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Austrian Corporate Taxation: Mechanics of the use of cross-border losses

The European Lawyer, 2008, Issue 75
1. Januar 2008

Austrian corporations have been allowed to integrate non-Austrian corporations into an Austrian tax consolidation group since 2005. This opportunity has proven to be an effective tool in achieving a cross-border use of losses between separate corporate entities and is widely used by internationally active groups with operations in Austria.

When the law was introduced, many commentators were extremely sceptical. They argued that this new planning tool would allow a large number of internationally active corporate groups to reduce their effective Austrian tax burden to zero. The total corporate income tax revenue would dramatically erode and other taxes (such as personal income tax) would have to be raised in order to finance the federal budget.

After three years of practical experience with the law, one can say that none of these rather pessimistic outlooks has become reality. The Austrian tax revenue resulting from corporate income tax in 2007 is larger than ever in Austria’s history. Partly because of the highly attractive tax legislation – most notably offering the feature of cross-border tax consolidation – a large number of international investors have used Austria as a tax-efficient base for their investments in Central and Eastern Europe. In fact, since the enactment of the new law, hundreds of Austrian headquarter and holding companies have been established in Austria, the majority of them most likely making use of cross-border tax consolidation.

As a result, how does the Austrian international tax consolidation system actually work from a technical perspective?

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