AUSTRIA Law and Practice

Contributed by: Markus Fellner, Florian Kranebitter and Mario Burger, Fellner Wratzfeld & Partners

With regard to guarantees there are two possibilities to mitigate the risk of triggering Austrian stamp duty:

• making sure that the guarantee is an abstract, first-demand guarantee (abstrakter Garantievertrag) pursuant to Section 880a second case of the Austrian Civil Code; and

• limiting the guaranteed obligations to obligations and liabilities under the loan agreement (as opposed to all finance documents).

The first alternative is generally preferred by the lenders, while the second alternative is preferred by the borrowers.

Penalty Fine

The penalty fine set by the Austrian authorities can go up to 100 % of the amount of the stamp duty, if the Austrian stamp duty is not duly paid.

8.2 Withholding Tax/Qualifying Lender Concepts

Generally, neither repayments of principal under loan transactions nor interest payments are subject to withholding tax. Rather, these payments will have to be taken into account for purposes of the (corporate) income tax of the lender. An exception to that rule are interest payments on bank deposits or on other non-securitised receivables against banks and interest payments on publicly offered debt instruments (bonds). In these cases, the Austrian withholding tax rate is 27.5 %, subject to a reduction to 25 % for interest paid to corporations.

However, no withholding tax applies to interest payments made to:

• foreign resident corporate taxpayers (without a permanent establishment in Austria to which the income is attributable);

• foreign resident individual taxpayers (without a permanent establishment in Austria) if an automatic exchange of information mechanism is in place between Austria and the jurisdiction of residence of the taxpayer and if they provide a qualifying tax residence certificate; or

• Austrian corporate taxpayers who provide a qualifying declaration of exemption (Befreiungserklärung).

There are numerous double taxation treaties between Austria and a large number of jurisdictions, which typically provide for withholding tax to be considered as deductible or capable of being refunded, or both. If withholding tax has been withheld, the taxpayer must file a refund application to obtain either a full or partial refund (if only a reduction under a tax treaty is available). Capital gains realised on an alienation of loans or bonds would only be subject to withholding taxation in Austria if an Austrian custodian or paying agent is involved in such alienation. Exemptions apply, such as the ones outlined above.

8.3 Thin-Capitalisation Rules

There are no specific thin-capitalisation rules in Austria. The Austrian tax authorities, in general, accept a debt/equity ratio of 4:1 (even higher in a holding context).

9. Takeover Finance

9.1 Regulated Targets

Foreign Direct Investments (FDI)

Foreign direct investment (FDI) is a category of long-term cross-border investment in corporations. Investments in foreign companies only qualify as FDI if a minimum equity share of 10% is acquired. Investments below this threshold