluated basis). Further, intangible assets developed by the seller will also be revaluated at fair market value. Therefore, even though those assets cannot be entered into the balance sheet of the seller, because they constitute self-developed assets, the purchaser may now depreciate such assets over their useful lifetime. The difference (if any) between the total price paid and the revaluated net asset basis acquired can be activated as goodwill. For tax purposes, such goodwill can be depreciated over a period of 15 years. For accounting purposes, however, the goodwill may be depreciated over its useful lifetime. Interest paid on the financing of the purchase price can be deducted for tax purposes and is recognized as business expense. It should be noted, though, that asset deals may trigger stamp duties if in the course of the asset deal, rights or receivables are assigned. Depending Baker & McKenzie 3

10 on the underlying agreement, stamp duties at a rate of 0.8 percent for assignments up to 1 percent for lease agreements might be triggered. However, in a transfer of a complete business, all agreements and rights pertaining to that specific business are transferred by operation of law (Sec. 38 of the Austrian Business Code), i.e., automatically transferred to the buyer when the business is sold without the obligation to enter into a separate assignment agreement. If rights or agreements are transferred by operation of law, as a general rule, no stamp duties are triggered. To date, the position of the tax authorities on this issue is not clear and it further depends on the wording of the asset purchase agreement whether or not stamp duties are triggered. Therefore, this issue should be carefully examined. Losses pertaining to the assets transferred will remain with the seller and may be used to offset any capital gain resulting from the asset deal. Losses carried forward may be offset with up to 100 percent of the capital gain. In case the seller is an individual, certain tax advantages may be applicable to the taxation of the capital gain. If any of the aforementioned is applicable, these circumstances should be factored into the calculation of the purchase price. 1.2 VAT The sale of assets is subject to VAT at the standard rate of 20 percent. Austria does not have a VAT exemption for the transfer of a going concern and therefore, it has to be assessed for each asset separately whether its transfer triggers VAT and if so, at which rate. If a complete business or part of a business is transferred, and provided the asset purchase agreement does not reveal the value the parties allocated to each asset, as a default rule, the assets have to be assessed at their going concern value. The transfer of certain assets (e.g., receivables) and the transfer of liabilities is VAT-exempt. However, the liabilities transferred always constitute part of the purchase price and may influence the calculation of the goodwill, which is subject to 20 percent VAT. The sale of a building is only subject to VAT if the seller opts in for VAT. If input VAT has been deducted by the seller on the construction or the renovation/maintenance of the building, the 4 Baker & McKenzie

11 2014 EMEA Tax Transactions Guide Austria transfer of such building without VAT within a period of five or 20 years, respectively, will normally trigger a pro rata recapture at the level of the seller of part of the VAT initially deducted. The VAT due on the transfer is normally paid by way of transferring the input VAT claim of the purchaser to the tax account of the seller by applying for such transfer with the tax authorities. As a result, the VAT obligation of the seller is offset with the input VAT claim of the purchaser. If such an offsetting is not feasible, the VAT will be paid by the purchaser to the seller, who will remit such VAT to the authorities. If the purchaser is entitled to fully deduct the input VAT, the payment of VAT on the transfer will merely be a pre-financing cost. However, if the purchaser is not entitled to fully deduct the input VAT, the non-deductible VAT due on the transfer will constitute an actual cost. Related entities resident in Austria may be part of a VAT group if they are financially, economically and organizationally integrated in a group of companies. If the transfer is made between members of a VAT group, it will be out of the scope of VAT. Rate Basis Date of payment Liable person 20% / 10% / 0%, depending on the asset Agreed purchase price Special rules may apply for transactions between certain related entities. Until the 15th of the second month following the supply Seller Baker & McKenzie 5

12 Recoverability Deductibility of VAT as input VAT will depend on the business activity of the purchaser. The deductible VAT is to be entered as a credit item in the periodic VAT return. Any excess input VAT may be refunded by the tax authorities to the tax payer. Exemption Only certain assets (such as receivables) are exempt from VAT. 1.3 Transfer tax Apart from VAT, transfer tax may apply as a result of the transfer of certain assets that might be part of the business acquired. In particular, real estate transfer tax is due on the occasion of the transfer of real estate if the transfer is not subject to VAT. Rate Basis Date of payment Liable person 3.5% plus 1.1% registration fees for registering the new owner in the land register Agreed purchase price One month after receipt of the tax assessment; if self-assessed, until the 15th of the second month in which the tax liability arose, which usually is the month of the transfer Seller and purchaser; in the case of selfassessment by a notary public or lawyer, the notary public and the lawyer are liable for the payment of the taxes. 6 Baker & McKenzie

13 2014 EMEA Tax Transactions Guide Austria Tax deductibility for CIT As a general rule, the transfer tax on buildings is activated and then depreciated over the same period as the building itself. A depreciation of the purchase price allocated to the land is not possible. 1.4 Other acquisition costs Notary fees Mortgage registration duties Transfer of leases Stamp duties 1% 3% (negotiable) of the sale price including trustee fee Mortgage duties of 1.2% of the debt guaranteed by the mortgage The lease agreement is transferred by operation of law, i.e., automatically transferred to the buyer when the business is sold without the obligation to enter into a separate assignment agreement. As the lease agreement is generally transferred by operation of law, no stamp duties should be triggered. However, if the transfer is construed as taking over the whole agreement, such transfer might be subject to stamp duties at a rate of 0.8% of the purchase price paid for the transfer. If the transfer is construed as the new conclusion of a lease agreement, stamp duties at 1% of the annual rent (generally) multiplied by the duration of the lease contract may be triggered. The stamp duty issue should be considered carefully. Baker & McKenzie 7

14 Tax deductibility for CIT Other costs relating to the acquisition of real estate are deductible under the same rules as the ones for the deductibility of real estate transfer tax (see Section 1.3 on Transfer Tax). Other acquisition costs are deductible at once for CIT purposes. 1.5 Tax credits Reinvestment tax credit Other tax credits As a general rule, any capital gain realized by a corporate seller on the occasion of a transfer of assets will be taxable at the standard CIT rate. The transfer of hidden reserves to newly acquired assets and therefore, avoidance of immediate taxation, is only available to individuals. N/A 1.6 Transfer of tax liabilities If the asset deal is considered a sale of a business or part of a business, the purchaser is liable for all tax liabilities relating to the business that are attributable to the last calendar year prior to the transfer. This liability is limited to those tax liabilities the purchaser knew or should have known, and further, it is capped with an amount equal to the value of the assets received. Such taxes mainly concern the VAT and wage tax, but not the corporate income tax. There is no possibility to limit this liability. A similar liability exists for social security contributions, but this liability can be limited or excluded by obtaining a formal nonpayment confirmation from the social security agency indicating the 8 Baker & McKenzie

15 2014 EMEA Tax Transactions Guide Austria exact outstanding amount. The purchaser will not be liable for any amount not mentioned in this confirmation. 2. Acquisition through a share deal 2.1 CIT Unlike the situation under an asset deal, a purchaser cannot benefit from a step-up in basis in Austria if a business is acquired through a share deal. However, within the scope of the group taxation, the depreciation of the goodwill can also be achieved in the course of a share deal. Interest paid on the financing of the acquisition costs is deductible for tax purposes only if the target is not yet part of the group of companies of the purchaser. 2.2 VAT and transfer tax The sale of shares is exempt from Austrian VAT. In the past, the deductibility of the input VAT incurred in the framework of a share deal (e.g., VAT on advisory fees) was generally denied. Pursuant to the AB SKF case of the European Court of Justice (ECJ , C-29/08), however, it is now confirmed that such VAT is to be treated as deductible if it constitutes a general overhead cost for the seller and is not included in the price of the shares. Of course, if the acquirer is a holding company, the VAT will still not be deductible, and adequate planning may be needed to avoid or at least reduce the extra cost. Real estate transfer tax at a rate of 3.5 percent might apply if 100 percent of the shares in a company owning Austrian real estate is combined in the hands of one shareholder. The real estate transfer tax is calculated based on three times the ratable value of the piece of real estate, which usually is way below the fair market value. The ratable value (Einheitswert) is the value of a piece of real estate assessed by the tax authorities for the purpose of calculating and assessing the annual real estate tax. Baker & McKenzie 9

16 2.3 Tax credits and other tax benefits Losses carried forward on the level of the target company will usually survive the change of control, unless a so-called shell acquisition is performed (see Section 2.4 on Tax losses preservations). Therefore, losses carried forward may in general be utilized by the purchaser on the level of the target company for an indefinite period of time within the legal limitations, whereas in an asset deal, those losses may only be utilized to offset them with the capital gain resulting from the transfer. 2.4 Tax losses preservations The tax loss carry forward of a company that has been subject to a change of control generally remains valid and stays in the purchased company. However, if a shell acquisition is performed, losses carried forward may no longer be utilized. A shell acquisition is performed if, as a consequence of acquisition, the following conditions are met: The organizational and economic structure of the target is substantially changed. There is a material change in shareholders. The transfer has been effected against remuneration. The acquisition is not performed for recovery purposes in order to retain the employees. An acquisition results in a change of the organizational structure if all or majority of the managing bodies are exchanged. The economic structure is changed if the business unit that used to form the assets and the activity of the company ceases to exist. This may happen if the former business unit is substantially diminished or terminated completely and is followed by a new activity, or if the former business unit is substantially increased (meaning a short-term increase by three times the size; long-term increases are not harmful). A material change in shareholders is given if 75 percent of the shares are sold. 10 Baker & McKenzie

17 2014 EMEA Tax Transactions Guide Austria A shell acquisition may also be considered if the abovementioned conditions are partly fulfilled by the seller and partly by the purchaser. Further, it is irrelevant if such measures are taken prior or after the share transfer and the consequences of a shell acquisition are also triggered if two conditions are fully and one condition is only partially met. 2.5 Transfer of tax liabilities In the case of a share deal, all (hidden) tax liabilities of the past relating to the purchased company remain in the company and are therefore taken over by the purchaser together with the target entity. Conducting a thorough due diligence as to existing tax liabilities is therefore of high importance, as Austrian law provides for statutes of limitation of generally five years, which commences at the end of the year in which the tax was due. In the event tax fraud is involved, the period of limitation is 10 years. This general statute of limitation is prolonged by one year each time the tax authorities initiate own actions to assess the tax prior to the lapse of the five-year period. Filing the corporate income tax return, for example, prolongs the statute of limitation by one year and a further prolongation by another year would be triggered by a tax audit. However, there is an absolute statute of limitation of 10 years, after which the tax may no longer be assessed. It is usual practice to negotiate an indemnity for tax risks by way of negotiating guarantees for tax-related items. 2.6 Transaction costs If the acquirer is an Austrian company, transaction costs relating to the acquisition of shares will be deductible at the level of that company (from any of its taxable profits), unless the company bought already directly or indirectly belonged to the group of companies of the purchaser. As indicated in Section 2.2 above on VAT, if the acquirer is a holding company (with no activities subject to VAT), the deductibility of the input VAT on these transaction costs is likely to Baker & McKenzie 11

18 become an issue, and planning may be needed to avoid or reduce the extra cost. 3. Financing the investment 3.1 Deductibility of financing expenses As a general rule, financing expenses will be fully tax deductible in the hands of an Austrian acquirer, irrespective of whether the transaction is structured as an asset deal or as a share deal. However, if the transaction is structured as a share deal, interest will not be deductible if the purchased company already directly or indirectly belonged to the group of companies of the purchaser. The deductibility of interest payments is limited if made to a related entity located in a low tax jurisdiction. For the purposes of this provision, an (effective) tax rate of less than 10% is considered as low taxed. Thus, interest paid to a related company subject to an (effective) tax rate of less than 10% are no longer tax deductible. There are no specific thin capitalization rules in Austria but in general, a debt/equity ratio of 3:1 should be accepted, unless the industry standard suggests a different ratio. However, on 28 October 2003, the Equity Replacement Act provided for a credit to be deemed an equity replacing performance if a shareholder granted such credit to a company in crisis. A company is considered in a crisis, if it is: insolvent; indebted; or the company s equity quota falls below 8 percent and the fictitious period of debt redemption exceeds 15 years, unless the company does not require reorganization. The term credit is defined in a quite extensive way, and includes shareholder securities. The law works with a negative definition and does not consider the following legal transactions as credits in the meaning of the law: 12 Baker & McKenzie

19 2014 EMEA Tax Transactions Guide Austria Monetary credits open for periods of no more than 60 days Trade credits or other credits open for periods of no more than six months Credits granted prior to the crisis for which an extension was granted, or whose redemption was allowed to be deferred As a consequence, all other forms of credits are deemed performances replacing equity. As a result of the Equity Replacement Act, a company cannot claim interests paid to shareholders as operational expenses and is possibly liable for payment of 1 percent of capital transfer tax. Outside the scope of the Equity Replacement Act, interest expenses need to meet the arm s-length criteria. Thin capitalization rules Arm s-length principle Other limitations to the deducibility A 3:1 debt/equity should be acceptable in most cases, depending on the industry standard. Special provisions as laid down in the Equity Replacement Act need to be observed. Any intra-group financing must meet the arm s-length criteria. Therefore, the interest rate has to be comparable with the market rate, taking into account any adjustments based on the risk and performance profile. N/A 3.2 Withholding tax on interest Under domestic law, there is no withholding tax on interest paid on loan agreements, unless such loans are secured by Austrian real estate or real estate equivalent rights or by ships registered in the Austrian maritime register. Any other interest (such as credit interest on bank Baker & McKenzie 13

20 accounts) is subject to a 25 percent withholding tax, unless it can be evidenced to the bank that the interest is business income of a domestic or foreign entity. However, with effect as of January 1, 2015, a withholding tax was introduced of 25 percent on interest payments as defined in the EU Savings Directive (2003/48) received by non residents that are not subject to the application of the directive. 3.3 Group Taxation Austria provides for a group taxation regime, which allows the profit and loss consolidation of the income of the group entities on the level of the head of the group. Where a foreign subsidiary is a member of the group, only the losses of such foreign subsidiary may be consolidated with the income of the head of the group. The group taxation admits any domestic or EU company as head of the group, provided the EU company has a domestic branch to which the participation in the group companies can be allocated. The participating group companies may either be Austrian corporations or foreign corporations (EU or third country corporations). The head of the group has to hold a direct or indirect participation in the participating group company of more than 50 percent as well as the majority of the voting rights. If the head of the group holds a direct participation of less than the required threshold but more than 40 percent, it may form a group of heads together with other shareholders each owning directly or indirectly more than 15 percent of the shares of the group company, thus enabling every member of the group of heads to benefit from the group taxation. The group so established needs to stay in place for at least three years. In the event the group is dissolved prior to the lapse of this period, the tax benefits as displayed below will generally be revoked and a recapture of the previous tax benefits occurs. In a mere domestic group, 100 percent of the annual taxable income of the group companies will be attributed to the head of the group, irrespective of the actual participation held. If a group of heads is in place, 100 percent of the profit or loss of the group companies will be allocated 14 Baker & McKenzie

21 2014 EMEA Tax Transactions Guide Austria to the members of the group of heads according to their specific participation. If a participating group company is a foreign corporation, only the losses will be attributed to the head of the group, but not the profits. Further, the losses are only allocated according to the actual participation held by the head. Should the foreign group company offset the losses against future gains or should the group company leave the group, there will generally be a recapture of the tax benefits. Under the provisions of the group taxation, goodwill acquired is deductible over a period of 15 years, if: an Austrian company pursuing an active business is bought by the head of the group; and this company did not belong to the group of companies of the head of the group prior to its acquisition. The goodwill is calculated as the difference between: (i) the equity calculated according to Austrian GAAP plus hidden reserves in the non-depreciable assets; and (ii) the acquisition costs as calculated for tax purposes. The depreciable amount is capped, however, at 50 percent of the purchase price. Further, careful planning as to the acquisition date is necessary in order to make use of the entire 15-year deduction period. Note that the draft 2014 Tax Bill proposes to abolish this goodwill deduction. Because goodwill acquired in the course of a share deal is not deductible in Austria if no tax group is formed, the goodwill deduction together with the group taxation opens planning opportunities for foreign companies acquiring Austrian businesses. Unless the buyer already has an Austrian company available that could act as purchaser, it is beneficial in most cases to acquire the target via a newly established company and then to invoke the group taxation. Even if the acquiring entity does not have any profit of its own, the goodwill deduction is still effective as it will be deducted from the profits of the Baker & McKenzie 15

22 Austrian target, which will be allocated to the Austrian acquisition vehicle under the abovementioned principles. II. Holding the investment 1. Main tax costs to be modeled Taxable income Depreciation Write-offs or capital losses on shares Net income less deductible expenses (i.e., interest expenses, depreciations, etc.) is subject to CIT at the standard rate of 25%. Depreciation is allowed in respect of all tangible fixed assets (except land), as well as purchased intangible fixed assets, on the basis of their normal useful life. As a general rule, the depreciation booked for accounting purposes is also accepted for tax purposes if depreciated on a straight-line basis. Any other depreciation methods (declining or progressive depreciation) are not accepted for tax purposes. Further, specific tax rules provide for mandatory depreciation rules for certain assets. Write-offs on foreign shares are not deductible for Austrian tax purposes unless the Austrian shareholder opted for taxation, or taxation occurs due to the shift from the exemption to the credit system. Write-offs on Austrian shares held by an Austrian company are generally accepted unless the dropdown in value was triggered by a distribution. 16 Baker & McKenzie

23 2014 EMEA Tax Transactions Guide Austria Capital losses on foreign shares that are not subject to taxation are only deductible under certain conditions if realized in a liquidation of the relevant company. Capital losses on domestic shares are deductible. VAT License business tax Other taxes As a general rule, all supplies of goods and services are subject to VAT. The standard Austrian VAT rate is 20%. A reduced rate of 10% and exemptions may apply. Input VAT incurred on supplies constitutes a cost if it is not deductible. N/A Stamp duties need to be observed when entering into agreements. 2. Distribution of Profits Withholding tax on dividends distributed by a local company As a general rule, withholding tax on dividends is levied at the rate of 25%. An exemption from withholding tax on dividends paid to foreign corporate shareholders applies based either on double tax treaty relief or on the domestic implementation of the Parent-Subsidiary Directive. Dividend distributions by resident subsidiaries to nonresident EU parent companies are exempt from any withholding tax under the following conditions: The parent company has a form listed in the directive. Baker & McKenzie 17

24 The parent company owns at least 10% of the capital in the subsidiary. The shareholding has been held directly for an uninterrupted period of one year. Both treaty relief and relief based on the Parent-Subsidiary Directive are subject to withholding if tax avoidance is given. Tax avoidance is deemed to be given if the receiving company is active in the asset administration, it does not employ its own personnel, and it does not maintain its own business facilities. If the anti-abuse provision kicks in, tax must be withheld at a rate of 25% and the shareholder may enter into a refund procedure. Taxation of dividends received by a local company Dividends received by an Austrian corporation from a participation in an Austrian AG or GmbH are exempt from corporate tax. A preliminary withholding tax of 25% has to be withheld if the shareholder holds a participation of less than 10%. Such tax may be refunded in a refund procedure. Capital gains are always subject to tax. This national participation exemption also applies to dividends received by an Austrian corporation from a foreign corporation in which it has held a share of 10% or more for at least one year ( qualified participation ), if this subsidiary is either resident in an EC member state and not exempt from corporate income tax, or it is resident abroad but comparable to an Austrian AG 18 Baker & McKenzie

25 2014 EMEA Tax Transactions Guide Austria or GmbH. In the case of qualified participations, this exemption also covers capital gains. Basically, the same applies to portfolio participations, which is participation below 10%. In this case, only dividends can benefit from the exemptions, and capital gains are subject to corporate income tax at a rate of 25%. Further, if portfolio participations in companies not resident in the EC are concerned, there has to be an agreement on comprehensive administrative assistance in place for the exemption to apply. If no such agreement on comprehensive administrative assistance is in place, such dividends are generally taxed at a rate of 25%. The tax exemption of any foreign dividend is only applicable, provided the income from such participations is not tax deductible at the level of the foreign corporation. Dividends resulting from portfolio participations will, in any event, be subject to tax based on a shift from the exemption to the credit system if the foreign company is either tax exempt or not subject to a tax comparable with the Austrian corporate income tax, or if the profits of the foreign company are subject to a tax rate that is by more than 10 percentage points less than the Austrian corporate income tax or if the foreign company is subject to an individual tax exemption. If such shift to the credit system takes place, any foreign tax imposed on the dividend preferentially Baker & McKenzie 19

26 the corporate income tax can be credited to the Austrian tax payable. If the foreign tax to be credited exceeds the Austrian tax liability, the excess amount can be carried forward and utilized in subsequent years. Capital gains derived from portfolio participations are always subject to tax. For qualified participations, a shift from the exemption to the credit system will take place for dividends and capital gains if the foreign subsidiary is subject to a corporate income tax rate not comparable to the Austrian corporate income tax rate (an average corporate income tax burden not exceeding 15% is deemed incomparable) and if more than 50% of the subsidiary s income consists of passive income derived from interest and/or royalties. Further, in the case of qualified participations, the Austrian shareholder may also opt for taxation if he envisages that the participation will be loss-making. Only if the taxpayer opted for taxation, losses resulting from the impairment of foreign qualifying participations will be tax-deductible in Austria. Such option is irrevocable. 20 Baker & McKenzie

27 2014 EMEA Tax Transactions Guide Austria III. Selling the Investment 1. Asset deal Capital gain taxation Selling costs / transfer taxes Sale by corporate nonresidents Any capital gain realized upon the transfer of assets will normally be subject to tax in the hands of a corporate seller at the standard CIT rate of 25%. If the asset transferred qualifies as a business or part of a business, the capital gain can be offset with any loss carried forward up to 100% of the capital gain, and the 75% limitation rule does not apply. The transfer of assets will trigger VAT and possibly real estate transfer tax and stamp duties. Any cost incurred by the seller in relation to the transfer is taken into account to calculate the net gain that will be subject to CIT. Any gain realized by a foreign corporate nonresident upon disposal of assets forming part of an Austrian PE is taxable in Austria at the normal CIT rate of 25%. The same rule applies to capital gains realized upon disposal of Austrian real estate property. 2. Share Deal Capital gain taxation Capital gains realized on the sale of shares in an Austrian company are taxable at a rate of 25%, unless a double tax treaty allocates the taxing right to the Baker & McKenzie 21

28 country where the seller is resident. Most treaties concluded by Austria provide for such provision (one exception, among others, is the treaty with France). An exception may further apply if the shares are held in a real estate company. However, if the Austrian company is a real estate company, most double tax treaties allocate the taxing right to Austria, provided the real estate is predominantly located in Austria. Any capital gain realized by an Austrian company selling shares in a domestic company is also subject to tax at a rate of 25%. Capital gains resulting from the sale of foreign participation are exempt from tax, provided the participation is a qualified participation and there is no shift from the exemption to the credit system. Selling costs / transfer taxes Generally, no transfer taxes are triggered by the transfer of shares in an Austrian company. IV. Tax regime for restructuring operations Austrian law, namely the Austrian Reorganization Tax Act, provides for comprehensive regulations generally allowing the tax-neutral reorganization of companies by means of, inter alia, merger, demerger, contribution or conversion. Reorganizations only have to occur at fair market value in certain situations. Depending on the underlying facts, the Act also allows for tax-neutral cross-border mergers. Where EU companies or companies resident in the European Economic Area (EEA) are involved and provided the transaction has to occur at fair market value, the Act usually provides for a deferral of 22 Baker & McKenzie

29 2014 EMEA Tax Transactions Guide Austria any corporate income tax due until the respective asset is eventually sold or transferred outside the EEA. The Act further allows for a retroactivity of nine months. In general, any of these reorganizational means allow for the survival of losses carried forward subject to the limitation of the abovementioned shell acquisition and certain other conditions as laid down in the Austrian Reorganization Tax Act. In particular and apart from the shell acquisition test, losses in most reorganizational measures only survive if the loss-making asset is still existent at the effective date of the reorganization. As an additional limitation, the loss-making asset has to be existent on the effective date in more or less the same size. Any of these reorganizational measures are exempt from VAT and under certain conditions also from capital transfer tax. Real estate transfer tax may be lowered if the Austrian Reorganization Tax Act is applicable. Merger or demerger Contribution of universality or business divisions or shares This may be done in a tax-neutral way (roll-over regime) depending on whether it is a purely domestic merger or a crossborder merger. Outbound cross-border mergers can be effected in a tax-neutral way if the assets remain in an Austrian PE. Losses may survive under the specific rules of the Austrian Reorganization Tax Act. This may also be done in a tax-neutral way, unless Austria loses the taxing right in the assets/shares contributed. Losses may survive under the specific rules of the Austrian Reorganization Tax Act. Baker & McKenzie 23

30 Impact of foreign reorganization transactions on Austrian assets Filialization of an Austrian establishment The Austrian Reorganization Tax Act also applies to foreign reorganization measures involving Austrian assets and therefore, tax neutrality might be given. Losses may survive under the specific rules of the Austrian Reorganization Tax Act. This may also be done in a tax-neutral way, unless Austria loses the taxing right in the assets contributed. Losses may survive under the specific rules of the Austrian Reorganization Tax Act. 24 Baker & McKenzie

31 2014 EMEA Tax Transactions Guide Belgium Belgium Philippe Lion, Partner Philippe Lion advises Belgian and foreign entities on all aspects of corporate and international tax. He assists in inbound and outbound planning strategies and in merger and acquisition transactions. He is involved in numerous domestic and cross-border transactions that concern due diligence, advice on tax efficient acquisition structures, tax efficient disposal of assets or companies, as well as assistance in the drafting of appropriate contractual documentation. His practice is also focused on real estate transactions. Tel: Matthias Doornaert, Associate Matthias Doornaert is a member of the Baker & McKenzie s Tax Practice Group in Belgium. He specializes in corporate tax planning for domestic and multinational companies, cross-border business restructuring, real estate transactions and international tax law. matthias.doornaert@bakermckenzie.com Tel: Baker & McKenzie CVBA/SCRL Avenue Louise 149 Louizalaan Eleventh Floor 1050 Brussels Belgium Baker & McKenzie 25

32 At a Glance Corporate income tax (CIT) rate (%) Local income tax rate (%) N/A Capital gains tax rate (%) ,2 Tax losses carry forward (years) Tax losses carry back (years) Limitations to transfer of tax losses Domestic withholding tax rate on dividends (%) Domestic withholding tax rate on interest (%) Indefinite N/A Yes 25 3 or or 0 4 Capital duty (%) 0 Transfer tax rates (%) Purchase of movable assets 0 1 This includes a 3% crisis surtax (33% x 103% = 33.99%). 2 A participation exemption applies to capital gains on shares (subject to a one-year holding period for companies) and a spread taxation regime may apply to capital gains on certain other assets (each time subject to conditions). A specific capital gains tax of 0.412% applies to capital gains benefitting from the participation exemption (capital gains on shares realized by SMEs are exempted from said specific capital gains tax). 3 Under specific circumstances, SMEs are able to benefit from a reduced 20% or 15% rate. 4 Domestic law exemptions or exemptions based on the transposition of the relevant EU directive. 26 Baker & McKenzie

33 2014 EMEA Tax Transactions Guide Belgium Purchase of real estate assets 12.5 or 10 5 Purchase of shares of a real estate oriented company Standard value-added tax (VAT) rate (%) Neutral tax regime for restructuring operations Tax Consolidation VAT grouping Yes No Yes I. Acquiring the investment 1. Acquisition through an asset deal 1.1 CIT In the case of an asset deal, a step-up in basis can be achieved by the acquirer as the latter will receive the assets and liabilities at fair market value. As a general rule, all tangible assets acquired need to be revaluated at fair market value (and can then be further depreciated on that revaluated basis). The difference (if any) between the total price paid and the revaluated net asset basis acquired can be activated as goodwill. Such goodwill can be depreciated over its expected lifetime (which cannot be longer than five years for accounting purposes) but for tax purposes, the Belgian tax authorities generally require that the goodwill (clientele) be depreciated over a period of 10 to 12 years % if the real estate is located in Brussels or in the Walloon region; 10% if it is located in the Flemish region. In certain cases, the transfer may, however, be subject to VAT instead of transfer tax. 6 Except in the case of simulation or application of the GAAR for registration duties (transfer tax). Baker & McKenzie 27

34 An asset deal also makes it possible for the financing costs of the acquisition (if any) to be directly offset against the income from the acquired business (which, as we will see, is not as easy to achieve in the case of a share deal in Belgium). If the acquisition is funded through equity financing, the notional interest deduction (NID) will be available on a stepped-up basis in relation to the business acquired (which is not the case under a share deal). As a transfer of assets is normally subject to tax in the hands of the seller (see below), one can expect that compared to a share deal, the price due under an asset deal will be higher (as it will take into account the CIT due in the hands of the seller possibly together with any further tax due upon remittance of the net gain to the ultimate shareholders). In net present value terms, the advantage of the step-up in basis that can be achieved at the level of the purchaser is not likely to compensate for the higher price that such purchaser will have to pay because of the additional taxation due in the hands of the seller, except if the latter taxation can be reduced on the basis of existing tax loss carry forward at the level of the selling entity (which might otherwise be lost after the transaction). 1.2 VAT The sale of assets is normally subject to VAT at the standard rate of 21 percent. The transfer of certain assets (e.g., receivables) and the transfer of liabilities are, however, VAT-exempt. The sale of buildings is subject to VAT only if the buildings are still new for VAT purposes, i.e., if they are transferred within a period of two years following the year of their first use (or in case of substantial refurbishment). If input VAT has been deducted by the seller on the construction or the renovation of the buildings, the transfer of such buildings without VAT within a period of 15 or five years, respectively (calculated as of 1 January of the year during which the right to deduct the input VAT arose), will normally trigger a pro rata recapture at the level of the seller of (part of) the VAT initially deducted. 28 Baker & McKenzie

35 2014 EMEA Tax Transactions Guide Belgium The VAT due at the occasion of the transfer is normally paid by the purchaser to the seller, who is to remit such VAT to the authorities. If the purchaser is entitled to fully deduct input VAT, the payment of such VAT merely entails a pre-financing cost. However, if the purchaser is not entitled to fully deduct the input VAT, the nondeductible portion of the VAT due at the occasion of the transfer constitutes an actual cost for the purchaser. As an exception to the above rules, the transfer of assets and liabilities under an asset deal is exempt from VAT if it relates to an entire business or a branch of activity (so-called transfer of going concern or TOGC exemption). Transferred items constitute an entire business or a branch of activity if, for the purchaser, they constitute a combination of elements allowing the purchaser to carry on an independent economic activity. If all elements relating to an existing business are transferred, the TOGC exemption normally applies. If certain elements of the business are excluded from the transfer, it may be advisable to seek confirmation on the application of the TOGC exemption through a (formal or informal) ruling. If the transfer is made between members of a VAT group, it is also exempt from VAT (irrespective of whether the conditions for the TOGC exemption are met or not). Rate 21% Basis Date of payment Agreed transfer price for the relevant assets Special rules may apply for transactions between certain related entities. Depends on the situation of the seller; it is generally due on a monthly basis (i.e., within 20 days after the end of the month during which the transaction was completed or the price was paid to the Baker & McKenzie 29

36 seller, whichever comes first) but for certain companies, it is only due on a quarterly basis (i.e., within 20 days after the end of the quarter during which the transaction was completed or the price was paid to the seller, whichever comes first). Liable person Recoverability Exemption Generally the seller, but VAT is economically borne by the purchaser. Deductibility of input VAT paid depends on the business activities of the purchaser. The deductible VAT is to be entered as a credit item in the periodic VAT return. If the deductible VAT for the period concerned exceeds the VAT due, a refund can be requested. The refund is normally made on a quarterly basis. TOGC exemption; a ruling is sometimes advisable to confirm the application of that exemption. 1.3 Transfer tax Transfer taxes may apply with respect to the transfer of certain assets (whether as a part of the business acquired or separately). In particular, real estate transfer tax is due at the occasion of the transfer of real estate provided that such transfer is not subject to VAT. Rate 12.5% (in the Walloon and Brussels regions) or 10% (in the Flemish region) General rate reduced to 4%, 5% or 8% (depending on the region) for acquisition 30 Baker & McKenzie

37 2014 EMEA Tax Transactions Guide Belgium Basis Date of payment Liable person Tax deductibility for CIT by professional real estate brokers under certain conditions 2% on the transfer of leasehold (emphytéose or erfpacht, which can be granted for up to 99 years) 7 Agreed transfer price or fair market value (if the latter is higher) in the case of transfer of real estate Cumulated amount of rental fees and charges in the case of transfer of leasehold Upon registration of the acquisition (payment via notary public) and at the latest four months after the signing of the private deed of sale The purchaser with a joint liability of the seller (and the notary public acting as a kind of paying agent) As a general rule, any transfer tax related to the acquisition of real estate is activated and then depreciated over the same period as the relevant building itself (deduction at once is possible for small companies). Although no depreciation is possible for any portion of the transfer tax relating to the sublaying land, a tax deduction can possibly be achieved for that amount if a write-off is booked at the end of the year of acquisition. 7 As of 1 July 2013, the rate has been increased from 0.2% to 2%. Baker & McKenzie 31

38 1.4 Other acquisition costs Notary fees Mortgage registration duties Transfer of leases Stamp duties Tax deductibility for CIT Notary fees are normally only due if real estate is being transferred as part of the transaction. Such fees amount to the deed costs (average between EUR700 and EUR1,100) plus a percentage of the selling price for the real estate decreasing from 4.56% of the lowest bracket to 0.057% of the highest bracket. The total amount thereof is subject to VAT (as of 1 January 2012). Notary fees may, however, also be due in the specific situation where the special company law procedure for the transfer of a business division or entire business, is being applied. Mortgage duties of 1% of the debt guaranteed by the mortgage; additional mortgage tax of 0.3% upon transcription into the mortgage registry Any transfer of lease agreement needs to be registered, and a 0.2% registration duty is due on the total amount of remaining lease payments at the time of such transfer. N/A Other costs relating to the acquisition of real estate are deductible under the same rules as the ones for the deductibility of real estate transfer tax (see above). Other acquisition costs are deductible at once for CIT purposes. 32 Baker & McKenzie

39 2014 EMEA Tax Transactions Guide Belgium 1.5 Tax credits Reinvestment tax credit Other tax credits As a general rule, any capital gain realized by a corporate seller at the occasion of a transfer of assets is taxable at the standard CIT rate. Under certain conditions, taxation can, however, be spread in time if the seller decides to reinvest an amount equal to the total sales proceeds in other amortizable assets. However, since it cannot be determined for sure whether the seller will apply that regime, it is rather unusual to take that timing advantage into account in determining the price under an asset deal. An investment deduction applies in relation to certain new assets acquired by companies or individuals. If applicable, such investment deduction can be spread over the life span of the assets, and be proportionate to the amortization booked on the latter. Any spread investment deduction still to be applied at the time of a transfer of the relevant assets might be accelerated at the level of the seller, but does under no circumstance transfer to the acquirer. The latter will not benefit from any investment deduction in relation to assets that are not new at the time of acquisition. Baker & McKenzie 33