The tax law part of the Grace Period Act, which is due to enter into force on 1 December 2024, is intended in particular to increase legal and planning certainty for the transfer of businesses within families. This is to be accomplished by enabling the tax authorities to supervise the transfer of the business. This article briefly explains what this means.
General
The tax law provisions of the Grace Period Act are set out in Section 153h et seq. of the Federal Fiscal Code, entitled "Supervision of a business transfer".
The regulations specify the supervision to be provided during a business transfer, the application, the implementation of enhanced disclosure requirements and the duty of the Tax Office to provide information, as well as the termination of the supervision.
Scope of application and requirements
In order for a business transfer to be the subject of supervision, an application must be made by natural persons who state that within two years they intend to transfer
a business
part of a business or
a share in a partnership, in which only relatives of the applicant hold shares
to one or more persons from their group of relatives.
The group of relatives is regulated in Section 25 of the Federal Fiscal Code and includes in particular certain family members (spouses, parents, direct relatives and certain collateral relatives, etc.).
Further, the Austrian Tax Office must be the body responsible for collecting the VAT or income tax payable by the applicant named as the prospective acquirer in the application and, if applicable, for determining the income of the partnership.
In other words, the regulations on subjecting business transfers to supervision apply to SMEs transferred within families. The regulations do not cover, for example, business transfers between legal persons or transfers that take the form of a share deal in corporations.
The application for subjecting a business transfer to supervision must be submitted electronically via FinanzOnline using the form provided.
External audit if the requirements are met
If the requirements are met for the supervision of a business transfer, the Austrian Tax Office will carry out an external audit in accordance with Section 147 of the Federal Fiscal Code. The external audit covers the last three years prior to the application, provided that tax returns have already been submitted for these years and an external audit has not yet been carried out.
In light of the ban on repeating external audits once they have been carried out, carrying out such an audit prior to the transfer of the business should ensure appropriate planning and legal certainty.
If possible, the external audit should take place no later than three months after the application is submitted and ideally should not last longer than six months.
Increased disclosure obligations, information regarding existing circumstances and circumstances that have not yet arisen
During the supervision of a business transfer, there is an increased duty of disclosure on the part of the applicant and the prospective acquirers as well as ongoing contact between the prospective acquirer and the bodies of the Austrian Tax Office. Without being requested to do so, the applicant and all prospective acquirers listed in the application must disclose, prior to submitting the tax returns, all circumstances that are relevant under tax law for assessing the transfer of (part of) the business or the share in the partnership and with regard to which there is a serious risk of a different assessment being made by the Austrian Tax Office if such circumstances could have a significant impact on the tax result.
During the supervision of a business transfer, meetings may take place between the applicant and the prospective acquirers and bodies of the Austrian Tax Office listed in the application in order to clarify tax law issues in connection with the transfer of (part of) the business or the share in the partnership; minutes of these meetings must be prepared.
The Tax Office is required to provide information on existing circumstances or circumstances that have not yet arisen during the supervision of a business transfer insofar as they relate to the transfer of the business, part of the business or the share in the partnership and if there is no possibility of applying for an advance ruling [Auskunftsbescheid] under Section 118 of the Federal Fiscal Code. Should it be possible to apply for such a (binding) advance ruling to clarify a specific question, this has priority.
Termination of the supervision of a business transfer
In principle, the supervision of a business transfer ends at the time of receipt of the last tax return relating to the calendar year in which the business transfer was completed.
Prior to this, the supervision of a business transfer ends upon application, which can be submitted by any prospective acquirer, but only after all external audits have been completed.
In addition, the supervision of a business transfer can be terminated ex officio if the transfer process has been interrupted or aborted, in certain cases of insolvency or if the Austrian Tax Office is no longer the body responsible for collecting the VAT or income tax payable by the applicant or one of the prospective acquirers named in the application or – if applicable – is not responsible for determining the income of the partnership.
Conclusion
The tax regulations introduced by the Grace Period Act are designed to make it easier to transfer ownership of companies within families. It remains to be seen whether they will be adopted in practice and how significant they will be for future business transfers. It should be noted that the scope of the regulations is limited and, in particular, that corporate transactions that take the form of a share deal (except for the special case of transfers to partners) or that take place between legal persons are not covered. To the extent that supervising a business transfer proves to be a suitable means in practice, an extension of the scope of application would be welcome.