Post by HasenauerPrinz on Mar 13, 2009 8:16:39 GMT 4
Austria: New investment fund guidelines
Clemens Hasenauer Johannes Prinz
The Austrian ministry of finance has recently published new investment fund guidelines (Investmentfondsrichtlinien 2008). The new guidelines also deal with various aspects of the Austrian tax treatment of foreign investment funds including the criteria for the classification as foreign fund and its eligibility for tax treaty benefits.
Foreign investment funds
For Austrian tax purposes, any portfolio of assets which is subject to a foreign jurisdiction and structured according to risk diversification principles may be qualified as a foreign investment fund, without regard to its legal form. Investors of a foreign investment fund are taxed not only on the actual distributions of the fund but also on the fund's retained earnings which are deemed to be distributed to the investors once a year (transparency of investment funds for tax purposes). If no Austrian tax representative is appointed by the foreign fund and also the investors are not able to report the relevant figures to the tax authorities, the fund is considered a black fund. In this case investors are taxed on an annual lump sum basis of at least 10% of the fund's last redemption price. This is one of the reasons why it may be crucial whether or not a foreign entity qualifies as investment fund.
Index linked notes
Notes which are linked to the performance of underlying assets can be re-classified as investment fund shares if the issuer actually acquires a major part of the underlying securities (asset backing) or if there is an actively managed portfolio of underlying assets.
However, according to the new guidelines index linked notes should in no event be treated as foreign investment fund shares, irrespective of whether the underlying index is a recognised or individually composed index. It remains unclear whether fund linked notes can be treated as foreign investment fund shares, in particular if there is no capital guarantee.
Private equity and venture capital funds
The new guidelines make clear that foreign private equity or venture capital funds may not be re-classified as investment funds if they actively manage their portfolio companies rather than being limited to pure asset management, if their participation in the target companies exceeds 25%, or if there are capital calls. Unfortunately, the classification of fund of fund structures is not addressed in the new guidelines.
Eligibility for tax treaty benefits
Austrian investment funds are transparent and therefore not eligible for tax treaty benefits; only the fund's investors are entitled to claim treaty benefits (except for the Austrian tax treaties with France and Switzerland under which the fund may apply for treaty application).
For a foreign investment fund's eligibility for tax treaty benefits in Austria, the Austrian tax authorities formerly only required a confirmation of the tax authorities of the other state that the fund was considered resident in the other state within the meaning of the respective treaty.
Even a tax exemption for a fund under its domestic law did not necessarily prevent the foreign fund from being eligible for treaty benefits. Only if the foreign fund was treated as transparent by its domestic tax administration, the fund could not claim treaty benefits in Austria.
According to the new guidelines, a foreign fund may only claim tax treaty benefits if and to the extent it provides, in addition to a certificate of residence of the fund, evidence to what extent the fund's investors are resident in countries which have concluded a tax treaty with Austria that is based on the OECD model (in particular regarding taxation of dividends).
Further, if an investor owns at least 10% of the fund's shares, also a certificate of residence of such investor has to be provided. Nevertheless, if a certificate of residence is issued for the fund, only the fund and not the fund's investor can claim treaty benefits.
Where a foreign fund is not tax exempt but actually subject to tax on the Austrian source income in its country of residence, the fund is granted treaty benefits in Austria irrespective of the residence of the fund's investors (ruling of the Austrian ministry of finance EAS 2947).
Clemens Hasenauer (clemens.hasenauer@chsh.at)
Johannes Prinz (johannes.prinz@chsh.at), Vienna
Clemens Hasenauer Johannes Prinz
The Austrian ministry of finance has recently published new investment fund guidelines (Investmentfondsrichtlinien 2008). The new guidelines also deal with various aspects of the Austrian tax treatment of foreign investment funds including the criteria for the classification as foreign fund and its eligibility for tax treaty benefits.
Foreign investment funds
For Austrian tax purposes, any portfolio of assets which is subject to a foreign jurisdiction and structured according to risk diversification principles may be qualified as a foreign investment fund, without regard to its legal form. Investors of a foreign investment fund are taxed not only on the actual distributions of the fund but also on the fund's retained earnings which are deemed to be distributed to the investors once a year (transparency of investment funds for tax purposes). If no Austrian tax representative is appointed by the foreign fund and also the investors are not able to report the relevant figures to the tax authorities, the fund is considered a black fund. In this case investors are taxed on an annual lump sum basis of at least 10% of the fund's last redemption price. This is one of the reasons why it may be crucial whether or not a foreign entity qualifies as investment fund.
Index linked notes
Notes which are linked to the performance of underlying assets can be re-classified as investment fund shares if the issuer actually acquires a major part of the underlying securities (asset backing) or if there is an actively managed portfolio of underlying assets.
However, according to the new guidelines index linked notes should in no event be treated as foreign investment fund shares, irrespective of whether the underlying index is a recognised or individually composed index. It remains unclear whether fund linked notes can be treated as foreign investment fund shares, in particular if there is no capital guarantee.
Private equity and venture capital funds
The new guidelines make clear that foreign private equity or venture capital funds may not be re-classified as investment funds if they actively manage their portfolio companies rather than being limited to pure asset management, if their participation in the target companies exceeds 25%, or if there are capital calls. Unfortunately, the classification of fund of fund structures is not addressed in the new guidelines.
Eligibility for tax treaty benefits
Austrian investment funds are transparent and therefore not eligible for tax treaty benefits; only the fund's investors are entitled to claim treaty benefits (except for the Austrian tax treaties with France and Switzerland under which the fund may apply for treaty application).
For a foreign investment fund's eligibility for tax treaty benefits in Austria, the Austrian tax authorities formerly only required a confirmation of the tax authorities of the other state that the fund was considered resident in the other state within the meaning of the respective treaty.
Even a tax exemption for a fund under its domestic law did not necessarily prevent the foreign fund from being eligible for treaty benefits. Only if the foreign fund was treated as transparent by its domestic tax administration, the fund could not claim treaty benefits in Austria.
According to the new guidelines, a foreign fund may only claim tax treaty benefits if and to the extent it provides, in addition to a certificate of residence of the fund, evidence to what extent the fund's investors are resident in countries which have concluded a tax treaty with Austria that is based on the OECD model (in particular regarding taxation of dividends).
Further, if an investor owns at least 10% of the fund's shares, also a certificate of residence of such investor has to be provided. Nevertheless, if a certificate of residence is issued for the fund, only the fund and not the fund's investor can claim treaty benefits.
Where a foreign fund is not tax exempt but actually subject to tax on the Austrian source income in its country of residence, the fund is granted treaty benefits in Austria irrespective of the residence of the fund's investors (ruling of the Austrian ministry of finance EAS 2947).
Clemens Hasenauer (clemens.hasenauer@chsh.at)
Johannes Prinz (johannes.prinz@chsh.at), Vienna