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TAX & BUSINESS
Interim tax for private foundations
Private foundations are a popular instrument for asset management and succession planning. But private foundations also have to pay tax.
Especially relevant is the so‑called interim tax (Zwischensteuer). It applies whenever income is retained in the foundation rather than being distributed directly to beneficiaries. The interim tax is a special form of corporation tax that falls on certain income of private foundations. It was introduced to ensure that income "parked" in the foundation and not immediately paid out to beneficiaries is still taxed.
The interim tax applies in particular to the following capital income: interest, dividends, gains from the disposal of capital assets (e.g. securities) and income from derivatives and silent partnerships.
Not affected, however, are income from trade or business, self‑employment, rental and leasing, other capital income such as interest from loans, other speculative gains and income from the disposal of real estate from business assets. These incomes may, however, be subject to regular corporation tax.
23 % interim tax rate
The interim tax rate is 23 % of the affected income. If these earnings are later actually distributed to the beneficiaries, part of the interim tax already paid is credited, so that double taxation does not occur. Economically ist the interim tax therefore a pre‑taxation of the later donation taxation for the beneficiaries.
The liability to pay interim tax arises regardless of whether a distribution actually takes place. What matters is that income remains in the foundation body and does not (yet) flow to the beneficiaries. The tax base for the interim tax can be reduced by gifts to the beneficiaries. This is intended to avoid a double tax burden at the beneficiary level. Likewise, donations to eligible charitable recipients can reduce the tax base to a certain extent.
No legal certainty
Furthermore, the crediting of gifts to foreign beneficiaries against the interim tax remains contentious. The European Court of Justice (EuGH) had previously found that the lack of a possibility to credit gifts to foreign beneficiaries against the interim tax base was contrary to EU law. The legislature responded by re‑regulating the relevant provision.
However, in the view of the Federal Finance Court (BFG) the new wording still conflicts with EU law. The Administrative Court (VwGH) will also have to address the EU‑law conformity shortly, as two administrative revisions have already been filed.
In addition, the new government plans to raise the interim tax to 27.5 %, which could also affect the assessment of EU‑law conformity. It remains open whether the VwGH, in any future proceedings, will again refer the matter to the EuGH for an assessment of the EU‑law conformity of the Austrian amendment. Consequently, it must be awaited until legal certainty regarding the crediting of gifts to foreign beneficiaries is achieved.
Note
The interim tax is a central element of the taxation of private foundations and should be taken into account in asset planning. Those who know the rules and act tax‑efficiently can avoid unpleasant surprises and keep or pass on assets efficiently within the foundation. Individual tax advice is essential here.
The interim tax applies in particular to the following capital income: interest, dividends, gains from the disposal of capital assets (e.g. securities) and income from derivatives and silent partnerships.
Not affected, however, are income from trade or business, self‑employment, rental and leasing, other capital income such as interest from loans, other speculative gains and income from the disposal of real estate from business assets. These incomes may, however, be subject to regular corporation tax.
23 % interim tax rate
The interim tax rate is 23 % of the affected income. If these earnings are later actually distributed to the beneficiaries, part of the interim tax already paid is credited, so that double taxation does not occur. Economically ist the interim tax therefore a pre‑taxation of the later donation taxation for the beneficiaries.
The liability to pay interim tax arises regardless of whether a distribution actually takes place. What matters is that income remains in the foundation body and does not (yet) flow to the beneficiaries. The tax base for the interim tax can be reduced by gifts to the beneficiaries. This is intended to avoid a double tax burden at the beneficiary level. Likewise, donations to eligible charitable recipients can reduce the tax base to a certain extent.
No legal certainty
Furthermore, the crediting of gifts to foreign beneficiaries against the interim tax remains contentious. The European Court of Justice (EuGH) had previously found that the lack of a possibility to credit gifts to foreign beneficiaries against the interim tax base was contrary to EU law. The legislature responded by re‑regulating the relevant provision.
However, in the view of the Federal Finance Court (BFG) the new wording still conflicts with EU law. The Administrative Court (VwGH) will also have to address the EU‑law conformity shortly, as two administrative revisions have already been filed.
In addition, the new government plans to raise the interim tax to 27.5 %, which could also affect the assessment of EU‑law conformity. It remains open whether the VwGH, in any future proceedings, will again refer the matter to the EuGH for an assessment of the EU‑law conformity of the Austrian amendment. Consequently, it must be awaited until legal certainty regarding the crediting of gifts to foreign beneficiaries is achieved.
Note
The interim tax is a central element of the taxation of private foundations and should be taken into account in asset planning. Those who know the rules and act tax‑efficiently can avoid unpleasant surprises and keep or pass on assets efficiently within the foundation. Individual tax advice is essential here.