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Austria: Dividend distribution exempt from capital gains tax

As is generally known, dividends distributed by a corporation to private investors are subject to a capital gains tax of 25%. However, if the distribution is not made by resorting to the profits realized in a year but, based on the company’s statute, to the contributions made by stakeholders, the distribution is deemed to be a “repayment of contributions” which is tax neutral and therefore not subject to the 25% tax rate.

The repayment of contributions is possible provided the company prepares a so-called “evidence account” registering the development of the single items composing the equity capital in the balance sheet. This evidence account must show if the balance sheet profit to be distributed consists of profits realized or of previously made equity contributions.

If a corporation decides to distribute a dividend, the board of directors may decide independently to register this dividend in the evidence account for fiscal purposes against the balance sheet profit or against the contributions by stakeholders.

If the dividend is distributed by using the balance sheet profit, it is subject to taxation under the general rules. If in an evidence account it is assigned to the contributions made by stakeholders, a repayment of contributions has taken place which is tax neutral. The board of directors’ decision is applied to all stakeholders receiving dividend payments.

Apart from the tax exemption with regard to the capital gains tax of 25%, a second fiscal effect is achieved. The repayment of contributions causes a reduction of the cost incurred for the acquisition of shares or participations in private limited companies.

As of 1 April 2012 also rate gains are subject to the 25% capital gains tax. Since the rate gains liable to taxation are calculated as difference between the proceeds from the sale and the purchase cost, the purchase cost reducing effect of the repayment of contributions may lead to a higher gain when a stake or participation is sold, which then will be subject to the 25% tax rate.

Thus the repayment of contributions has only the effect of deferring the payment because 25% capital gain tax has not to be paid at the moment of the distribution of the profits, but will be due when a participation is sold.

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Austria: Capital gains tax

As known, the Austrian Constitutional Court had requested a six month postponement of the introduction of the new taxation of capital gains from securities, while it found nothing to object to the fact that banks have to withhold this tax.

The duty to withheld capital gains tax related to the increase of the value of assets and income realized from derivatives will therefore come into force on 1 April 2012. Thus, the banks in charge of withholding the tax will have time to make the necessary adjustments.

Despite the postponement of the duty of banks to withhold the tax, all securities and holdings in investment funds purchased after 1 January 2011 will be subject to the new tax. This rule applies also to securities purchased between 1 January 2011 and 31 March 2011 which are sold after 12 months and thus after the deadline for the taxation of speculation gains which will temporarily remain in force. The speculation period is therefore increased from 12 to 15 months.

Donations. The reliefs applied from 2009 to donations made to charity organizations and institutions engaged in development aid, which allow for the deduction of a total of donations of 10% of the previous year’s profits/income, will be further extended in 2012 and will include also organizations active in the field of environment, nature and animal protection, as well as voluntary fire brigades.

The 10% ceiling of the previous year’s profits/income applies in a standardized way to all donations subject to reliefs. The precondition of electronically sending information regarding the donor in order to qualify for the relief will be abolished. It will be sufficient to present documentation proving the payment and confirmations issued by the beneficiary organizations.

Tax Code. The Government presented also an amendment to the tax code. If in the case of an appeal against a tax note the amount of the tax due is at first paid but subsequently the appeal is accepted, the tax previously paid was accredited without the application of interest. As of 2012, interests will be calculated on the tax amounts accredited in favour of the taxpayer.

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