On 29 June 2016, the Austrian Supreme Administrative Court ruled that tax losses of foreign group members have to be calculated on the basis of an opening balance sheet set up in accordance with Austrian tax law.
Pursuant to sec. 9 of the Corporate Income Tax Act (Krperschaftsteuergesetz), affiliated companies may form a tax group (Unternehmensgruppe) by jointly filing a group taxation application with the tax authorities. The formation of a tax group results in 100% of the taxable income of each member of the group being attributed to the top-tier company in the tax group. In the case of non-resident members of a tax group, only losses of such companies are attributed (on a pro rata basis) to the top-tier company, with such losses having to be calculated according to Austrian tax rules, capped however at the amount calculated pursuant to foreign tax rules (sec. 9(6)(6) of the Corporate Income Tax Act). Ever since the latter provision was enacted, it was heavily debated which balance sheet figures should serve as the basis for the calculation of foreign income. Obviously, this is of relevance due to diverging rules on the determination of income, e.g., linear vs. degressive depreciation methods, different depreciation periods etc.
In the case at hand a German company was a member of an Austrian tax group. In the years 2005 and 2006, losses amounting to approximately EUR 750,000 per year were calculated on the basis of an opening balance sheet that complied with Austrian tax provisions. In the course of a tax audit, the competent tax office determined deviating figures for both years on the basis of an opening balance sheet that complied with German tax provisions, drafted at the time the German subsidiary became part of the Austrian tax group.
In its judgment (29 June 2016, 2013/15/0253), the Austrian Supreme Administrative Court (Verwaltungsgerichtshof) held that the wording of sec. 9(6)(6) incontrovertibly states that only Austrian tax law shall be decisive for purposes of calculating the losses of non-resident group members. Although the balance sheet figures used in the case at hand complied with German tax law, they simultaneously contradicted compulsory rules under Austrian tax law. Consequently, in order to avoid biased loss calculations and conflicts with compulsory Austrian tax law, the opening balance sheet has to be drafted based on Austrian tax rules, rather than German tax rules.