In the Netherlands, the abolition of tax deductibility regarding coupon payments under Additional Tier 1 (AT1) and Restricted Tier 1 (RT1) instruments is being envisaged due to state aid concerns. As outlined below, we do not expect a similar legislative move regarding Austria.

The Dutch government has recently announced its intention to abolish the tax deductibility of coupon payments under AT1 and RT1 instruments. One reason for that seems to be state aid concerns, given that the Dutch rules only apply to such instruments issued by banks and insurance companies, but not to comparable hybrid instruments issued by other issuers.

Will this have repercussions on the Austrian tax deductibility rules? We do not think so: Austrian law contains a general rule on the qualification of all types of hybrid instruments as equity or debt for tax purposes. If a hybrid instrument does not grant a right to participate in both the current profits and the liquidation profits of the issuer, then it qualifies as debt. This results in tax deductibility of coupon payments under such an instrument. As the same tax deductibility rules apply to all hybrid instruments, regardless of their regulatory classification, we do not consider the Austrian tax deductibility rules to be prone to state aid allegations. Thus, we do not anticipate that the Austrian legislator will abolish the deductibility rules (at least not due to state aid concerns).

For purposes of so-called tax calls, as of today a change in the applicable Austrian tax treatment of AT1/RT1 instruments is in our opinion not "reasonably foreseeable". Thus, if an Austrian issuer issued AT1/RT1 instruments today under T&Cs containing the typical tax call language, an early redemption of these instruments should be possible in case of a change in the applicable Austrian tax treatment of coupon payments.