Austria: Deductibility of fines

The legislation in force does not provide for explicit rules regarding the deductibility of fines as operating expenses. When called upon to decide on how to treat fines and penalties, courts usually argued that fines and penalties were generally to be considered non deductible because the punished behaviour of the taxpayer was classified as belonging to his/her private sphere.

In the framework of the tax amendment law 2011, lawmakers explicitly excluded from deductibility the following fines: fines and penalties imposed by courts, administrative authorities and the organs of the European Union; not deductible increases of tax payments established by the fiscal penal code; payments made following a resignation or court actions on the base of the fiscal penal code or the law on responsibilities of associations.

This amendment, however, seems to be problematic as far as fines regarding cartel activities in violation of EU antitrust regulations are concerned. The European Union calculates these fines based on the value of goods and services sold in violation of the antitrust regulations. A basic fine amount is established in order to skim off the illegally obtained economic advantage.

The illegally obtained economic advantage means income subject to taxation perceived by the taxpayer. If the fine were not deductible from the taxable base, a double punishment would occur because the taxpayer has to pay taxes on the amount from which he/she paid the fine. The comments on the draft law specify therefore that the skimming off of profits explicitly defined in a concrete amount has to be excluded from the prohibition of deductibility.

In case of a criminal conviction, the taxpayer may not claim deductibility neither of the fines imposed nor the procedural cost or costs incurred for a defense lawyer. However, new rules have been introduced regarding consulting services delivered in the framework of the penal fiscal law.

If criminal proceedings end with the acquittal of the taxpayer, consulting fees are generally deductible. The situation is, however, different as far as the non deductible increase of tax payments is concerned. Consulting fees directly connected to the fine will not be deductible, while consulting expenses incurred for the determination of the taxable base will be considered operating expenses.

 

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