Austria: issues relating to dividends paid out by Austrian corporations

The Austrian Ministry of Finance published opinions regarding two issues concerning mergers and acquisitions relating to dividends paid out by Austrian corporations. Subject of the opinions are dividend payments after cross-border side-stream mergers and the distribution of retained earnings in the course of share sales.

The merger of a foreign corporation into its Austrian sister-corporation results in a tax-neutral step-up in basis of all assets and liabilities transferred. In the past, it was questioned whether such a step-up also resulted in an increase in the equity-capital recognized for tax purposes of the absorbing corporation that can be repaid as a “dividend” to the shareholder tax-neutrally and therefore without any withholding tax levied under Austrian law—regardless of the rules and regulations of any applicable income tax treaty.

A ruling of the Austrian Ministry of Finance provides that the equity-capital recognized for tax purposes of the Austrian absorbing entity in a cross-border side-stream merger is increased by the fair market value of the transferred entity. As a result, the “high amount” of equity-capital for tax purposes can be distributed to the shareholders of the Austrian corporation without triggering dividend withholding tax in the future.

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