Amendments to the Austrian fund taxation regime

In the course of the enactment of the Austrian Alternative Investment Funds Managers Act, the Austrian fund taxation regime was amended, thereby becoming applicable to any and all alternative investment funds, irrespective of their state of origin and the legal form in which they are organized.

Introduction

Aus­tri­an fund tax­a­tion regime

Aus­tri­an tax law pro­vides for a spe­cif­ic tax regime for invest­ment funds. Such fund tax regime is char­ac­ter­ized by the fund being treat­ed as a tax-trans­par­ent vehi­cle (there­by hav­ing no shield­ing effect). As a result, any income will be taxed on the lev­el of the investors. This applies to income dis­trib­uted by the fund, as well as to any income accrued but not dis­trib­uted to the investors (so-called deemed dis­tri­b­u­tions). Pri­or to the enact­ment of the Aus­tri­an Alter­na­tive Invest­ment Funds Man­agers Act (AIFMA) into Aus­tri­an law, this fund tax­a­tion regime applied to Aus­tri­an invest­ment funds (com­pris­ing reg­u­lat­ed vehi­cles with­in the scope of the Aus­tri­an Invest­ment Funds Act (AIFA)), as well as to for­eign invest­ment funds. The lat­ter were defined as any assets sub­ject to a for­eign juris­dic­tion that, irre­spec­tive of the legal form in which they are orga­nized, were invest­ed accord­ing to the prin­ci­ples of fund risk diver­si­fi­ca­tion on the basis of a statute, of the enti­ty’s arti­cles, or of cus­tom­ary exer­cise. Despite such a rather broad def­i­n­i­tion, pri­vate equi­ty funds were typ­i­cal­ly out­side the scope of the Aus­tri­an fund tax­a­tion regime if, in par­tic­u­lar, the funds were active­ly engaged in the man­age­ment and busi­ness of the tar­get com­pa­nies and the par­tic­i­pa­tions held in the tar­get com­pa­nies exceed­ed a thresh­old of 25%. As a result there­of, Aus­tri­an res­i­dent investors of pri­vate equi­ty funds set up in a legal form com­pa­ra­ble to an Aus­tri­an cor­po­ra­tion were only sub­ject with income dis­trib­uted by the fund.

Amend­ment of the Aus­tri­an fund tax­a­tion regime

In the course of the enact­ment of the AIFMA, which imple­ments the pro­vi­sions of EC Direc­tive 2011/61/EC on Alter­na­tive Invest­ment Fund Man­agers (AIFMD), both the def­i­n­i­tion of the terms “Aus­tri­an invest­ment fund” and “for­eign invest­ment funds” were amend­ed. More pre­cise­ly, both terms were extend­ed and now also com­prise alter­na­tive invest­ment funds (AIF). As a result, any AIF, irre­spec­tive of whether it is an Aus­tri­an or a for­eign vehi­cle and whether it is set up as a cor­po­ra­tion, part­ner­ship or fund struc­ture, will be sub­ject to the Aus­tri­an fund tax­a­tion regime.

Definition of AIFs

The AIFMA defines an AIF as a col­lec­tive invest­ment under­tak­ing, includ­ing invest­ment com­part­ments there­of, which (i) rais­es cap­i­tal from a num­ber of investors with a view to invest­ing it in accor­dance with a defined invest­ment pol­i­cy for the ben­e­fit of these investors and with­out the cap­i­tal raised direct­ly serv­ing oper­at­ing activ­i­ties, and (ii) does not require autho­riza­tion under Art 5 of EC Direc­tive 2009/65/EC, ie it is not an under­tak­ing for col­lec­tive invest­ment in trans­fer­able secu­ri­ties (UCIT). Giv­en that rather broad def­i­n­i­tion of an AIF, its scope is not entire­ly clear. Con­sid­er­ing, how­ev­er, that the pro­vi­sions of AIFMD pri­mar­i­ly tar­get pri­vate equi­ty funds and hedge funds, these types of vehi­cles will most like­ly be with­in the scope of the term AIF, there­by trig­ger­ing appli­ca­tion of the Aus­tri­an fund tax­a­tion regime.

In par­tic­u­lar, it may be ques­tion­able whether acqui­si­tion vehi­cles or finance vehi­cles may qual­i­fy as AIF there­by being sub­ject to the Aus­tri­an fund tax­a­tion regime. As a result, even if such vehi­cle were set up in a legal form com­pa­ra­ble to a cor­po­ra­tion, this would not shield the investors from imme­di­ate tax­a­tion with income accrued on the lev­el of the fund.

Since the con­cept of AIF has been intro­duced into Aus­tri­an (tax) law only recent­ly, there are no prece­dents nor pub­lished rul­ings avail­able in this respect. Due to the tax pro­vi­sions tech­ni­cal­ly refer­ring to the def­i­n­i­tion of an AIF in the sense of the AIFMA, one may argue that the qual­i­fi­ca­tion of a vehi­cle for reg­u­la­to­ry pur­pos­es shall also be rel­e­vant (and bind­ing) for Aus­tri­an tax pur­pos­es. In par­tic­u­lar with respect to for­eign vehi­cles, it is cur­rent­ly not clear whether the Aus­tri­an tax author­i­ties will fol­low the qual­i­fi­ca­tion of a for­eign vehi­cle as either being an AIF or as being exempt resolved on by a for­eign reg­u­la­to­ry author­i­ty in any case (eg if the for­eign super­vi­so­ry author­i­ty qual­i­fies a vehi­cle as being out­side the scope of the AIFMD), but may rather pur­sue their own analy­sis lead­ing to a dif­fer­ent result.

Sum­ma­riz­ing, domes­tic as well as inter­na­tion­al tax plan­ning struc­tures have to be care­ful­ly analysed in order to avoid any neg­a­tive impact on the investors’ lev­el due to eg an Aus­tri­an or a for­eign acqui­si­tion or finance vehi­cle being treat­ed as an AIF, there­by trig­ger­ing appli­ca­tion of the Aus­tri­an fund tax­a­tion regime.

Due to the implementation of the EC Directive on Alternative Investment Fund Managers into Austrian law, both domestic and international tax planning requires careful structuring in order to avoid the application of the Austrian fund taxation regime.