Capital contribution and internal financing evidence account
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The Körperschaftsteuerrecht provides that capital contributions made by share owners are tax-neutral. Therefore capital contributions do not increase taxable profit at corporation level. At shareholder level they increase the acquisition costs or book value of the shareholders’ participating interest.
These rules apply to all entrepreneurs from EU Member States in Austria.
A capital repayment is the reverse process of such a capital contribution and should therefore be treated as a mirror-image. At corporation level, a capital repayment does not impact the taxable profit; at shareholder level, it reduces the acquisition costs or book value of the shareholders’ participating interest. If the acquisition costs or book value are reduced by a capital repayment to less than zero, this always represents a taxable disposition in the business (and non-business) sector.
The concept of capital repayments pursuant to Section 4 paragraph 12 EStG was fundamentally altered by the Abgabenänderungsgesetz 2015. The previously applicable right to choose whether a declared distribution of net profit under company law would be taxed either as a capital repayment or as a profit distribution was basically retained in a limited form and enshrined in law. Taxation of profit distribution under company law as a capital repayment requires positive capital contribution levels, while taxation as declared dividends generally requires positive internal financing levels. Capital repayments reduce the capital contribution levels, and declared dividends reduce the internal financing levels of the distributing corporation.
Internal financing levels are increased by annual surpluses within the meaning of the Unternehmensgesetzbuch and are reduced by annual deficits within the meaning of the Unternehmensgesetzbuch and by declared dividends; disguised capital contributions and retained repayments of capital contributions are excluded here. Profits which arise as result of reorganisation at fair value increase internal financing levels only when and insofar as they can be distributed according to the provisions of the Unternehmensgesetzbuch (Section 235 UGB). Disguised dividends are (as previously) still taxed as dividends, even if the internal financing account is negative.
Capital contribution levels are determined in accordance with the provisions in the version that preceded the 2015/2016 Steuerreformgesetz. Since it depends on the tax-related concept of capital contributions, the equity shown on the balance sheet does not necessarily correspond to the equity relevant for tax purposes. The relevant capital contribution and internal financing levels are thus documented and transparent, the Einkommensteuergesetz (EStG) provides for corporations to record the capital contributions and internal financing levels in an evidence account and any changes hereto must be constantly updated.
In accordance with the sub-division under company law of 'internal financing' and 'external financing' into tied-up and non-tied up balance sheet items, capital contributions and internal financing are also divided into 'available' and 'unavailable' amounts for tax purposes. This sub-division defines the framework for exercising the choice between capital repayments and declared dividends.
At least the four following evidence sub-accounts must be kept:
- Unavailable capital contributions sub-account
- Available capital contributions sub-account
- Unavailable internal financing sub-account
- Available internal financing sub-account
As an alternative, there can also be a further sub-division of the evidence accounts for presentation purposes, which is more closely linked to the presentation of equity on the balance sheet in the balance sheet classification scheme under Section 224 paragraph 3 UGB (e.g. nominal capital sub-account, tied-up and non-tied up capital reserves sub-account, statutory and non-tied up retained profit, net profit sub-account).
A surrogate capital sub-account and a loan capital sub-account must also be kept, where necessary, independently of the evidence accounts outlined above.
The evidence account must be attached to the annual tax declaration. The new rules apply first and foremost to capital repayments and declared dividends which took place after 31 December 2015.
All Austrian corporations which have capital contributions in the tax sense are affected by potential capital repayments. Thus, ownerless corporations or associations could be affected if they issue surrogate capital.
The capital contribution and internal financing evidence account must be attached to the corporation tax return in an appropriate form.
The right to choose to make a capital repayment must be exercised in the withholding tax KESt application. If no capital repayment is made, the (KESt) must be paid to the tax office of the party liable for the deduction.
- Sections 4 paragraph 12, 15 pragraph 4, 27 paragraph 3, 96 paragraph 2 of the Einkommensteuergesetz 1988 (EStG 1988)
- Körperschaftsteuergesetz 1988 (KStG 1988)
- Section 235 of the Unternehmensgesetzbuch (UGB)
responsible for content: Federal Ministry of Finance