In December 2021, the Austrian legislator passed amendments of tax regulations on the fiscal treatment of restructuring profits and debt reliefs. In terms of dealing with the economic consequences of the COVID-19-pandemic, these amendments significantly simplify out-of-court restructuring procedures and debt relief for companies.
In case of a restructuring procedure or a debt relief, taxable income typically arises at the level of the debtor in the debt amount relieved by the creditors. Two significant amendments were passed regarding the taxation of such income, namely an income tax relief in case of full debt repayment to the extent of the agreed quota and adjustments for the offset of tax loss carry forwards for corporations. These amendments are already applicable for tax assessments for 2021.
Taxable income resulting from in-court restructurings and taxable income resulting from comparable out-of-court restructuring procedures will be treated equally now.
In case of an in-court restructuring tax income resulting from a restructuring profit (which requires a debt relief, need for restructuring, intention to restructure, suitability to restructure) shall not be assessed to the extent the income tax amount exceeds the tax amount equal to the debt relief quota of a restructuring settlement. For tax assessments for 2021 onwards this tax reduction is under certain conditions now equally granted also for an out-of-court restructuring settlement if such a settlement with the creditors is comparable to an in-court restructuring.
According to the explanatory notes for the amendment, an out-of-court restructuring settlement is comparable with an in-court restructuring, if creditors representing at least 50 % of the overall amount of the liabilities owed by a debtor participate in an out-of-court settlement. It remains to be seen whether the Tax Administration will provide further clarifications in the Income Tax Guidelines.
Generally, corporations can off-set tax loss carry forwards up to only 75 % of their total earnings of a tax year (general limitation to set off tax loss carry forwards).
Prior to the amendment, as an exception to the general 75 % limitation rule, restructuring profits according to Sec 23a Corporate Income Tax Act could be offset against losses carry forwards up to 100 % of the positive income from a debt relief. The scope of this exception was extended as a set-off against 100 % of tax loss carry forwards against positive income from a debt relief is also possible now, if the strict requirements for the existence of a restructuring profit according to Sec 23a Corporate Income Tax Act are not met (which is eg the case if the business activities of a company are not further continued after the settlement or if an operational business never existed). This amendment applies for tax assessments for 2021 onwards.
Therefore, if a sufficient amount of tax loss carry forwards of a corporation exists, tax income from a debt relief will not result in a cash tax burden and thus will not have adverse impacts on the liquidity of a company.
From an income tax perspective out-of-court restructuring settlements and debt reliefs have been significantly simplified due to the latest legislative amendments regarding non-assessing of (corporate) income tax for the quota in an out-of-court restructuring and the possibility to offset 100% of tax loss carry forwards with tax income from debt reliefs for corporations. These new regulations already apply for tax assessments for 2021 onwards.
Richard Jasenek ist Steuerberater bei Deloitte Wien und hat mehr als 15 Jahre Erfahrung in der steuerlichen Beratung. Tätigkeitsschwerpunkte sind die M&A-Beratung, Tax Due Diligence, Restrukturierung sowie die laufenden steuerlichen Beratung von nationalen und internationalen Unternehmensguppen (vorwiegend zu Körperschaftsteuer, Gebühren & Verkehrssteuern).